Posts Tagged: "FRAND"

On May 2, the Antitrust Division of the U.S. Department of Justice (DOJ) took the unusual step of submitting a Statement of Interest in the Federal Trade Commission’s (FTC’s) case against Qualcomm to take a position contrary to the FTC. The DOJ argued that “[b]ecause an overly broad remedy could result in reduced innovation, with the potential to harm American consumers, this Court should hold a hearing and order additional briefing to determine a proper remedy that protects competition while working minimal harm to public and private interests.” In response, the FTC informed the court that it “did not participate in or request” the DOJ’s filing, that it “disagree[d] with a number of contentions” made by the DOJ, and that the DOJ “misconstrues applicable law and the record.” In the end, the court agreed with the FTC and issued injunctive relief against Qualcomm without conducting the further remedy proceedings the DOJ advocated. The public feuding between the two federal antitrust enforcement agencies about how to resolve a case litigated by one them was a remarkable spectacle. It also brought into focus a broader divide between the FTC and DOJ on the role of antitrust law in addressing patents that are essential to industry standards (SEPs) and subject to commitments to license on fair, reasonable, and non-discriminatory (FRAND) terms.

In a June 4 op-ed to IPWatchDog, James Edwards launched a scathing attack against Judge Koh and her 233-page ruling, which found Qualcomm to have engaged in anticompetitive behavior against competitors within the cellular chipset market. However, just as Mr. Edwards claims Judge Koh failed in her undertaking, so too has Mr. Edwards by ignoring the context and facts of the case. His argument against Judge Koh, deliberately or otherwise, does not mention the fact that this case involved the licensing of standard essential patents (SEPs) subject to the FRAND commitment, a contract between the patent holder and the standard setting organization to license the relevant patents on “fair, reasonable, and non-discriminatory” terms. Indeed, Mr. Edwards makes no mention of standard essential patents in a deliberate attempt to obfuscate the facts and fit a narrative that intellectual property rights writ large are under attack by this decision.

In a 233-page Order issued yesterday, Judge Lucy Koh of the United States Federal District Court for the Northern District of California handed Qualcomm a stinging defeat in the case brought by the Federal Trade Commission (FTC) alleging that Qualcomm engaged in unlawful licensing practices. It was just three weeks ago that Apple and Qualcomm entered into a peace treaty. The revelations about Apple’s coordinated efforts to manipulate the licensing market by shrewdly challenging inferior patents to beat down prices should have led to the FTC dropping its pursuit of Qualcomm. It is no secret that Apple has urged regulators all over the world to chase Qualcomm for alleged anticompetitive licensing practices, but it has now come out in federal court proceedings that Apple just didn’t like the rate it agreed to pay Qualcomm and decided to manipulate the marketplace and then use that manipulation to pull the wool over the eyes of regulators, including the FTC, in an attempt to leverage a better deal with Qualcomm.Apple succeeded in achieving peace with Qualcomm, although the company has been badly beaten by Apple in near collusion with regulators all over the world. So why would the FTC continue to persecute Qualcomm given the revelations in the Apple/Qualcomm litigation that demonstrate that Qualcomm did not seek an unreasonably high licensing rate?

Now that Apple and Qualcomm have made peace it would be easy to allow the case and the issues to recede into the background. That is likely what Apple would prefer, and almost certainly why Apple made the decision to settle with Qualcomm rather than proceed with trial. The case presented an existential threat for Qualcomm, which would have required the San Diego tech company to fight as if the company depended on victory–because it did.  What is most shocking is how successful Apple was in its coordinated effort to manipulate the licensing market and effectively extinguish any reasonable notion of a fair, reasonable, and non-discriminatory rate (FRAND) in the process. Meanwhile, fabricated licensing rates wholly unrelated to the Qualcomm portfolio were used by Apple to dupe regulators into chasing Qualcomm across the world for committing phantom antitrust violations.

On March 20, U.S. District Judge Gonzalo Curiel of the Southern District of California issued an order denying a motion by Apple, which was seeking partial judgment against Qualcomm on that company’s claim that it had fulfilled its fair, reasonable and non-discriminatory (FRAND) obligations for licensing its standard-essential patents (SEPs). As a result, Qualcomm can move ahead with its efforts to prove that its SEP portfolio licensing activities have met the company’s FRAND obligations and that Apple has forfeited its right to FRAND licensing because it hasn’t been a willing licensee.The court sided with Qualcomm in finding that Apple’s arguments regarding the unsuccessful licensing negotiations presented a definite and concrete controversy. Qualcomm had cited to a 2017 Eastern District of Texas case, Huawei Techs. Co. v. T-Mobile US, Inc., to show an instance where a court had found subject-matter jurisdiction in a case where a patent holder sought a declaration that it had complied with FRAND obligations. In the current case, Apple hadn’t stated unequivocally that it wouldn’t pursue a stand-alone breach of contract action, giving rise to a substantial controversy with sufficient immediacy and reality to justify declaratory relief. A favorable outcome to Qualcomm on this claim would afford additional relief, as Qualcomm could demonstrate that Apple had engaged in unreasonable holdout behavior, relieving Qualcomm of further FRAND obligations towards Apple.

A number of organizations, including Ericsson, Nokia, Philips, Qualcomm, the Innovation Alliance and the Licensing Executives Society, have sent two separate letters to U.S. Attorney General William Barr, USPTO Director Andrei Iancu, and Secretary of Commerce Wilbur Ross stating their support for the United States’ decision to withdraw the Department of Justice, Antitrust Division’s assent to the 2013 joint DOJ-U.S. Patent and Trademark Office “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” (the 2013 Joint Policy Statement). The letter sent by Ericsson, Nokia, Philips, and Qualcomm begins by explaining that those signing the letters collectively spend many billions of dollars annually to “the development of cutting-edge that substantially contribute to the social welfare and quality of life of U.S. consumers,” and “and employ tens of thousands of people in the U.S.” The letter goes on to explain that injunctions are necessary to address the widespread patent infringement that has occurred in recent years; infringement that risks innovators’ ability to continue to innovate and create next generation technologies. Without property protections it is economically irrational to invest the billions of dollars required to create cutting-edge technologies.

In a decision published in redacted form on January 29, Judge Beth Labson Freeman of the Northern District of California denied ASUSTek Computer Inc.’s and ASUS Computer International’s (collectively, ASUS’s) motion for summary judgment that InterDigital, Inc.’s (InterDigital’s) standard essential patent (SEP) licensing practices breached its FRAND obligations. The court also granted-in-part and denied-in-part InterDigital’s motion for summary judgment, rejecting a request to dismiss ASUS’s Sherman Antitrust Act claim but granting summary judgment as to issues relating to judicial and promissory estoppel and as to a California competition law claim. ASUS Computer Int’l v. InterDigital, Inc., Case No. 5:15-cv-01716-BLF, ECF No. 367 (N.D. Cal. Jan. 29, 2018). The court’s ruling comes as the case is progressing toward a jury trial, presently scheduled for May 2019. Several of the issues addressed are fact-specific to the case, but the rulings relating to breach of contract, most favorable licensees, and the Sherman Act are of particular interest for SEP licensing and illustrate how the legal landscape continues to evolve.

Standard Essential Patents (SEPs) are patents that are unavoidable for the implementation of a standardized technology. They represent core, pioneering innovation that entire industries will build upon. These patents protect innovation that has taken extraordinary effort to achieve. Standard Development Organizations (SDOs) exist as a mechanism for industry innovators to work together to collectively identify and select the best and most promising innovations that will become the foundation for the entire industry to build upon for years to come. Those contributing patented technologies to the development of a standard are asked to provide a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) assurance, in essence committing to providing access to patents that are or may become essential to the implementation of the standard.

The Qualcomm decision is unique in that it appears to be the first decision to require a SEP holder to license its patented technology to its competitors, and not just its downstream customers, on FRAND terms.  This decision casts doubt on the longstanding practice, common in industries such as the telecommunication and automotive industries, in which SEP holders seek to secure “FRAND” licenses with downstream companies that make finished products, while refusing to license (or licensing on non-FRAND terms) those same SEPs to their competitors or other companies further up the supply chain (such as component suppliers).  The decision also emphasizes U.S. courts’ focus on the express language of SSOs’ IPR policies and the willingness to review the SSO guidelines in interpreting the agreements SEP holders enter into with SSOs.  In this regard, the decision may bode well for SEP implementers, given the court’s broad understanding of what it means to “practice” a relevant standard and its view that SEP holders’ FRAND obligations extend to all potential licensees, irrespective of their position in the supply chain.

Qualcomm was not refusing to abide by its agreed to promises to license SEPs as required by the SSOs, as alleged by the FTC. Instead, Qualcomm wasn’t interested in licensing competing chip makers who wanted to used Qualcomm’s technology so they could make their own chips incorporating Qualcomm’s patented technology. Licensing competing manufacturers of chips is not what the IP policies of the SSOs require. What is required is that patent owners of SEPs not discriminate against applicants desiring to utilize the license for the purpose of implementing the technology. But that isn’t what a competing manufacture would be doing. A competing manufacturer would be creating the chip that enables, not implementing the technology into an end product. In fact, as Qualcomm pointed out, industry practice of SSOs is to require licensing only fully compliant end-user devices, and not components.

On Thursday, August 9th, San Diego, CA-based semiconductor developer Qualcomm Inc. announced that it reached a mutually agreed settlement with the Taiwan Fair Trade Commission (TFTC) which greatly reduces the financial penalty assessed to Qualcomm by the TFTC for antitrust issues. Although the TFTC will retain about $93 million USD in fines which have been paid by Qualcomm through July, the settlement eliminates the remainder of the original fine valued at $773 million USD and issued by Taiwan’s fair trade regulator last October.

Swedish multinational telecommunications company Ericsson and South Korean consumer electronics firm LG Electronics announced that they had entered into a global licensing agreement to cross-license patent portfolios held by both companies. The patents in these portfolios include standard-essential patents (SEPs) related to various cellular technologies, including those related to second generation (2G), third generation (3G) and fourth generation (4G) cellular standards.

Intel is not the only chipmaker feeling the pinch from Apple’s decision to move away from third-party vendors for its device components. Reports from last November indicated that Apple was also planning on developing its own power management chips for use in its iPhone products… News reports have indicated that Apple has poached engineering talent from firms like Imagination and Qualcomm, including the former head of Qualcomm’s core communications chip business, in recent years. While many will tout the superior nature of Apple’s computing chip products, there will likely be few who point out the damage wrecked on the company’s suppliers and the potential of intellectual property theft which might be enabling the consumer tech giant’s attempts to further consolidate the personal computing market into its own hands.

The issues I will be watching in 2018 other than Oil States are as follows: (1) What does the new Director of the USPTO do with respect to reforming the PTAB? (2) Will the USPTO adopt a code of judicial ethics for PTAB judges? (3) Will the U.S. drop out of the top 10 countries for patent protection in the annual U.S. Chamber IP Index? (4) How will the Federal Circuit resolve Eleventh Amendment sovereign immunity and the assertion of sovereign immunity by Indian Tribes? (5) Will the Federal Circuit continue its unprecedented disposition of cases without an opinion by relying on Rule 36 summary affirmance? (6) Will Conservative groups become even more vocal advocates of a strong patent system?

Antitrust agency communications, such as the EU Commission’s Horizontal Guidelines and the FTC/DOJ Licensing Guidelines underline that market power does not necessarily result from patent ownership as such. They contain, however, no specific language on standard-essential patents which are – if they are valid and truly standard-essential – different from other patents in that they must, by definition, be used in order to operate on the respective standard-based market. In Europe at least, it seems to be increasingly accepted that SEPs can convey market power but that they do not necessarily always do so. Advocate General Wathelet’s proposition (para. 57 et seq. of his opinion in the Huawei/ZTE case) to establish a rebuttable presumption that SEP ownership generates market power has not been taken up by the CJEU’s Huawei/ZTE-decision, probably because the parties already agreed that Huawei held a dominant position (para. 43). But court decisions from the UK (for instance Unwired Planet/Huawei, a summary of the case is provided here) and Germany (for instance LG Düsseldorf, 26.3.2015, 4b O 140/13) have taken a case-sensitive approach, looking not only at the leverage generated by a SEP but also at circumstances which may limit its holder’s power.