1. Cases Involving Standard Essential Patents: U.S. & Asia Toshiko Takenaka, Ph.D. Director, CASRIP University of Washington School of Law

2. POLICIES Necessity to Balance Competing Policies Patent Policies Promotion of progress of useful arts Territoriality principle Competition Policies Protection and promotion of fair competition Territoriality Principle Contract Policies Freedom of contract Intl Private Law (Conflict of law & Jurisdiction)

3. CHALLENGES Multinational business activities v. Territoriality Principle of Patents U.S. Patent: Property Rights Contract: Freedom of contract prevails without an anti- competitive effect Europe Patent: Monopoly Contract: Competition policy and other public policies limit freedom of contract Japan Patent: Explicit exception from antitrust enforcement Contract: Competition policy and other public policies limit freedom of contract

4. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington Motorola holds standard essential patents (SEPs) for systems and methods for encoding and decoding a bit-stream of digital video data. This technology relates to standards set by Intl SSOs ( H264; IEEE802.11) The SSOs require disclosures of SEPs and agreeing to license those patents to all comers under RAND terms. Motorola submitted declarations to agree to license its patents under the RAND terms.

5. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington 2010 October Motorola offered a license at a royalty rate of 2.25% per end product 2010 November Microsoft sued Motorola for breach of contract in WA Motorola sued Microsoft in Wisconsin, suit transferred to WA 2011 July Motorola sued Microsoft for patent infringement in Manheim, Germany 2012 February West. WA Dist. Ct. Summary Judgment Microsoft has a right as a third party beneficiary to a RAND license

6. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington 2012 May Manheim Dist. Ct. Judgment Microsoft has no third beneficiary right Microsoft infringes Motorolas patents Grant of injunction (Orange Book Procedure) 2012 May West. WA Dist. Ct. Preliminary Injunction Foreign anti-suit injunction factors Issues-Parties are the same: Private disputes between U.S. parties Motorolas filing of the German action frustrates WA Cts ability to adjudicate issues adequately Preliminary injunction factors Irreparable harm from German injunction on Microsoft businesses

7. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington 2012 September 9 th Circuit affirmed West. WA Dist. Ct.s grant of injunction A private dispute under Washington state contract law between two U.S. firms 2012 October West. WA Dist. Ct. Ct will decide the RAND range to facilitate jurys decision on Microsofts breach of contract claim RAND rates under German law through Orange Book Procedure is different from RAND rates under U.S. Law 2012 November West. WA Dist. Ct. denies Motorolas request of injunction eBay factors No irreparable harm Adequate common law remedies

8. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington 2013 March West. WA Dist. Ct. Summary judgment Some of claims asserted by Motorola are indefinite and invalid 2013 April West. WA Dist. Ct. Order Range of RAND Royalty H.246 Patents: 0.555 – 16.389 cents IEEE 802.1 Patents: 3.471 cents for X box; 0.8 cents for other products Total royalty per year: $1.8M Comp: Motorola request: $4B (20 times more); Microsoft request: $1.2M (1.5 times more)

9. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington Framework for Assessing RAND terms Basic Principles Consistent with SSOs Purpose: Promoting widespread adoption of their standards Mitigate patent hold-up and royalty stacking risks Incentive to develop valuable standards Modification of Georgia Pacific Factors Hypothetical Negotiation: Difference from calculation of damages in the form of reasonable royalty Licensor is under the obligation to give a license under RAND terms Hypothetical negotiation will not take place in a vacuum

10. GEORGIA PACIFIC FACTORS 1.Past royalty for asserted patents Royalties under RAND obligation: Patent pools and licenses outside patent pools for asserted patents 2.Past royalty for patents comparable to asserted patents 3.Nature and scope of the license 4.Licensors licensing policies 5.Relationship between licensor & licensee 6.Effect of patented products on licensees non-patented products Distinguish the value of patent technologies from the value associated with incorporation of the patented technologies into the standards (factors 8 and 10) Contribution of asserted patents to the technical capability of the standard (factor 8) 7.Duration of asserted patents 8.Profitability of patented products

11. GEORGIA PACIFIC FACTORS 9.Utility & advantages of asserted patents Comparison with alternatives that could have been written into the standard during the period before the standard was adopted and implemented 10.Nature of patented invention 11.Extent of infringing use; probative evidence of such use 12.Portion of profits or selling price customarily allowed for the use of the invention Customary practices of businesses licensing RAND committed patents 13.Apportionment of profits between patented and unpatented portions of product 14.Expert testimony 15.Amount resulting from a hypothetical negotiation between willing licensor and licensee Basic principles incorporated

12. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington RAND Royalties under Hypothetical Negotiation Contribution to the standard: Low Narrow claim scopes: means-plus-function claims with limited disclosures Minimal technical advances Availability of alternative technologies Value of the invention: Low Patents related almost entirely to interlaced video Alternative: Progressive video Interlaced video is becoming less prevalent in the market but still important to Microsoft

13. MICROSOFT v. MOTOROLA U.S. District Court, West. Washington H264 Hypothetical negotiation: Analogous to a negotiation through a patent pool in which all patent SEP holders were added – Desired RAND licensing situation 0.185 cents: Royalties Microsoft would have paid under the above hypo Low end: 0.185 + 2 x 0.185 (Value of Motorola SEPs) = 0.555 cents High end: 1.50 (Highest royalty considered during formation of the patent pool) x 3.632% (pro rata share of Motorola SEP portfolio = $0.05463 IEEE 802.11 Hypothetical negotiation: Negotiations to form patent pools Low end: Lowest royalty considered among three patent pools = 0.8 cents High end: Royalty range Microsoft offered = 6.5 cents

14. APPLE v. SAMSUNG CAFC- DIST. CT. NORTH. CA Availability of Preliminary Injunction in non-SEP cases Winter v. Natural Res. Factors(eBay doctrine) 1.Irreparable Harm a)Irreparable harm without an injunction b)Sufficiently strong causal nexus between the harm and the alleged infringement Adequate common law remedies – license practice (willingness to license) 2.Likelihood of Success 3.Balance of Hardships 4.Public interests Consumers interests in getting access to the patented product when the patent feature is a minor portion of the entire product

15. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. Samsung holds a Japanese patent for systems and methods for transmitting and receiving packet data. Samsung is a member of ETSI, which formed an SSO (3GPP) and disclosed the application of the patent as being related to a standard. Samsung made a FRAND declaration according to ETSI IPR policy. ETSI IPR policy requires disclosures of SEPs, agreeing to license those patents to all comers under FRAND terms, and certain rights to third parties. Samsungs patent was adopted

16. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. 2011 April Samsung sued Apple for patent infringement and requested a preliminary injunction (a separate case) Apple-Samsung executed an NDA for license negotiation 2011 July Samsung offered a license with X% royalty rate 2011 August Apple requested information supporting that X% royalty rate is in accordance with the FRAND commitment and asserted that X% is unreasonably high 2011September Apple sued Samsung for judgment declaring Samsung has no claim of damages against Apple

17. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. 2012 March Apple offered to accept a license with Y% rate Samsung asserted that Y% is unreasonably low 2012 September Apple offered a cross-license and proposed a basic principle for calculating royalty rates for mobile and smart phone related SEPs

18. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. Issues Applicable Law: Japanese Law Patent infringement-tort: The law of the country where a harm resulted from a tortious act Infringement and Validity Court found infringement Apple raised invalidity issues but the court did not address the issues No Damage Award Available: Unenforceable Court found abuse of rights under Civil Code Denied injunction in a separate case Apple raised anti-monopoly issues as a ground for supporting its abuse of rights defense but the court did not address the issues

19. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. No Injunction - Abuse of Right under Civil Code Violation of duty to negotiate a FRAND license in good faith after an offer of license from Apple (2012 March) Apples offer is valid even if the offer made it clear that Apple retains its right to challenge the validity of Samsung SEPs Samsungs failure to provide a specific counter proposal and information necessary to negotiate a FRAND royalty rate gives rise to a violation of the duty Delay in disclosing the patent Maintaining a case requesting preliminary injunction Other circumstances in negotiation

20. JAPAN: APPLE v. SAMSUNG TOKYO DIST. CT. Japanese Civil Code Article 1 (1) Private rights must conform to the public welfare. (2) The exercise of rights and performance of duties must be done in good faith. (3) No abuse of rights is permitted. Japanese Anti-Monopoly Law Article 21 The provisions of this Law shall not apply to such acts recognizable as the exercise of rights under the Copyright Law, the Patent Law, the Utility Model Law, the Design Law or the Trademark Law.

21. KOREA: SAMSUNG v. APPLE SEOUL DIST. CT. Issues Applicable Law License/Estoppel: French Law Other issues: Korean Law Infringement and Validity Some of asserted claims lacks novelty and thus their patents are not enforceable –abuse of patent rights Exhaustion No exhaustion Injunction and Damage Award Available No violation of FRAND declaration No violation of Fair Trade Act Apple (Infringer)s operating profits are awarded as damages

22. KOREA: SAMSUNG v. APPLE SEOUL DIST. CT. No Violation of FRAND Declaration by Seeking Injunction No license or estoppel by unilateral act of FRAND declaration without a specific royalty rate No abuse of right under Civil Code Samsungs offered rate was not excessive Both Samsung and Apple violated their duties to negotiate FRAND license in good faith. Samsungs request of an injunction does not aim only to inflict harm and damages to Apple No interference of fair competition

23. KOREA: SAMSUNG v. APPLE SEOUL DIST. CT. Abuse of Rights under Civil Code Subjective element: The purpose of the exercise of right is only to inflict pain or harm to the other party; and Objective elements: a) There is no benefit to the person exercising the right; and b)The exercise of right can be seen objectively as violating the social order Abuse of Patent Rights Enforcement of patent rights interferes with fair competition and transaction

24. KOREA: SAMSUNG v. APPLE SEOUL DIST. CT. No Violation of Fair Trade Act Seeking injunction is not an abuse of market dominant position or refusal Samsung has a dominant position in the mobile devices and tablet computers supporting 3GPP communications Samsungs asserted patents constitute essential facilities No unfair refusal to deal: Samsung did not refuse to license its patents permanently – Its act does not give rise to a refusal of access to essential facilities (No anti-competitive effect) No unfair price discrimination or practice No abuse of market dominant position to hampers competitors business activities: No delay in disclosing patents No interference with competitors relationship with customers

25. CHINA: JIQIANG, LIUHUI v. XINGNUO LIAONING HIGH COURT Jiqiang holds SEP related to a standard issued by Chinas Ministry of Construction and sued a competitor who raised an SEP defense. The Liaoning High Ct. referred the question of SEP defense to the Supreme Peoples Court (SPCC). SPCC Response In view of the lack of regulations regarding disclosure and enforcement of patents covering standards, if patents are incorporated into national, industrial, or provincial standards by the patentees participating in the standard-setting process or with the patentees consent, it shall be deemed that the patentees grant others licenses to exploit the patents while implementing the standards and that others exploitation of the patents does not constitute patent infringement. The patentees may demand implementers to pay certain royalties but at a price significantly lower than the normal royalties; the patentees may also give up royalties.

26. CONCLUSION Availability of Injunction Case-by-case analysis U.S.: eBay doctrine Japan & Korea: Abuse of right under Civil Code Korea: Fair Trade Act violation – Rule of Reason approach No injunction China: Implied license Availability of Damages U.S.: Reference to comparable licenses (patent pool license rates) Korea: Lost Profits China: Lower than comparable license rates Are damages more than FRAND rates available?

27. FINAL REMARKS Roles of courts in FRAND license disputes Duty to Negotiate in Good Faith Korea and Japan: Passive Depending on a filing of a violation Implied License or Obligation to Give License U.S. and China: Active (early involvement)

28. Thank you very much! If you have any questions, Email me at toshiko@uw.edu