SCOTUS Denial of TCL v. Ericsson Petition Means Juries Decide Damages for SEP Infringement

On October 5, the United States Supreme Court denied TCL Communication’s petition for certiorari in TCL Communication Technology Holdings Ltd. v. Telefonaktiebolaget LM Ericsson. See SCOTUS Blog.

Of course, the issue wasn’t quite as simple or straight forward as TCL suggested. While Ericsson was under a FRAND obligation, TCL was engaging in infringing activities during a period in which they had no license to use the Ericsson patents. Thus, the threshold question was really whether the relief sought was equitable or legal in nature.

The United States Court of Appeals for the Federal Circuit, in an opinion authored by Judge Raymond Chen and joined by Judges Pauline Newman and Todd Hughes, determined that the payment for past infringing activities sought a legal remedy requiring a jury trial under the Seventh Amendment to the U.S. Constitution. See TCL Communication Tech. v. Ericsson, 943 F.3d 1360 (Fed. Cir. 2019). The Supreme Court’s decision not to grant certiorari lets stand this decision.

As important as the Federal Circuit decision may be in recognizing the role of juries to determine damages in SEP litigation, it is true that many had hoped that this closely watched case would produce a resolution with respect to what actually constitutes a FRAND (fair, reasonable and non-discriminatory) offer of a licensing royalty rate relative to SEPs. Unfortunately for those hoping for a global resolution to the question of what constitutes a FRAND offer, because the Federal Circuit determined that Ericsson was deprived of its constitutional right to a jury trial, the district court decision was reversed, and the case remanded. The question of whether Ericsson’s offers to TCL qualified as FRAND offers was not reached.

District Court and FRAND Analysis

As is often the scenario in these SEP cases, the parties have a long history. The dealings and negotiations between TCL and Ericsson date back to 2007 and relate to licensing of Ericsson’s 2G patents. Subsequently, the 2G licenses expired and 3G and 4G technologies were developed and rolled out, and matters turned litigious. TCL believed Ericsson was not offering FRAND terms as required by a member of the European Telecommunications Standards Institute (ETSI). See § 6.1 of the ETSI Intellectual Property Rights Policy.

To quickly summarize a very detailed factual history, essentially Ericsson proposed two alternative license offers to TCL: so-called Option A and Option B. Option A proposed a lump-sum payment of $30 million for its first $3 billion in sales with percentage running royalties ranging between. .8% and 2%. Option B proposed only running royalties ranging between .8% and 1.5%, but with a $2.00 floor and a $4.50 cap. Both options also included a “release payment” for TCL’s past unlicensed sales.

During the consolidated bench trial in the Central District of California, after having ruled that Ericsson was not entitled to a jury trial, the district court made four determinations. First, it concluded that Ericsson’s proposed terms to TCL were not FRAND. Second, the district court set a prospective FRAND royalty rate for TCL’s future use of Ericsson’s SEPs, relying on a combination of methodologies, including its own modified version of TCL’s proposed top-down approach and comparable licenses. Third, the court set a “release payment for TCL’s past unlicensed sales” by adjusting its calculated prospective FRAND royalty rate. Fourth, the district court ordered the dismissal of Ericsson’s patent infringement claims and TCL’s related counterclaims of invalidity and non-infringement as moot in light of the relief granted in the release payment.

On appeal, Ericsson argued that all four determinations were erroneous because: (1) they at least in part should have been determined by a jury, and (2) they were premised on various errors in the court’s FRAND analysis.

Jury Required

The Federal Circuit concluded that the release payment was in substance a request for relief for TCL’s past infringement of Ericsson’s patented technologies without a license. As such, because Ericsson was seeking damages for past patent infringement, a jury trial was required. As a result of this determination the Federal Circuit found it unnecessary to reach the question of whether the district court erred in its FRAND analysis.

“[W]hether we characterize the release payment term as compensation for ‘past patent infringement’ or restitution for ‘TCL’s past unlicensed sales,’ the underlying nature of the relief is legal,” Judge Chen wrote for the majority. As a result, the release payment question was legal in nature, not equitable. Therefore, the Federal Circuit ruled that the district court deprived Ericsson of its Seventh Amendment right to a jury trial.

After finding Ericsson had been deprived of its Seventh Amendment right to a jury trial, the Federal Circuit vacated the district court’s determination of the release payment. Similarly, because both Option A and Option B incorporated a release payment, the Federal Circuit further vacated the determination that Ericsson’s Option A and Option B were not FRAND offers.

Because the release payment will now be submitted to a jury on remand, the Federal Circuit also reversed the dismissal of Ericsson’s patent infringement claims and TCL’s related counterclaims of invalidity and non-infringement as no longer being moot.

With the Supreme Court denying TCL’s petition for certiorari the case now heads back to the district court for further proceedings consistent with the Federal Circuit’s December 2019 decision.