Injunctive relief - is a re-assessment of Ebay on the way?

In its Ebay vs. MercExchange ruling of 2006 ("Ebay"), the US Supreme Court basically concluded that injunctive relief shouldn't be automatically granted for patent infringement. Monetary damages was ruled to always constitute adequate compensation unless the patent holder could demonstrate that a rigorous four-factor test was fulfilled on all points. As a practical consequence of Ebay, it became more complicated for a patent holder to obtain injunctive relief or exclusion orders against infringing products in US courts after 2006.

While the gist of Ebay may perhaps have been to minimize NPEs' possibilities of obtaining unreasonable compensation, it may well have been blunt enough to negatively affect also true innovators as well as true competitors.

In wireless SEP FRAND licensing for example, the reverse patent hold-up behaviour seen among infringers in recent times may at least partly have been fueled by Ebay. And for non-SEPs, we can look at Apple. Since launching its iPhone in 2007, the Ebay ruling arguably hasn't made Apple's struggle to protect its patented smartphone-related inventions any easier.

However, a potential re-assessment of injunctive relief in US patent cases may now be on its way, incidentally in relation to an Apple case. On September 17, 2015, the US Federal Circuit overturned a district court's denial of injunctive relief in Apple vs. Samsung.  The original request was for a feature-based injunction against multi-function products, to which mobile phones arguably belong, and the overturn could actually be seen as a slight softening of Ebay. The main point of discussion related to the first Ebay factor concerning "irreparable harm" and establishing a "causal nexus" between the patented feature and consumers' decision to purchase the multi-function product in question. 

Interestingly, on December 16, 2015, the Federal Circuit denied Samsung's request for an en banc revisit of the issue, and issued a revised opinion along with the order. This seems to indicate that the Federal Circuit's stance is becoming solidified. On the "causal nexus" requirement, it says:

"In short, the record establishes that the features claimed in [the patents] were important to product sales and that customers sought these features in the phones they purchased. While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. Apple loses sales because Samsung products contain Apple’s patented features.The district court therefore erred as a matter of law when it required Apple to show that the infringing features were the reason why consumers purchased the accused products. Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices." (emphasis in original),

and in the conclusion part of the opinion one can almost sense some underlying "frustration" with Ebay: 

"If an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multi-function technology.".

The Federal Circuit's stance seems quite reasonable to me. If a company invents a feature for a multi-function product that's attractive to consumers and implements that feature in its own multi-function products, shouldn't it have the legal right to, for a limited time-period, prevent others from implementing that very feature in their directly competing multi-function products? I don't really see such a right as being too far-fetched, given the definition of what a patent really is.

If Samsung wants to avoid an injunction, it now looks like a Supreme Court petition would be needed. This story will surely be interesting to follow.

Federal Circuit dismisses SSPPU "rule"

Readers of this blog will know that I've frequently questioned the idea that there's a "rule" mandating that royalty or damages for infringing multi-component products be calculated using a "Smallest Salable Patent-Practicing Unit" (SSPPU) as a value-base. The idea of this "rule" has attracted quite some powerful followers and in February 2015 it was even codified into the new IEEE patent policy (!).

Well, on December 3, 2015, in an appeal decision in the CSIRO vs. Cisco case, the US Federal Circuit made it crystal clear that no such "rule" exists.

The decision includes other interesting opinions too, but I'll limit this post to royalty-base aspects. 

This statement from the decision sums things up quite nicely:

"The rule Cisco advances — which would require all damages models to begin with the smallest salable patent-practicing unit — is untenable. It conflicts with our prior approvals of a methodology that values the asserted patent based on comparable licenses. ...Such a model begins with rates from comparable licenses and then “account[s]for differences in the technologies and economic circumstances of the contracting parties.” Finjan, 626 F.3d at 1211. Where the licenses employed are sufficiently comparable, this method is typically reliable because the parties are constrained by the market’s actual valuation of the patent."

In other words, an SSPPU royalty-base "rule" would e.g. conflict with the use of comparable licenses as evidence of damages value. Given the importance placed on comparable license evidence in US law, an SSPPU royalty-base "rule" can therefore not exist.

Besides the square dismissal of the imaginary SSPPU "rule", the Federal Circuit also noted that:

"The choice of royalty base — which is often the focus of the apportionment analysis—is irrelevant to the district court’s analysis. The particular rates relied on by the district court were contemplated as cents per end unit sold by Cisco, but they could equally have represented cents per wireless chip without affecting the damages calculation.",

and:

"Because the parties’ discussions centered on a license rate for the ’069 patent, this starting point for
the district court’s analysis already built in apportionment. Put differently, the parties negotiated over the value of the asserted patent, “and no more."".

It's good to also see this point being made. People - oddly - seem to forget that payments for legitimate use of others' IPR are not made in "percent", but in real money, i.e. Dollars, Euros, Yuan etc. So what's ultimately relevant is the value - in real money - that a patent portfolio brings to the end-product. In this sense, a too strong focus on a specific model parameter such as a royalty-base is arguably irrational.

Hopefully, this Federal Circuit decision can bring any ongoing debate about SEP FRAND license value in line with actual law. 

IEEE after the patent policy update

A number of technology-contributing IEEE members have now refused to be bound by the IEEE's new patent policy adopted in February 2015. The question is, what does that mean for the IEEE as a Standards Setting Organization (SSO)?

In my experience, the strength of the international competitive-collaborative style of telecommunications standardization - largely pioneered by ETSI - lies in the fact that individual technical contributions compete purely on technical merit. This means that the type of competence needed for the effort can be highly specialized; basically some of the very best research engineers in the field, from all over the world, get together to create these complex standards. This ensures cutting-edge, future proof, global standards.

This in turn is possible when the SSO's patent policy has been generally agreed by all members on a high level, and patent policy issues can therefore effectively be "removed" from the daily standardization work itself. Those specialist engineers can focus all their efforts on inventing new clever solutions and arguing about the technical pros and cons of each other's proposals. And importantly, they can spend zero time thinking about patent policy.

But in the IEEE today we have a fragmented situation where a subset of its members have publicly stated that they will not adhere to the IEEE's new patent policy. Here some readers may of course wonder why those members aren't then simply "thrown out" of the IEEE's SSO work? But actually, in order to make the work of an SSO - not only the IEEE - as inclusive as possible, contributors are allowed to declare on a case by case basis which patent policy their patented contribution would be licensed under, which in fact does not have to be the policy adopted by the SSO. It's just that the norm has typically been that all members have agreed with the SSO's policy. But in the IEEE we now have an anomaly. The existence of these "disagreeing members" creates some distinct challenges to the IEEE's standardization effort going forward, at least within 802.11 ("WiFi") standardization.

Prior to the new policy's acceptance in Feb 2015, disagreeing members had submitted - and the IEEE had accepted - certain so-called Letters of Assurance (LoA) endorsing the old IEEE policy for certain 802.11 standards. LoAs are documents describing under which conditions the submitter agrees to license its potential SEPs for a specified standard, i.e. essentially whether the existing IEEE patent policy is agreeable to the submitter or if another policy will be used instead. Now, with the assumption that accepted adherence to a given IEEE patent policy cannot be changed retroactively, SEPs relating to the IEEE standard(s) specified in those pre-Feb-2015 LoAs will therefore be subject to two different patent policies - the old and new IEEE patent policy - depending on who owns the SEP in question.

Some of those standards are already finalized, and in those cases the impact will largely be limited to the licensing and dispute resolution spheres. However, some standards are still being worked on, meaning that there can be an impact within the SSO work itself. There could be an increased risk of proposals not being selected purely on technical merit, but potentially also based on whether the submitter supports the new or old IEEE patent policy. Thankfully, standardization/research engineers' natural behaviour is to focus on technical merit, but one still can't rule out that their management could convince them to behave differently. 

Furthermore, regarding potential SEPs for IEEE standards not specified in those pre-Feb-2015 LoAs, new LoAs would have to be submitted. But a disagreeing member submitting a new LoA would - by definition - tick the box stating its disagreement with the (new) IEEE policy. So at least if the disagreeing member's proposed solution would technically outsmart all other proposals, there's a potential issue to resolve. Assuming that technical merit continues to be the yardstick, that proposal should be selected for inclusion into the IEEE standard in question. But in this case the IEEE would instead have to examine the LoA and decide whether it would be acceptable or not. This would generally have to be done on a case-by-case basis. And if the LoA would not be acceptable to the IEEE's members, the technical proposal itself can't be accepted. Or in other words, the admittedly best technical solution would have to be actively de-selected from the standard (!). 

There has been some speculation as to whether Qualcomm - one of the disagreeing members - could benefit from its recent acquisition of Cambridge Silicone Radio (CSR) in the sense that CSR had made a "broader than usual" pre-Feb-2015 blanket LoA covering all IEEE 802.11 (WiFi) standards. Qualcomm could then allegedly utilize the CSR LoA to license also its future SEPs according to the old IEEE policy at least for all future versions of WiFi. If so, it would at least save Qualcomm from having to make those new "potentially difficult" LoAs for IEEE 802.11. While that could reduce the probability of its proposals being rejected due to origin, the risk will still be there given that Qualcomm, after all, doesn't adhere to the new IEEE policy. 

Clearly, scenarios as described above threaten to remove the "pure technical bliss" of the classic international competitive-collaborative standardization effort within the IEEE. There may now have to be more patent engineers and patent attorneys involved in the SSO work processes. The efficiency of the IEEE as an SSO will likely suffer, and alarmingly, the IEEE's future standards run the risk of not containing the best technology out there. Even worse, the best technology may have been made available to the IEEE, who then actively rejected it. If such fears materialize, some companies might very well leave the IEEE and instead support - or perhaps even create - other competing standards through other means.

The new IEEE patent policy's apparent disconnect with the law is problematic. Only last week in its CSIRO vs Cisco appeal decision, the US Federal Circuit squarely rejected one of the key principles of the new policy, namely the mandatory chipset royalty base. In the same breath, the Federal Circuit re-emphasized the importance of evidence in the form of comparable licenses, also in stark contrast to the new policy. We also know that the new policy's rule on injunctive relief in practice also differs from Federal Circuit opinion. 

The IEEE, and ultimately the general public, would surely benefit the most if the IEEE stays strong and relevant, capable of efficiently creating top-notch standards going forward. So perhaps it's time for a pragmatic and open discussion among IEEE members with the aim to consolidate the different viewpoints in the light of the law. Another update of the policy may very well be needed to put the IEEE's standardization work back on track again.

FOSS patents and the royalty base

In a recent FOSS patents post, blogger Florian Mueller continues to advocate that the SEP license royalty base for cellular mobile devices should be changed from the end-product to the "smallest saleable unit", i.e. the chipset. In the post, quite some disappointment is expressed regarding Judge Robart's "failure" to mandate a chipset royalty base in Microsoft vs. Motorola. 

As I mentioned in a previous post, the royalty base is a parameter in a specific royalty calculation model. What matters in the end is the absolute payable royalty, and that it considers the value that the patent portfolio in question brings to the end-product. I believe that judges adjudicating patent cases are generally well aware of this.

But there's a statement in the FOSS patents post that specifically caught my attention: "Apple's position is that the difference between the price of an iPhone and that of a cheap "feature" phone (colloquially also called "dumbphone") is unrelated to wireless communications standards. I support Apple on that one"

I'm not sure I'd support that statement. The difference in price between a "dumbphone" and a "smartphone" most certainly appears to be related to wireless communication standards. 

Imagine a "smartphone" that only includes 2G wireless communication standards. Such a "smartphone" would hardly command a high price on the market, if indeed it could be sold at all. But simply add 3G/4G to it and suddenly it becomes a very attractive product. Clearly, the 3G/4G wireless communications standards bring tremendous value to a "smartphone" device. 

But while we're at it, why not compare Apples to Apples?

I'll simply quote myself from an earlier post: We can look at the illustrating example of the iPod Touch vs. the iPhone. These products are very much alike, with the difference largely being that one has cellular connectivity and the other one doesn't. The products have similar specs and both carry the "brand magic" of the OEM, Apple. Yet today's price difference between the two is around $250. 

Surely that's a more interesting price difference.

CJEU ruling follow-up - other scenarios

In my previous post I commented on the Court of Justice of the European Union's (CJEU) opinion on when an injunction request by an SEP-holder would be non-abusive. The ruling is largely in line with those of other competition authorities, encouraging diligent and timely bi-lateral negotiations, including a path to timely third party adjudication.

The ruling describes a certain presumed scenario or "flow-chart" under which an injunction request from an SEP holder would not be considered abusive. However, there are in fact real-world situations that clearly fall outside the scope of the CJEU's flow-chart but for which injunction requests would also be perfectly appropriate. In this post I'll describe two examples of such.

One surprisingly common real scenario is the "no response" situation. Some infringing OEMs may simply choose not to respond at all to formal letters from an SEP-holder offering an SEP FRAND license and an invitation to a license discussion. SEP-holders may very well send multiple such letters - even hand-delivered by international courier - over a period of months or even years, without ever hearing a word back from the alleged infringer through any communication channel whatsoever.

Clearly, such behaviour clashes with the general principles of good faith, diligence and timeliness emphasized in the CJEU ruling, while preventing the SEP-holder from - no matter how much it wishes to do so - providing detailed infringement information to the OEM, i.e. the first step of the CJEU's flow-chart scenario. In such a situation, an injunction request by the SEP-holder can surely not be considered abusive.

Another scenario occasionally encountered nowadays is the "no NDA" situation. While patents and wireless standards are documents available in the public domain, patent claim interpretations are typically not, as they ultimately constitute the legal opinions of either party. For at least this reason, the established practice in the field since at least two decades is for the parties to sign a Non-Disclosure Agreement (NDA) before details of the infringement are presented to the alleged infringer and discussed between the parties. Such NDAs are normally fully reciprocal, time-limited and non-binding with respect to concluding any other agreement than the NDA itself. Hence the signing of such must be seen as virtually harmless to either party.

Nevertheless, some infringing OEMs argue that an NDA can not be a prerequisite for negotiating an SEP license and therefore simply refuse to sign one. This again prevents even the first step of the CJEU's flow-chart from being reached. So again we have a reduction of licensing efficiency through non-compliance with established practices in the field, delaying tactics, and lack of good faith. Accordingly, an injunction request can not be seen as abusive in this case either. 

These kinds of behaviours are often part of an overall reverse patent hold-up / patent hold-out strategy with a clear objective; to avoid or severely delay (to minimize past damages) obtaining necessary licenses for SEP portfolios. In fact, some OEMs even consciously exclude SEP license costs - and sometimes other IPR license costs - from their business cases from day one. All this points to a disregard for the substantial creative efforts and intellectual property rights of others which arguably - and somewhat ironically - provide the very foundation of these OEMs' business. Such infringing OEMs are clearly "unwilling licensees", and courts and competition authorities worldwide have repeatedly confirmed that injunction requests are perfectly appropriate in such instances. But actually, they shouldn't have to keep reminding market participants about that. It should be patently obvious.

CJEU's judgement on SEP and injunctions

On July 16 2015, the Court of Justice of the European Union (CJEU) delivered its response to specific questions from a German court handling a cellular SEP licensing dispute between two Chinese rivals ZTE and Huawei.

The German court basically asked: In what circumstances will a request for an injunction by an owner of a FRAND-committed SEP be regarded as an abuse of dominant position?

The CJEU essentially replied that seeking an injunction would not be considered abusive when:

1) the SEP-holder has presented to the alleged infringer details of the infringement, and
 

2) after the alleged infringer has expressed its willingness to conclude a FRAND license, the SEP-holder has presented to the alleged infringer a FRAND license offer, including explicit royalty terms, and
 
3) the alleged infringer has not diligently responded to that offer, in accordance with recognized commercial practices in the field, in good faith and in particular without delaying tactics, and in case of the alleged infringer not having accepted the offer made to it, has not submitted to the SEP-holder, promptly and in writing, a specific FRAND compliant counter-offer.

The CJEU also noted that if no agreement is reached about FRAND terms after the alleged infringer's response or counter-offer, "the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay."

In reality, the actions of the SEP-holder in CJEU's points 1) - 3) are not at issue. There's hardly anything in this world that an SEP-holder wishes more than to present infringement details and a FRAND license offer to an infringer of its intellectual property rights. Although infringers may in some cases try to prevent the SEP-holder from doing just that, which I can talk about in another post, providing such information is the first objective of any serious licensing effort. This means that in practice, the main importance of points 1) - 3) is the wording concerning the behaviour of the alleged infringer.  

So what comes across very clearly from the judgement is the strong emphasis on diligence and timeliness on the part of the alleged infringer. I see this as very positive and a strong acknowledgement of the very real and present danger of reverse patent hold-up. 

As discussed in my previous post, competition regulators worldwide have focused on maintaining efficiency in SEP FRAND licensing matters by e.g. requiring bi-lateral negotiation with time limits and in case of no agreement, a single third-party adjudication of global license SEP portfolio royalty terms. While not providing explicit time limits per se, the CJEU judgement also strongly demands timeliness, e.g. with wordings such as "no delaying tactics" and "prompt" responses by the alleged infringer. In case the alleged infringer refuses the offer from the SEP-holder, it has to make a FRAND-compliant counter-offer "promptly and in writing". The parties are also encouraged to seek third-party adjudication - "without delay" no less - in case of no agreement, again in line with competition regulators' measures for licensing efficiency.

The CJEU judgement also generally promotes diligent bi-lateral negotiation as the means to reach a FRAND agreement. In essence the CJEU endorses the principle that the market should ultimately decide the FRAND terms for a given SEP portfolio license. In this sense it's also consistent with case law from other parts of the world that stresses the importance of existing licenses as FRAND references, including e.g. the Ericsson vs. D-Link case. 

With respect to what a FRAND offer may actually be, the CJEU judgement notes that "in the absence of a public standard licensing agreement, and where licensing agreements already concluded with other competitors are not made public, the proprietor of the SEP is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer." The CJEU thus seems to recognize that the SEP-holder's offer is likely closer to the actual FRAND rate than an offer from the alleged infringer, due to the SEP-holder's real concern of non-discrimination. In a sense this is also in harmony with the US ITC's "everybody's watching the SEP-holder" observation in Interdigital vs Nokia/Microsoft.

Overall I see this judgement by CJEU as a step in the right direction in tackling the real-world problem of reverse patent hold-up. It makes it clear to infringers that in order to avoid the risk of injunctions against their products, they need to act promptly, diligently, in good faith and in accordance with recognized commercial practices in the field to obtain necessary SEP FRAND licenses. 

Now, the CJEU judgement was based on a given "normal" scenario of the referring court, and as such it doesn't necessarily capture all possible aspects of contemporary licensing reality. There are in fact some interesting real scenarios that fall outside the scope of the judgement, but under which a request for an injunction must clearly also be non-abusive. However, I'll save those for another post.

Competition authorities and FRAND

Disputes arising in wireless SEP FRAND licensing are very rare. But when they do occur, parties normally turn to courts for settlement. In certain instances though, national or international government agencies in the form of competition regulators become involved in one way or another. Without getting into too much detail, I'll here briefly examine the net outcomes of some key rulings and settlements of competition agencies in recent years, relating to wireless SEPs and FRAND licensing. 

Starting in the US, in June 2012 the US Federal Trade Commission (FTC) launched an investigation into whether Google, through its then subsidiary Motorola Mobility, breached FRAND commitments by seeking exclusion orders for SEP infringement against "willing licensees". This investigation concluded on July 24, 2013 with a "consent order" where Google accepted certain restrictions on seeking exclusion orders for SEP infringement against US companies. The consent order set out detailed procedures for Google and willing licensees to timely conclude a global SEP-portfolio license. I won’t go into the details here as it’s a bit lengthy, but essentially there's a six month negotiation period followed by – in case of no agreement - a global FRAND determination by a court or a binding arbitration. See also my earlier post where I discuss this order.

Moving on to the EU, the European Commission (EC) on January 31, 2012 opened an investigation into whether Samsung, by seeking injunctive relief against SEP infringers within the EU, breached FRAND commitments and engaged in abuse of a dominant position. On April 29, 2014, the EC concluded its investigation by accepting certain commitments made by Samsung. For a period of five years Samsung committed not to seek injunctions within the EU on SEPs against infringers that agree to the following licensing framework:

· “a negotiation period of up to 12 months; and

· if no agreement is reached, a third party determination of FRAND terms by a court if either party chooses, or by an arbitrator if both parties agree on this.”

Over in China, in May 2013, the National Development and Reform Commission (NDRC) opened an investigation into InterDigital's SEP-licensing practices. The NDRC  suspended its investigation on May 22, 2014 after accepting InterDigital's commitment including:

“Prior to commencing any action against a Chinese Manufacturer in which InterDigital may seek exclusionary or injunctive relief for the infringement of any of its wireless standards-essential patents, InterDigital will offer such Chinese Manufacturer the option to enter into expedited binding arbitration under fair and reasonable procedures to resolve the royalty rate and other terms of a worldwide license under InterDigital's wireless standards-essential patents. If the Chinese Manufacturer accepts InterDigital's binding arbitration offer or otherwise enters into an agreement with InterDigital on a binding arbitration mechanism, InterDigital will, in accordance with the terms of the arbitration agreement and patent license agreement, refrain from seeking exclusionary or injunctive relief against such company.” 

The net outcomes of these cases are in fact quite similar. They provide a "safe haven" for SEP holders to avoid competition concerns and for infringers to timely obtain SEP licenses without the risk of exclusion orders. SEP holders can avoid competition scrutiny by offering infringers the option of “formally” becoming willing licensees by accepting a process that typically includes timely FRAND determination or arbitration of the global patent portfolio value. Importantly, infringers who choose not to accept such processes continue to be susceptible to exclusion orders. 

We can see that an important common concern of these US, EU and Chinese competition authorities has been the availability of exclusion orders for SEP infringement without proper FRAND scrutiny by a court or arbitration panel. However, it's good to note that the authorities have clearly also considered the risk of so-called reverse patent hold-up. Such behaviour, also known as patent hold-out, is nowadays a common problem in SEP portfolio licensing, leading to reduced R&D investment incentives and increased SEP transfers. Importantly, the net outcomes of these cases emphasize timely resolution of global SEP portfolio licenses and keeping exclusion orders on the table for those who decline the process. These are measures that can help mitigate reverse patent hold-up.

What's also clear is the deferral of the FRAND determination issue to courts and arbitration panels. In other words, the competition authorities acknowledge that they are themselves not suited to handle patent and price-setting issues in SEP FRAND matters. This makes perfect sense in my opinion since courts and arbitration panels are arguably more transparent, independent and experienced with such matters.

An interesting scenario in the light of these net outcomes is the case of an SEP holder who seeks an exclusion order for SEP infringement where the infringer refuses to accept the court's FRAND determination for a SEP portfolio. Given that the competition authorities' concern is related to exclusion orders without proper FRAND review, this type of situation would follow the precedent set by the authorities.

Finally, on July 16, 2015, the Court of Justice of the European Union (CJEU) also offered its guidance on under what circumstances a SEP-holder may or may not abuse a dominant position by seeking exclusion orders. It did this by responding to five specific questions put to it by a German court in the matter of Huawei vs. ZTE. On the face of it, the CJEU's decision seems to be consistent with the above-mentioned agency net rulings. But the ruling deserves some scrutiny in terms of real-world licensing, which I will save for a separate post.