Standards, Patents and FRAND Licensing Jean-Nicolas Delage Christian Harmsen Demetrios Anaipakos Matthew Vella

What is a standard? “Any sets of technical specifications that either provides or is intended to provide a common design for a product or process.”

Interoperability

Where do standards come from? VoiceAge as an example

World leader in Narrowband & Wideband standards for low bit rates (6-48Kbps) speech and audio codecs

STANDARDIZATION PROCESS MONTH PROCESS12-24 MONTH PROCESS  Competition: new requirements proposed by the industry  Tests: multilingual and independent laboratories  Selection: technical and political compromise  Technical decision  Ratification

STANDARDIZATION & PATENTS ›STANDARD CODEC APPROVED BY THE STANDARDIZATION BODY ›Most of the time: Result of a Joint collaboration ›+- 5 to 25 companies claim Standard Essential Patents (SEP) to speech and audio codec. Best Technologies Patent holders waive their rights to block others (source code: public) but are entitled to fair compensation => FRAND commitment for essential patents CCSA TTC

FRAND Commitment “When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms and conditions under such IPR (…)”

EU View on SEPs The Key Aspects for Litigation

Relevant Provisions of EU Law Art. 102 TFEU (abuse of dominant position) Any abuse (…) of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Art. 101 TFEU (ban on cartels) 1.The following shall be prohibited as incompatible with the internal market: all agreements between undertakings (…) which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which (b) limit or control (…) technical development (…); 2.Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3.The provisions of paragraph 1 may (…) be declared inapplicable in the case of: [any generally prohibited act] which contributes to (…) promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: [impose unnecessary restrictions or eliminate competition]

Starting Point: The factual background sets the course Decisive factors: De facto standard vs. industry standard? Dominant position within the downstream product market? IP-Declaration? Motion for injunctive relief by plaintiff in infringement action? FRAND objection raised by the defendant?

Position in Germany prior to Huawei./.ZTE Case-law in Germany: Orange Book criteria (Federal Supreme Court, judgment of May 6, 2009 – docket no KZR 39/06), as specified by lower instance courts: Seeking an injunction based on an SEP is abusive if Standard user makes unconditional license offer (i.e. no condition that patent is actually infringed; no reservation of nullity action) Standard user must fulfill duties of a licensee even if patentee does not accept the offer: Accounting, royalties (escrow) Legal consequence if defense is successful: No injunction (otherwise: injunction automatic result of infringement under German law) Strict requirements – defense only very rarely successful

Decision of July 16, 2015 CJEU C-170/13 No violation of Art. 102 TFEU if proprietor of a (i) SEP, which has (ii) issued an IP- declaration and is (iii) in a dominant position on the market, as long as: prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics. Art. 102 TFEU does not prohibit bringing an action for infringement against the alleged infringer and seeking the rendering of accounts in relation to past acts of use of that patent or an award of damages in respect of those acts of use.

Additional Statements by CJEU User may still challenge validity and infringement (No. 69) Third-party determination of royalty (arbitration) only on common agreement of the parties (No. 68)

Open Questions Application only to cases where FRAND commitment was given; "Orange-Book" may still apply to SEPs without commitments and de facto standards What is FRAND? Market definition (product or technology?; territory?) and market dominance Exact method and timing of negotiations  Extent of "Alert" prior to action (claim charts?, reference to website?)  "prior" to action (before service?, violation remediable?)  willingness of alleged infringer to take a license (communication?) Global vs national license Portfolio vs single licence

Recent Decisions (Higher Regional Court Karlsruhe, 6 U 44/15 of April 23, 2015)  NPE sues network provider based on SEP (speech coding standard AMR- WB) for selling standard compliant phones; Defendant declares: not willing to negotiate license  injunction granted by Regional Court Mannheim (2 O 103/14).  Enforcement of 1 st instance decision suspended! Defendant is mere "distributor". Ratio: If SEP holder knows actual producer, distributors must not be sued. (Regional Court Düsseldorf, 4b O 140/13 of March 26, 2015)  NPE sues mobile manufacturer based on SEP (NFC technology) for selling standard compliant phones; Defendant raises FRAND defense.  Court decides that the mere possession of an SEP does not provide a market dominant position as such.  Defendant failed to demonstrate a market dominant position of the plaintiff.  Injunction granted!

FRAND: S TATE OF THE L AW I N THE U NITED S TATES

C OMMITMENTS TO SDO S Standard Determining Organizations often require patent owners contributing to a standard to:  disclose Standard Essential Patents, and  pledge to grant licenses under those SEP patents “to an unrestricted number of applicants on ‘reasonable, and nondiscriminatory’ (“RAND”) terms.”

FTC: N ON - DISCLOSURE OF SEP S In re Dell Corp. (FTC 1996) FTC found:  patentee “failed to act in good faith to identify” SEP  evidence that SDO “would have implemented a non- proprietary standard” if it knew about the SEP, so  “enforcement action is appropriate” 121 FTC 616, 624

FTC: N ON - DISCLOSURE OF SEP S Rambus, Inc. v. FTC (D.C. Cir. 2008) DC Circuit reversed FTC:  “Commission left open the likelihood that JEDEC would have standardized Rambus’s technologies even if Rambus had disclosed its intellectual property.”  “Under this hypothesis, JEDEC lost only an opportunity to secure a RAND commitment from Rambus.”  “But loss of such a commitment is not a harm to competition from alternative technologies in the relevant markets.” 522 F.3d 456, 466.

FTC: N O FRAND L ICENSING In re Negotiated Data Solutions (FTC 2008)  Original patentee, National Semiconductor, agreed to license patents for Fast Ethernet standard used in IEEE for one-time fee of $1,000  Subsequent patentee, Vertical, demanded per-unit royalties  Consent judgment: one-time fee of $1,000. FTC File No

T HIRD C IRCUIT : A NTITRUST —N O FRAND L ICENSING Broadcom v. Qualcomm (3d Cir. 2007) Third Circuit reinstated antitrust complaint that alleged:  patentee falsely promised to license on FRAND terms,  SDO relied on that promise when including technology in the standard, and  patentee breached its FRAND promise. 501 F.3d 297, 314.

N INTH C IRCUIT : A FFIRMS J UDGE R OBART (J ULY 2015)  modified version of Georgia Pacific factors to determine royalty.  hypothetical negotiation before standard is implemented.  licensing pool was probative of RAND rate.  royalty stack approach and “relative importance” of patents.  Robart: license rate is $1.8 million, not the $4 billion Motorola demanded.  affirmed jury finding that Motorola’s attempt to seek injunction violated FRAND.

D ISTRICT C OURTS : C ONTRACT —FRAND L ICENSING Apple v. Motorola (W.D. Wis. 2012) “Apple is a third party beneficiary of the agreements between Motorola and IEEE and Motorola and ETSI.” 886 F.Supp.2d 1061, Microsoft v. Motorola (W.D. Wash. 2012) “Microsoft … is a third-party beneficiary to the agreements between Motorola and the IEEE and Motorola and the ITU.” 864 F.Supp.2d 1023, In re Innovatio (N.D. Ill. 2013) “Defendants … [are] third-party beneficiaries of the agreements between Innovatio’s predecessors and the IEEE.” 956 F.Supp.2d 925, 933.

F EDERAL C IRCUIT : FRAND C ONTRACT Ericsson v. D-Link (Fed. Cir. 2014)  FRAND commitment was undisputed  Jury determined damages 773 F.3d at 1209.

F EDERAL C IRCUIT : FRAND D AMAGES Ericsson v. D-Link (Fed. Cir. 2014)  District court instructed the jury with the fifteen Georgia Pacific factors plus a sixteenth factor: Jury “may consider … Ericsson’s obligation to license its technology on RAND terms.”  Federal Circuit vacated the damages award 773 F.3d at 1229.

F EDERAL C IRCUIT : FRAND D AMAGES Ericsson v. D-Link (Fed. Cir. 2014)  “In a case involving RAND-encumbered patents, many of the Georgia-Pacific factors simply are not relevant; many are even contrary to RAND principles.”  “we do not hold that there is modified version of the Georgia Pacific factors that should be used for all RAND- encumbered patents.” 773 F.3d at 1231.

F EDERAL C IRCUIT : FRAND D AMAGES AND THE G EORGIA P ACIFIC F ACTORS In Ericsson v. D-link, the following GP factors were not relevant:  licensor’s policy to maintain a patent monopoly  the commercial relationship between the licensor and licensee 773 F.3d at

F EDERAL C IRCUIT : FRAND D AMAGES AND THE G EORGIA P ACIFIC F ACTORS The following GP factors need to be adjusted for RAND- encumbered patents:  Current popularity of the invention  Utility and advantages of the patented technology over the old modes or devices  The nature of the patented invention and the character of the commercial embodiment of it as owned and produced by the licensor 773 F.3d at 1231.

F EDERAL C IRCUIT : FRAND D AMAGES Ericsson v. D-Link (Fed. Cir. 2014) “As with all patents, the royalty rate for SEPs must be apportioned to the value of the patented invention.” Unique issues for SEPs:  “First, the patented feature must be apportioned from all of the unpatented features reflected in the standard”  “Second, the patentee’s royalty must be premised on the value of the patented feature, not any value adduced by the standard’s adoption of the patented technology.” 773 F.3d at 1232.

F EDERAL C IRCUIT : RAND D AMAGES Ericsson v. D-Link (Fed. Cir. 2014) Patent Stacking and Holdup:  Recognized that patent stacking and holdup could be a concern for SEP patents  But held that D-Link failed to provide sufficient evidence to warrant a jury instruction on patent stacking and holdup 773 F.3d at 1234.

I NJUNCTIVE R ELIEF FOR SEP S Microsoft v. Motorola (9th Cir. 2012) Upheld injunction preventing Motorola from enforcing a German court’s injunction. 696 F.3d 872, 875. Apple v. Motorola (Fed. Cir. 2014) Upheld denial of injunction for SEP patent. 757 F.3d 1286, 1332.

I NJUNCTIVE R ELIEF FOR SEP S Apple v. Motorola (Fed. Cir. 2014)  “A patentee subject to FRAND commitments may have difficulty establishing irreparable harm.”  “On the other hand, an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.”  “To the extent that the district court applied a per se rule that injunctions are unavailable for SEPs, it erred.” 757 F.3d 1286,

I NJUNCTIVE R ELIEF FOR SEP S In the Matter of Motorola Mobility LLC and Google Inc., FTC (2013) “Google is permitted to seek injunctive relief only in the following four narrowly-defined circumstances: (1) the potential licensee is not subject to United States jurisdiction; (2) the potential licensee has stated in writing or in sworn testimony that it will not accept a license for Google’s FRAND- encumbered SEPs on any terms; (3) the potential licensee refuses to enter a license agreement for Google’s FRAND- encumbered SEPs on terms set for the parties by a court or through binding arbitration; or (4) the potential licensee fails to assure Google that it is willing to accept a license on FRAND terms.” File No , Analysis of Proposed Consent Order to Aid in Public Comment, p. 7.

IEEE P OLICY ON I NJUNCTIONS IEEE Standards Board Bylaws, Approved Clause 6 (effective in Q1 2015) “reasonable terms and conditions, including without compensation or under Reasonable Rates, are sufficient compensation for a license to use … Essential Patent Claims and precludes seeking, or seeking to enforce, a Prohibitive Order except as provided in this policy.”

ITC E XCLUSION O RDERS FTC’s Statement on the Public Interest, June 6, 2012 “ITC issuance of an exclusion or cease and desist order in matters involving RAND-encumbered SEPs, where infringement is based on implementation of standardized technology, has the potential to cause substantial harm to U.S. competition, consumers and innovation.” ITC Investigation No. 337-TA-745.

ITC E XCLUSION O RDERS DOJ and USPTO Policy Statement on Remedies for Standards- Essential Patents Subject to Voluntary F/RAND Commitments, January 8, 2013  “the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.”  “An exclusion order may still be an appropriate remedy in some circumstances, such as where the putative licensee is unable or refuses to take a F/RAND license and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms.”

T HANK YOU !