1 Monica Barone Senior Legal Counsel January 27, 2015 Disputes and Developments in SEP Licensing: The Past, Present, and Future of F/RAND

2 Overview of SDO Patent Policy Revisions Recently, many SDOs (notably ETSI, the ITU, and the IEEE) have been considering potential revisions to their respective patent policies. Major proposals in common include: − Defining what constitutes a F/RAND license. − Limiting availability of injunctions for SEP holders. − Limiting cross-licensing agreements as a F/RAND term. Significant debate over these issues and lack of consensus among interested stakeholders. To date no major patent policy revisions, although discussions/debates are ongoing.

3 European Telecommunications Standards Institute (“ETSI”) Patent policy defined by ETSI Intellectual Property Rights Policy (Annex 6 of the Rules of Procedure). ETSI Special Committee on Intellectual Property Rights has recently considered (but did not adopt) proposals to define a F/RAND royalty as one that considers: − No value derived from inclusion in the standard; − The marginal value of the standard to the product; − The incremental value of the standardized technology compared to the next best alternative; and − Cumulative licensing costs to the implementer. In March 2013, ETSI clarified its policy regarding transfer of SEPs, binding subsequent SEP owners to prior F/RAND commitments. There is ongoing consideration in ETSI (and the ITU) of the European Commission’s “safe harbor” approach re: injunctions. − Prevents SEP Owners from seeking injunction against a willing licensee who commits to accept independent adjudication of F/RAND terms.

4 International Telecommunications Union (“ITU”) Patent policy defined by Common Patent Policy for ITU-T/ITU-R/ISO/ IEC. In the early 1990s, the Director of the ITU Telecommunication Standardization Bureau (“TSB”) formed an Ad Hoc Group on IPR, tasked with evaluating IPR policy issues in the ITU. The ITU hosted a high-level “Patent Roundtable” in October In the past two years, the Ad Hoc Group on IPR has considered proposals: − Defining reasonable rates; − Limiting the availability of injunctive relief; and − Restricting reciprocal licensing agreements. To date, the ITU Telecommunications Standardization Advisory Group (TSAG) has declined to adopt any of these proposals.

5 SEP Enforcement – Agency Views Patent infringement litigation – e.g., the smartphone patent wars; SEP F/RAND disputes – have been the subject of extensive commentary and proceedings by antitrust agencies in the U.S., EU, and Asia. − Agencies and other commentators suggest that assertion of F/RAND-committed SEPs creates a risk of “hold up” that can harm competition and deter innovation. − Proposals to modify SSO rules offered as a solution – e.g., limit availability of injunctive relief; require F/RAND commitment to follow patent; define methodologies for determining reasonable value of F/RAND committed SEPs – require alternate dispute resolution before commencing injunction actions. Positions stated in response have questioned the need for such steps. − No objective proof of “hold up;” rather, evidence of robust competition. − Risks of “reverse hold up” must be considered. − Proposed solutions may cause unintended negative consequences. − Antitrust has a limited role in addressing F/RAND disputes; other remedies are better suited. − Existing antitrust standards can address conduct that actually harms or threatens to harm competition.

6 Summary of Recent U.S. Patent Licensing Cases On appeal: − Microsoft Corp. v. Motorola, Inc. (9 th Cir.) − Appeal from Western District of Washington, Judge James Robart. − Transferred from Fed. Cir. to 9th Cir. − Issue: How should a FRAND rate be calculated? Should it be independently determined (for example, by looking at comparable patent pools or assessing the value of the patents prior to standardization), or should it be determined by a hypothetical bilateral negotiation process?

7 Summary of Recent U.S. Patent Licensing Cases (cont.) Recent decision(s): − Realtek Semiconductor Corp. v. LSI Corp. (N.D. California, February 26, 2014) − Manufacturer Realtek sued patent owner LSI for failure to offer a RAND license for its Wi-Fi SEPs. LSI had previously sued Realtek in the ITC. In May 2013, Judge Whyte enjoined LSI from enforcing any exclusion order that the ITC might issue because it would violate its RAND obligations. − A subsequent jury verdict in February 2014 on the issue of a RAND rate determined that the patents-in-suit added little value to the standard, determining a final combined rate of.19 percent of the sales price of each WiFi chip. − Apple Inc. v. Motorola Inc. (Fed. Cir., April 25, 2014) − Appeal from Northern District of Illinois, Judge Richard Posner. − Holding: The majority of the panel affirmed Judge Posner's denial of Motorola’s injunction against Apple over a FRAND-committed SEP. − When the infringement has not caused irreparable harm to the SEP holder and/or the potential licensee has not refused or stalled negotiations, money damages are adequate to compensate the SEP holder.

8 Summary of Recent U.S. Patent Licensing Cases (cont.) Recent decision(s): − CSIRO v. Cisco Systems, Inc. (E.D. Texas, July 23, 2014) − Holding: For a CSIRO patent stipulated to be valid, infringed, and essential to versions of the standard, Judge Davis rejected both CSIRO and Cisco’s damages models. − CSIRO argued that damages should be based on end product devices (e.g., routers, network interface cards), whereas Cisco argued that the damages should be based on WiFi chips, capped by (what Cisco argued was) a comparable license agreement. − Instead, Judge Davis conducted a hypothetical negotiation analysis based on Georgia- Pacific factors, resulting in final damages of approximately $16.2 million. − ChriMar Systems, Inc. v. Cisco Systems, Inc. (N.D. California, October 29, 2014) − Holding: Judge Jeffrey White granted ChriMar’s motion for judgment on the pleadings to dismiss antitrust counterclaims filed by defendants Cisco and HP for alleged violations of the Sherman Act and the California Unfair Competition Law − Judge White held that the Defendants did not sufficiently allege the relevant market, nor did they sufficiently allege market power (the mere fact that a patent is essential does not mean the patent holder has market power), nor did they sufficiently allege facts demonstrating an antitrust injury.

9 Summary of Recent U.S. Patent Licensing Cases (cont.) Recent decision(s): − Ericsson v. D-Link (Fed. Cir. 2014) − Holding: In sum, we hold that, in all cases, a district court must instruct the jury only on factors that are relevant to the specific case at issue. There is no Georgia-Pacific-like list of factors that district courts can parrot for every case involving RAND-encumbered patents. The court should instruct the jury on the actual RAND commitment at issue and must be cautious not to instruct the jury on any factors that are not relevant to the record developed at trial. We further hold that district courts must make clear to the jury that any royalty award must be based on the incremental value of the invention, not the value of the standard as a whole or any increased value the patented feature gains from its inclusion in the standard. We also conclude that, if an accused infringer wants an instruction on patent hold-up and royalty stacking, it must provide evidence on the record of patent hold-up and royalty stacking in relation to both the RAND commitment at issue and the specific technology referenced therein.

10 Conclusions 1)These are commercial disputes between SEP owners and SEP implementers. 2)Courts are already addressing and resolving thorny SEP licensing issues. 3)These cases are fact-specific and rare; sweeping changes to F/RAND are unneeded and unwise to address a few unique instances of SEP licensing disputes. 4)Most recent cases involving SEP licensing are winding down or have been resolved, either through court opinion or, more often, settlement. 5)To date, many supposed problems with F/RAND licensing are merely hypothetical. 6)The F/RAND system is not broken. There are no issues with the vast majority of F/RAND licensing, and high-quality patented technology is routinely incorporated into standards and licensed on F/RAND terms in SSOs around the world. 7)What is the future of F/RAND?

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