Are Injunctions Permissible for FRAND Encumbered Patents? - Maurits Dolmans - December 2014 OECD Discussion on Competition, Intellectual Property and Standard Setting
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Maurits Dolmans
OECD Hearing on Intellectual Property and Standard Setting
Are Injunctions Permissible for FRAND Encumbered Patents?
Paris, December 17, 2014
Injunctions are the norm in the EU
• For instance, German, UK Courts usually grant injunctions
to patentees, even if the infringer is willing to pay: – “the Court has always protested against the notion that it ought to allow a
wrong to continue simply because the wrongdoer is able and willing to
pay for the injury he may inflict. Neither has the circumstance that the
wrongdoer is in some sense a public benefactor…ever been considered a
sufficient treason for refusing to protect by injunction an individual whose
rights are being persistently infringed“
• Shelfer v City of London Electric Lighting Co
• “Soft” equity test in Shelfer: Injunction can be denied if – Injury to the claimant’s legal rights is small;
– Injury can be estimated in money;
– Injury is adequately compensated by a small money payment; and
– It would be oppressive to the defendant to grant an injunction
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UK Injunction is not easily denied
• Shelfer : Injunctions are the norm “it would have to be a very strong case for an injunction to be withheld. …
the grant or refusal of a final injunction is not merely a matter of the balance
of convenience. Justice requires that the court observe the principles
enunciated in Shelfer’s case and remembers that if the effect of the grant of
an injunction is not oppressive the defendant cannot buy his way out of it,
even if the price, objectively ascertained, would be modest. … ‘oppressive’
in this context is that the effect of the grant of the injunction would be
grossly disproportionate to the right protected. The word ‘grossly’ avoids
any suggestion that all that has to be done is to strike a balance of
convenience. So … The test is whether enforcement would be “grossly
– Article 3 – IP remedies shall be “proportionate” and “avoid the
creation of barriers to legitimate trade”
– Article 12 – Member States may provide alternative to injunction if
defendant acted “unintentionally,” if injunction would cause
“disproportionate harm” and if “pecuniary compensation to the
injured party appears reasonably satisfactory”
• Examples from other Courts not consistent
– Dutch courts: Philips/SK Kassetten (injunction granted) vs
Sony/LGE (injunction abuse of right) and Samsung/Apple, • Samsung/Apple, District Court The Hague, The Netherlands, 14 March 2012, Case numbers 400367 / HA
ZA 11-2212, 400376 / HA ZA 11-2213 and 400385 / HA ZA 11-2215; Philips / SK Kassetten, District Court
of The Hague, 17 March 2010, Joint Cases No. 316533/HA ZA 08-2522 and 316535/HA ZA 08-2524
US principles limit injunctions (patent law)
• Before 2006, patentees entitled to an injunction on valid and
infringed patent
• Now: eBay/MercExchange: Injunction a matter of equity, 4 criteria
– 1) plaintiff suffers irreparable injury
– 2) remedies available at law (such as damage award) are
inadequate
– 3) balance of hardships between plaintiff and defendant; and
– 4) the public interest harmed by a permanent injunction.
• US examples on standards and IP
• Rambus, Bosch, Google /Motorola,
• Broadcom v Qualcomm, MSFT v Motorola (Robart), Apple v Motorola (Posner),
Innovatio (Holderman), Ericsson v D-Link (Davis), Wi-LAN v Alcatel Lucent (Davis),
CSIRO v Cisco (Davis), Realtek v LSI (Whyte), GPNE v Apple (Koh), Golden Bridge
v Apple (Grewal)
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eBay has reduced injunctions
• Injunction requests are now granted on about 75% of cases
(down from 95%)
• Moreover, courts are distinguishing between types of entities
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Source: Colleen V. Chien & Mark A. Lemley, Patent Holdup, the ITC, and the Public Interest
PAE
FRAND Example: Posner J.’s judgment
• Posner J. denied Apple injunctive relief against Motorola: – “damages are an adequate remedy for the alleged infringements … and because
injunctive relief would impose costs disproportionate to the harm to the patentee and
the benefit of the alleged infringement to the alleged infringer and would be contrary
to the public interest, I cannot find a basis for an award of injunctive relief.”
• Also denied Motorola injunction against Apple – “I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing
the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement.
By committing to license its patents on FRAND terms, Motorola committed to license
the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged
that a royalty is adequate compensation for a license to use that patent.” … “A
FRAND royalty would provide all the relief to which Motorola would be entitled if it
proved infringement of the ‘898 patent, and thus it is not entitled to an injunction.” – Apple v. Motorola Inc., 11-cv-8540, U.S. District Court, N.D.Illinois, June 7, 2012
• Reversed on appeal, but: – "Motorola's FRAND commitments, which have yielded many license agreements
encompassing the '898 patent, strongly suggest that money damages are adequate
to fully compensate Motorola for any infringement". – Appeal no. 12-1548, Apple Inc. v. Motorola, April 25, 2014
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Standard setting restricts inter-technology competition and
can add market power to SEP by eliminating alternatives
- Para. 269: “a participant holding IPR essential for implementing the standard, could, in
the specific context of standard-setting, also acquire control over the use of a
standard. When the standard constitutes a barrier to entry, the company could thereby
control the product or service market to which the standard relates. This in turn could
allow companies to behave in anti-competitive ways, for example by ‘holding-up’ users
after the adoption of the standard either by refusing to license the necessary IPR or by
extracting excess rents by way of excessive royalty fees thereby preventing effective
access to the standard”
only allowed if “rule or reason”/101(3) conditions are met
- “Where participation in standard-setting is unrestricted and the procedure for adopting
the standard in question is transparent, standardisation agreements which contain no
obligation to comply with the standard and provide access to the standard on fair,
reasonable and non-discriminatory terms will normally not restrict competition within
the meaning of Article 101(1).”). – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to
horizontal co-operation agreements, OJ C 11, 14.1.2010, para. 280
– Case No COMP/M.6381 - Google/ Motorola Mobility, para. 57.
Competition law is relevant
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Para. 285: “In order to ensure effective access to the standard, the IPR
policy would need to require participants wishing to have their IPR
included in the standard to provide an irrevocable commitment in
writing to offer to license their essential IPR to all third parties on fair,
reasonable and non-discriminatory terms ”
Para. 286: “IPR policy would need to require good faith disclosure,
by participants, of their IPR that might be essential for the
implementation of the standard under development. This would enable
the industry to make an informed choice of technology and thereby
assist in achieving the goal of effective access to the standard.”
Para. 287: “FRAND commitments can prevent IPR holders from
making the implementation of a standard difficult by refusing to license
or by requesting unfair or unreasonable fees (in other words excessive
fees) after the industry has been locked-in to the standard or by
charging discriminatory royalty fees. ”
FRAND promises and disclosure in
Guidelines on Horizontal Agreements
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EC adopted decision against Motorola for seeking and (briefly)
enforcing injunction against Apple based on FRAND encumbered SEP
- seeking and enforcement of an injunction against Apple … amounts to an
abuse… [since] clear indication that Apple was not unwilling to enter into a
licence agreement on FRAND terms and conditions” (Motorola, para. 280)
- Apple reserved right to challenge validity and infringement of the licensed
SEPs
Motorola v Apple (2014) -- background
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German court granted injunction because Apple was not a
“willing licensee” based on Orange Book case law
Litigations took place against background of broader patent
war in the mobile industry waged by Apple, Microsoft against
Android (suggesting Apple was not a “willing licensee”)
- Steve Jobs: “I'm willing to go thermonuclear war on this”
• Finding of “dominance” under Article 102 TFEU is required
– ““the power … to behave …independently of competitors, customers and
ultimately of the consumers” allowing the firm to “prevent effective
competition being maintained on the relevant market”.
• Dominance can be found if cumulative conditions are met:
– Patent is valid
– Patent is essential or unavoidable for de facto or de jure standard, and no
standard-compliant work-around is (or later becomes) available
– Standard is essential – no competing standard. (Ex.: HD-DVD v Blu-ray)
– Feature is essential -- not optional component of a standard
• May be the case for many SEPs and Commercially Essential Patents
– Even for large portfolio: Quantity may make up for lack of quality; and if
portfolio is large, license may be de facto essential
• EC in Motorola: Dominance presumed
• AG in Huawei v ZTE: Must be possible to rebut dominance presumption
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1. When Are SEP Owners Dominant?
But can patentee be dominant
in case of mutually assured destruction?
• Patentee, even if unavoidable, may still not be dominant if:
– SEP owner is active in SSOs and wants to have its technology accepted in
future standards too (“repeat game”),
• Patentee has burden of proof
• User can provide evidence that “repeat game” is avoided by manipulation
– Situation of MAD/countervailing power
• “Large patent pools are understood to ensure “peace” between the big players in
the industry by credible threatening the IP equivalent of “mutually assured
destruction” = balance leads to countervailing power (Oracle/Sun, fn. 458)
• “Google would gain little from extracting large licence fees from its competitors
whilst at the same time leaving its Android OS open to attack.” … “Google will
have to take into account the threat of counter-suits for patent infringement from
companies like Microsoft and Apple prior to engaging in behaviour that could
significantly impede effective competition.” (Google/Motorola, para. 119 and 128)
– But that defense is not available to PAEs
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“seeking and enforcement of an injunction against Apple … amounts to
an abuse… [since] … Apple was not unwilling to enter into a licence
agreement on FRAND terms and conditions” (Motorola, para. 280)
– “and” means both are required in the circumstances of this case where Apple was
unwilling between 2007 and at least until 2d Orange Book offer in 2011
– Commission makes a point of mentioning the (< one-day) “enforcement”
If the Samsung or similar process is being followed, and the user has
agreed to submit rate setting and T&Cs to court review, then “seeking”
may already be an abuse.
– But to say that “seeking” alone is an abuse when use is “unwilling”, or it is unclear
whether user is “willing” is wrong under ITT Promedia, and impractical.
– ITT Promedia: a company cannot be prevented from going to court to ask a judge
whether the other side is “unwilling” and whether an injunction is justified, unless
that litigation itself is vexatious – i.e., when it is clear than user is “willing”
So, is there a “safe harbour for patentees?
– Press release / Q&As leave open what happens if a user does not submit.
– Patentee must be able to use if the user refuses to submit (as ZTE did in Huawei).
2. What exactly is the abuse –seeking injunctions?
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Unwilling users can become “willing”, even after years of obstruction,
even after injunction is granted, by offering FRAND terms or agreeing
to adjudication / arbitration:
– Para 441 “Apple's alleged unwillingness between 2007 and 2010 is irrelevant for
the purposes of this Decision as this cannot justify Motorola's continued seeking and
enforcement of an injunction against Apple in Germany on the basis of the Cudak
GPRS SEP after 4 October 2011, the date of the Second Orange Book Offer.”
– See also fn 349: “Motorola’s allegation that internal Apple e-mail
correspondence suggests that, when making its Orange Book Offers,
Apple may also have been hoping to delay the litigation, cannot alter the
fact that, as of its Second Orange Book Offer, Apple was willing to enter
into a licensing agreement with full judicial review and determination of the
proposed FRAND royalties with retroactive effect by a court “.
Does that mean there is no incentive to take early license? Some incentive left:
– Para. 399: “The Second Orange Book Offer added that "LICENSOR reserves the
right to assert higher damages for these acts in addition to this one-time royalty
payment." The decision does not object to that. See also para. 404-405.
3. What is “willingness”? (focus in Huawei v ZTE)
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Motorola establishes the precedent (although facts didn’t fit theory):
- No injunction against a user who is willing to take a license on FRAND terms
- Request to license can be made at any time, even years after litigation starts
- A licensee is “willing” if it offers FRAND fee and/or agrees to have FRAND
royalty set by court or arbitral tribunal
- A licensee may be “willing” even if challenging validity, infringement, essentiality
Samsung Commitment Decision explains one way how this can be done
- Offer to give/take FRAND license, followed by period of negotiation, and if that
fails, royalty and any disputed term are set by court of arbitral tribunal
Judgments in US already set FRAND rates (Motorola, Innovatio)
- And arbitration proceedings are pending
Huawei v ZTE (preliminary ruling) expected 2015
- Advocate General opinion November 20, 2014 suggests overly rigid process
4. How to implement?
Samsung (2014) and Huawei/ZTE (2015?)
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Samsung Commitments – FRAND setting process
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Lengthy negotiation period
No obligation to pay into
escrow
No release if user challenges
validity and infringement
Can FRAND rate be set
probabilistically?
If so, how does it fit with
ability to challenge validity
and infringement?
Can patent owner require
global license?
Basic principle: Offer resolution process to set FRAND terms
Final Commitments; Commission decision of April 29, 2014
• Apply Article 102(a) in cases of clearly excessive demands;
• Apply national or EU merger control to avoid creation of asymmetries that
allow buyer to leverage acquired patents
The next problem: Trolls and Privateers (3)
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FRAND promise
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A license or promise to license:
- No refusal or termination of a license, no injunctive relief, no suit for treble damages, if defendant is willing and able to pay, but disagrees on T&Cs. Exception: Defensive suspension, material (actual or anticipatory) breach
- No constructive refusal to license (e.g., excessive fees, delays, etc.)
Fair and reasonable – equitable, balancing all interests (proportionality)
- Same criterion as 102(a) EC: “not excessive” = share benefits of standards with licensees and consumers (required by 101(3) anyway)
- rate that the IPR owner could have obtained in ex ante inter-technology competition, unless the IP owner took anti-competitive action to diminish ex ante inter-technology competition
- No monopoly rent, moderate, allowing IP owner innovation incentive, but not allowing IP owner to appropriate entire value of standard. Avoid Cournot stack
Non-discriminatory – equal treatment of all customers, including the IPR-owner’s own downstream business.
- Same criterion as 102 EC(b) and 102(c) and 101(3)(b): “not exclusionary, not discriminatory”
- No restriction of downstream competition on the merits (no price-squeeze, no T&Cs that have the object or effect of restricting downstream competition, etc)
- E.g., no differential treatment based on whether licensee purchases the licensor's downstream product
- No restriction of upstream technology competition (no free NAP/pass-thru)
CJEU will now decide (Huawei v ZTE)
• Huawei v. ZTE reference by the Dusseldorf to the CJEU
in a case involving FRAND promise.
• 5 Questions
1. Is it an abuse for an SEP owner who makes a FRAND promise to
seek injunctive relief against an infringer who has declared himself
willing to negotiate such a license, or must the infringer have made
a binding offer?
2. If willingness to negotiate is sufficient, what will suffice to
demonstrate it?
3. If a binding offer is necessary, and what must it include?
4. Must infringer (promise to) pay damages for past infringements as
a condition for escaping injunction?
5. Do the requirements for the presumption of abuse of a dominant
market position by an SEP holder also apply to other remedies for