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.

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.

More evidence of reverse patent hold-up in SEP FRAND licensing

Today we can dismiss the notion of "patent hold-up" occurring in wireless SEP FRAND licensing. In spite of extensive searches with powerful magnifying glasses, courts and agencies have found no evidence of it, and neither have academics.

On the other hand, when it comes to the opposite behaviour, "reverse patent hold-up" (also called "patent hold-out"), it's unfortunately widespread.

We received yet another example of this in a recent US International Trade Commission (ITC) ruling in IDC vs Nokia/Microsoft. To begin with, the ITC not only concludes that "There is no evidence of patent hold-up" but also provides a beautifully natural explanation for the general absence of actual patent hold-up in the SEP and FRAND context: "In the current state of IP law as it relates to SSOs and IPRs, an owner of a SEP has a long list of government agencies, law professors, and companies watching what the company does and attempting to change the law as to potential outcomes. [Microsoft] stated they are afraid that if IDC obtained an exclusion order, then they would use it to gain undue leverage and obtain compensation above the FRAND rate. This is unlikely because too many hostile eyes are watching. The fact that ITC has been watching since at least 2011, and not found such a violation, makes it unlikely it would happen here for the first time." 

In other words, because patent hold-up is such an obvious and grave concern, there are too many critical and powerful and onlookers to allow it to actually happen.  

On the other hand, for reverse patent hold-up there are clearly too few onlookers. In case after case we see infringers shown to act in bad faith, while comments and discussions on this phenomenon are hardly noticeable. In the above-mentioned case, the ITC concluded that there was again "evidence of reverse patent hold-up" and pointed out that "There is however, one course of action that can clearly demonstrate bad faith, and that is a failure to meaningfully negotiate. ... Other evidence that supports the finding of reverse holdup is the clear gain that occurs daily for [Microsoft]...Each day that the respondents use the patents without taking a license, IDC loses money that it will not be able to recover."

Thankfully, at least some onlookers that really matter in the end - courts and agencies - remain vigilant about reverse patent hold-up.

There are previous examples of similar behaviour and findings as I've discussed in previous posts. For example, such findings may be found in Apple vs. Samsung in the Korean Fair Trade Commission and the US ITC and in Ericsson vs. D-Link in the US Federal Circuit.
 

It's also important to realize that the phenomenon is not limited to those few companies. Reverse patent hold-up is a globally widespread behaviour, with negative consequences for innovation incentivization and licensing efficiency. It's also a major driver behind SEP divestments and so-called "patent privateering" that FOSS Patents' Florian Mueller has started a campaign against. 

So clearly, courts and agencies outside the US need to be as alert and forceful as their US counterparts in properly combating it.