Atlas Global v. TP-Link: A Missed Opportunity to Clarify the Scope of Standards Related Licensing Obligations

A recent decision out of the Eastern District of Texas granted the plaintiff patent owner summary judgment with respect to the defendants’ counterclaim that the plaintiff breached licensing related obligations owed to the Institute of Electrical and Electronics Engineers (IEEE) by not communicating with the defendants prior to suing for infringement (see REPORT AND RECOMMENDATION, Atlas Global Technologies LLC, v. TP-Link Technologies Co., Ltd., TP-Link Corporation Limited, TP-Link International Ltd., Case No: 2:21-CV-00430-JRG-RSP (E.D. Texas, July 28, 2023)). While the result is reasonable, the explanations provided by the court raise several questions.

Background

Late in 2021, Atlas Global Technologies LLC (“Atlas Global”) sued TP-Link Technologies Co., Ltd., TP Link Corporation Ltd, and TP-Link International Ltd. (“TP-Link”) for eight counts of patent infringement. According to the complaint, the patents in question relate to the IEEE 802.11ax Standard / Wi-Fi 6 and were assigned to Atlas Global by original owner Newracom. A Letter of Assurance for Essential Patent Claims (“LOA”) was submitted to the IEEE by Newracom prior to divesting the portfolio.

In its answer, TP-Link counterclaimed for breach of contract alleging, among other things, that “Atlas breached its contractual commitment, as set forth in the LOA to the IEEE and the IEEE Bylaws, by failing to offer a license to its essential patents… on FRAND terms and conditions prior to filing the Complaint in this action.” TP-Link further alleged that “[a]s Atlas filed the litigation before making any FRAND offer, any subsequent negotiation has not complied with Atlas’s FRAND obligations as the pressures of litigation skew the terms and negotiation context.”

In response to TP-Link’s counterclaim, Atlas Global brought a motion for summary judgment arguing that “…the LOA Does Not Require Atlas to Provide TP-Link with Any Specific Notice Prior to Filing This Case…”, and highlighting that “…TP-Link fails to reference any language in the LOA or IEEE Bylaws requiring Atlas to offer a license before commencing litigation…”. Atlas Global further argued that because “TP-Link has failed to offer any evidence to demonstrate that it is a willing licensee…” it has “forfeited its rights to a FRAND license” and, as such, “Atlas is not obligated to offer [TP-Link] a FRAND license…”. Regarding this latter point Atlas Global cited In Re: Qualcomm Litigation, Case No.: 3:17-cv-108-GPC-MDD (S.D. California, March 20, 2019).

No Obligation to Make Offer Before Suing for Infringement

The analysis of why TP-Link’s counterclaim fails as a matter of law begins strong, with the court referring to the language of the contract to correctly note that “neither the IEEE bylaws nor the Letter of Assurance includes such an obligation” (i.e. to offer FRAND licenses before filing suit for infringement). Later, though, Judge Roy S. Payne confusingly finds that “…Atlas Global has not violated its contractual requirements” because “Atlas Global’s obligation is to grant – rather than offer – licenses on FRAND terms”. But wouldn’t that mean that Atlas Global could be in breach for not having granted licenses to TP-Link? If so, that seems like jumping out of the frying pan and into the fire for Atlas Global. In terms of support, reference is made to the following sentence from Ericsson Inc. v. D-Link Sys, Inc., Memorandum Opinion and Order, Case No.: 6:10-cv-473 (E.D. Texas, August 6, 2013): “A patent holder does not violate its RAND obligations by seeking a royalty greater than its potential licensee believes is reasonable … Instead, both sides’ initial offers should be viewed as the starting point in negotiations.” But how does the fact that a patent owner’s initial offer need not be RAND support the conclusion that there is no obligation to make a (F)RAND offer, or that there is an obligation to grant (F)RAND licenses? A better solution, in our humble opinion, would have been to find that the language of the LOA refers to licensing (i.e. granting permission to do future acts), and not releases of past acts of infringement (which we previously discussed here and here).

The Report and Recommendation further analyzes three cases cited by TP-Link in its responsive briefing and concludes that such case law “does not create the legal requirement that Defendants contend it does.”  With respect to Realtek Semiconductor Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1008 (N.D. Cal. 2013) and Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012)), Judge Roy S. Payne reasonably concludes that these cases are not applicable because they “held that it was improper for a standard essential patent holder to enforce its exclusionary rights, especially before engaging in negotiations for monetary relief”, which was not the situation in the present case. Regarding TCL Commc’ns Tech. Holdings Ltd v. Telefonaktenbologet LM Ericsson, No. SA-CV-1400341-JVS-ANX, 2014 WL 12588293, at *4 (C.D. Cal. Sept. 30, 2014), however, the court somewhat confusingly seeks to distinguish the Central District of California’s denial of a motion to dismiss a breach of contract claim brought by TCL based on the following statement: “In contrast to Defendants’ assertion, the court agreed that Ericsson has a contractual obligation to license its patents on FRAND terms to TCL because it represented to standards organization that its patents were standards essential. Id. at 4.”  But how does this statement justify distinguishing TCL’s claim, from TP-Link’s counterclaim, in light of Judge Roy S. Payne’s ruling that, similar to Ericsson’s obligation “to license its patents”, Atlas Global had an obligation “to grant… licenses on FRAND terms” (see above)?  Once again, in our view, noting that both the obligations owed to the IEEE and ETSI pertain to licensing future acts, and not releases for past infringement, would have been clearer.

With respect to TP-Link’s argument that “the pressures of litigation skew the terms and negotiation context”, which argument was not addressed by the court, we disagree. Rather, TP-Link’s hold-out and later insistence on (F)RAND treatment is what appears to us to skew the terms and negotiations. For as we have written before, “[a]llowing an implementer to exercise rights to FRAND licenses after forcing a patent owner to sue for infringement ignores the costs associated with doing so and places all the risk of uncertainties onto patent owners (instead of requiring implementers to choose between licenses they might not need and taking their chances on infringement, and potentially enhanced damages associated therewith, which is how most licensing schemes work (e.g. a fishing license)). And without any downside to not negotiating in good faith in a timely manner, an implementer can benefit from not obtaining licenses by amassing a war chest generated from commercializing infringing technology and using that money to defend infringement suits and launch validity challenges.”

Forfeiture Arguments

Not surprisingly, no mention is made in the Report and Recommendation about Atlas Global’s argument that TP-Link “forfeited its rights to a FRAND license”.  We suspect this is because a finding of no breach of contract by an obligor does not result in a discharge of the obligation, nor forfeiture of the obligee’s right to performance of the obligation.  If Atlas Global wanted to remove any obligation to license on RAND terms and conditions moving forward, perhaps it should have sought a declaration that Atlas Global had discharged its obligation, or that it could not do so because of a lack of cooperation on the part of TP-Link.