American Intellectual Property Law Association
FRAND –
Standard Essential Patents Licensed for
Fair, Reasonable, and Non-Discriminatory Terms
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Jeffrey I. D. Lewis
Patterson Belknap Webb & Tyler, LLP
March 2014
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What is FRAND?
• STANDARDS SETTING
– Many technologies, such as smartphones and wireless networks
– Examples: WiFi, 4G, LTE, WLAN
• Each standard may implicate 1,000’s of patents
• Only some are Standard-Essential Patents (SEPs)
– Must be used to practice standards
• Once adopted, SEP owner could have outsized advantage
– SEP in standard, so more valuable than pre-incorporation
– SEP = major obstacle, if standard in widespread use
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FRAND = Solution
• Created to address standards setting holdups
• Require SEP owners to agree in advance to license SEP
• License must be
Fair,
Reasonable, And
Non-Discriminatory
– Sometimes called RAND or F/RAND
• Facilitates widespread use of standard
• Ensures SEP owners obtain a benefit from use of patent
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• But what is that?
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Legal basis for a FRAND commitment?
• No statutory or regulatory basis
• Creation of private actors, so-called standard-setting
organizations (SSOs)
– European Telecommunications Standards Institute (ETSI)
– Institute of Electrical and Electronics Engineers (IEEE)
– International Telecommunication Union (ITU)
• Before adopting standard, SSO requires members to agree
to license SEPs on FRAND terms to those practicing the
standard
– Patent is then “FRAND-encumbered”
– Agree before standards set (so no market power yet)
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What creates a FRAND commitment?
• Implicit: FRAND requirement stated in SSO bylaws
– Compliance with commitment is a requirement of membership in
SSO
• Explicit: Before adopting a standard, SSO may require any
owners of SEPs to agree to abide by a FRAND requirement
– Example: IEEE members declare patents standard essential
through “letters of assurance”
• Whether implicit or explicit, FRAND commitment with SSO
– not its members or the public
– raises issue of who can enforce
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Enforcing FRAND in the USA
•
Primary approach: Third-party beneficiary enforcement
– FRAND commitment = enforceable SEP-owner/SSO contract
• potential licensees are the third-party beneficiaries
– No definitive rule on who may be considered third-party beneficiary
• Microsoft Corp. v. Motorola, Inc.
“… Microsoft, as a member of both the IEEE and the ITU, is a thirdparty beneficiary of Motorola’s commitments to the IEEE and ITU.”
854 F. Supp. 2d 993, 999 (W.D. Wash. 2012)(internal citations omitted)
• Apple, Inc. v. Motorola Mobility, Inc.
“As a potential user of the standards at issue and a prospective
licensee of essential patents, Apple is a third party beneficiary of the
agreements between Motorola and IEEE and Motorola and ETSI.”
886 F. Supp. 2d 1061, 1085 (W.D. Wash. 2012)
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FRAND choice of law
• Choice of law issues:
– law of SSO’s home jurisdiction may control interpretation
• So not standard
– May not be enforceable contract
• E.g., lacks definitive terms, such as price
– Venue may not recognize third-party beneficiary standing to sue
• See Samsung v. Apple, Inv. No. 33-TA-794
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Other FRAND Enforcement Mechanisms
• Other possible enforcement avenues:
– Promissory estoppel
• Licensee must show
– knowledge of the FRAND commitment (the promise)
– reliance
– SEP owner had reason to know licensee would have expected to
benefit from the FRAND commitment
– Implied license
• SEP owner invited infringing use, e.g., by agreeing to FRAND
commitment
– Equitable estoppel
• Patentee’s misleading conduct + reliance + material prejudice
– But FRAND commitment itself is not misleading
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Which forum? District court v. ITC
• District Court
– Authority to award both damages and injunctive relief
• Increasingly reluctant to issue injunctive relief when FRANDencumbered patents are at issue
• ITC
– No damages, but can grant exclude importation
• Ready and willing to grant such orders
• Subject to Presidential (US Trade Rep.) approval
• Dual track: File suit in both district court and ITC at same
time
– In light of USTR veto and Realtek, may be more difficult to obtain
relief in ITC before FRAND rate has been determined by a district
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Logoon this later)
court
(more
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Other U.S. jurisdictional issues
• State v. federal court
– If FRAND enforcement is contractual, may be no basis for federal
court jurisdiction unless diverse parties or supplemental jurisdiction
• Federal Circuit v. regional Courts of Appeals
– Where does appeal go?
Microsoft Corp. v. Motorola, Inc.
Not all cases involving a patent claim fall within the Federal Circuit’s
jurisdiction. . . . Microsoft’s complaint sounds in contract and invokes the
district court’s diversity jurisdiction.
696 F.3d 872 (9th Cir. 2012) (internal citations omitted)
• Microsoft later appealed the entire case to the Federal Circuit, perhaps
hoping for a different outcome
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Relief: Exclusion orders in the ITC
• Samsung v. Apple, Inv. No. 337-TA-794
– ALJ initial determination found no per se bar to exclusion order if
FRAND-encumbered patent at issue; granted exclusion order
– Commission also found no per se bar to exclusion order if FRANDencumbered patent at issue; affirmed ALJ’s exclusion order
• FRAND obligation requires negotiate in good faith, not license
– USTR blocks exclusion order
•
• first such veto since 1987
• No per se bar to exclusion orders if FRAND-encumbered patent at
issue, but ITC must consider DOJ/PTO policy statement
• Suggests exclusion order should only be granted where potential
licensee refuses to accept a FRAND license or refuses to negotiate at
all (i.e., reverse hold up)
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HUH???
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Relief: Are there injunctions in the district courts
• Courts increasingly skeptical of injunctions involving
FRAND-encumbered patents
– Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012)
(“Implicit in such a sweeping promise [to license a patent on
FRAND terms] is, at least arguably, a guarantee that the patentholder will not take steps to keep would-be users from using the
patented material, such as seeking an injunction, but will instead
proffer licenses consistent with the commitment made.”)
• Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 913-14 (N.D. Ill.
2012) (Posner, J.) (same)
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Relief: District court injunction decisions
– Microsoft Corp. v. Motorola, Inc.
“First, the RAND commitment does not by itself bar SEP holders from
ever, in any circumstance, seeking injunctive relief to enforce their
patents. However, in some circumstances, it may be a breach of the duty
of good faith and fair dealing for a SEP holder to seek injunctive relief
against a SEP implementer.”
No C10-1823JLR, 2013 U.S. Dist. LEXIS 113585, at *44 (W.D. Wash. Aug. 12, 2013) (Robart, J.)
– But see Apple, Inc. v. Motorola Mobility, Inc.
holding that the FRAND commitment did not deprive defendant of its right
to seek injunctive relief
No. 11-cv-178-bbc, 2012 U.S. Dist. LEXIS 181854 (W.D. Wash. Oct. 29, 2012)
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Relief: District court permanent injunctions
• Permanent injunction requires showing no adequate
remedy at law (i.e., money not enough)
– Hard to do when FRAND license rate remains a possibility
• Post-eBay, cannot satisfy with a presumption of irreparable harm
– Apple, Inc. v. Motorola, Inc. (Posner, J.)
“The grant of an injunction is not an automatic or even a presumptive
consequence of a finding of liability, either generally or in a patent case. .
. . And that means, with immaterial exceptions, that the alternative of
monetary relief must be inadequate. . . . A FRAND royalty would provide
all the relief to which Motorola would be entitled if it proved infringement
of the [patent], and thus it is not entitled to an injunction.”
869 F. Supp. 2d 901, 915 (N.D. Ill. 2012) (internal citations omitted).
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Relief: District court statements
– Microsoft Corp. v. Motorola, Inc.
• “Motorola has not shown it has suffered an irreparable injury or that
remedies available at law are inadequate.”
•
No. C10-1823JLR, 2012 U.S. Dist. LEXIS 170587 (W.D. Wash. Nov. 30, 2012) (Robart, J.)
– Realtek Semiconductor Corp. v. LSI Corp.
In promising to license on RAND terms, defendants here admit that
monetary damages, namely a RAND royalty, would be adequate
compensation for any injury it has suffered as a result of Realtek’s
allegedly infringing conduct.”
946 F. Supp. 2d 998 (N.D. Cal. May 20, 2013) (Whyte, J.)
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Relief: Are injunctions still available?
• Injunctive relief still available to prevent “reverse hold up”
– User refuses FRAND rate or refuses to negotiate
– Realtek Semiconductor Corp. v. LSI Corp.
“[A]n injunction may be warranted where an accused infringer of a
standard-essential patent outright refuses to accept a RAND license.”)
946 F. Supp. 2d 998 (N.D. Cal. May 20, 2013) (Whyte, J.) (citing Joint Policy Statement at 7 (For example, “if a
putative licensee refuses to pay what has been determined to be a F/RAND royalty, or refuses to engage in a
negotiation to determine F/RAND terms, an exclusion order could be appropriate”)).
– Apple, Inc. v. Motorola, Inc. (Posner, J.)
“By committing to license its patents on FRAND terms, Motorola
committed to license the [patent] 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.”
869 F. Supp. 2d 901, 913-14 (N.D. Ill. 2012)
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FRAND rate ↔ Georgia Pacific Factors
• The Georgia-Pacific Factors
– Well-accepted 1970 S.D.N.Y. decision on setting reasonable royalty
for patent infringement damages
Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D. N.Y. 1970)
– 35 U.S.C.§284:
“Upon finding for the claimant the court shall award the claimant
damages adequate to compensate for the infringement, but in no event
less than a reasonable royalty for the use made of the invention by the
infringer, together with interest and costs as fixed by the court.”
(emphasis added)
– Sets out 15 factors to determine a “reasonable royalty rate”
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FRAND rate –vs- Georgia Pacific Factors
• Microsoft Corp. v. Motorola, Inc.
“However, the hypothetical negotiation under a RAND obligation
must be different than the typical Georgia-Pacific analysis
historically conducted by courts in a patent infringement action. This
is so for at least two reasons.
First, the owner of an SEP is under the obligation to license its
patents on RAND terms, whereas the owner of a patent uncommitted
to RAND has monopoly power over its patent and may choose to
withhold licensing.
Second, the hypothetical negotiation almost certainly will not take
place in a vacuum: the implementer of a standard will understand that
it must take a license from many SEP owners, not just one, before it
will be in compliance with its licensing obligations and able to fully
implement
the standard.”
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No. C10-1823JLR, 2013 U.S. Dist. LEXIS 60233, at *53 (W.D. Wash. Apr. 25, 2013)
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Other FRAND cases applying Georgia Pacific
• Ericsson Inc. v. D-Link Sys.
– instructing jury with all 15 G-P factors without modification
– Tacked on a 16th factor: “Ericsson’s obligation to license its
technology on RAND terms”
No. 6:10-CV-473, 2013 U.S. Dist. LEXIS 110585 (E.D. Tex. Aug. 6, 2013) (Davis, J.)
• In re Innovatio IP Ventures, LLC
– Judge Holderman adopted Judge Robart’s modification and
synthesized the differences
No. 11 C 9308, 2013 U.S. Dist. LEXIS 144061 (N.D. Ill. Oct. 3, 2013) (Holderman, J.)
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Innovatio’s Factors (1-5)
Georgia-Pacific
Innovatio
(1) The royalties received by the patentee for the
licensing of the patent in suit, proving or tending to
prove an established royalty.
(1) “The royalties received by the patentee for the
licensing of the patent-in-suit in other
circumstances comparable to RAND-licensing
circumstances.”
(2) The rates paid by the licensee for the use of
other patents comparable to the patent in suit.
(2) SAME.
(3) The nature and scope of the license.
(3) SAME.
(4) The licensor’s established policy and
marketing program to maintain his patent monopoly
by not licensing others to use the invention or by
granting licenses under special conditions designed
to preserve that monopoly.
(4) NOT APPLICABLE. Judge Robart reasoned
that factor 4 “is inapplicable in the RAND context
because the licensor has made a commitment to
license on RAND terms and may no longer maintain
a patent monopoly by no licensing to others.”
(5) The commercial relationship between the
licensor and licensee, such as, whether they are
competitors in the same territory in the same line of
business; or whether they are inventor and
promoter.
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(5) NOT APPLICABLE. Judge Robart reasoned
that Factor 5 is inapplicable “because having
committed to license on RAND terms, the patentee
no longer may discriminate against its competitors
in terms of licensing agreements.”
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Innovatio’s Factors (6-8)
Georgia-Pacific
Innovatio
(6) The effect of selling the patented specialty in
promoting sales of other products of the
licensee; the existing value of the invention to the
licensor as a generator of sales of his non-patented
items; and the extent of such derivative or convoyed
sales.
(6) “The effect of the patented invention in
promoting sales of other products of the
licensee and the licensor, taking into account only
the value of the patented technology and not the
value associated with incorporating the patented
technology into the standard.”
(7) The duration of the patent and the term of the
license.
(7) NOT APPLICABLE. “The analysis concerning
Factor 7 is greatly simplified in the context of a
dispute over a reasonable royalty for a RANDcommitted patent because the term of the license
would equate to the duration of the patent. In many
circumstances, this factor will have little influence on
what constitutes a reasonable royalty under the
RAND Commitment.”
(8) The established profitability of the product
made under the patent; its commercial success; and
its current popularity.
(8) “The established profitability of the product made
under the patent, its commercial success, and its
current popularity, taking into account only the
value of the patented technology and not the
value associated with incorporating the patented
technology into the standard.”
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Innovatio’s Factors (9-12)
Georgia-Pacific
Innovatio
(9) The utility and advantages of the patent
property over the old modes or devices, if any,
that had been used for working out similar results.
(9) “The utility and advantages of the patent
property over alternatives that could have been
written into the standard instead of the patented
technology in the period before the standard was
adopted.”
(10) The nature of the patented invention; the
character of the commercial embodiment of it as
owned and produced by the licensor; and the
benefits to those who have used the invention.
(10-11) “The contribution of the patent to the
technical capabilities of the standard and also
the contribution of those relevant technical
capabilities to the licensee and the licensee’s
products, taking into account only the value of
the patented technology and not the value
associated with incorporating the patented
technology into the standard.”
(11) The extent to which the infringer has made
use of the invention; and any evidence probative
of the value of that use.
(12) The portion of the profit or of the selling
price that may be customary in the particular
business or in comparable businesses to allow for
the use of the invention or analogous inventions.
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(12) “The portion of the profit or of the selling
price that may be customary in the particular
business or in comparable businesses to allow for
the use of the invention or analogous inventions
that are also covered by RAND-committed
patents.”
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Innovatio’s Factors (13-15)
Georgia-Pacific
Innovatio
(13) The portion of the realizable profit that
should be credited to the invention as
distinguished from non-patented elements, the
manufacturing process, business risks, or significant
features or improvements added by the infringer.
(13) “The portion of the realizable profit that should
be credited to the invention as distinguished from
non-patented elements, the manufacturing process,
business risks, significant features or improvements
added by the infringer, or the value of the patent’s
incorporation into the standard.”
(14) The opinion testimony of qualified experts.
(14) SAME.
(15) The amount that a licensor and a licensee
would have agreed upon (at the time the
infringement began) if both had been reasonably
and voluntarily trying to reach an agreement.
(15) “The amount that a licensor and a licensee
would have agreed upon (at the time infringement
began) if both were considering the RAND
commitment and its purposes, and had been
reasonably and voluntarily trying to reach an
agreement.”
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Damages: Setting a FRAND rate
• Innovatio noted case-specific modifications, such as:
– Whether court is setting a range for a jury or an actual FRAND rate
– Whether court already determined patents at issue are essential
and/or infringed prior to determining FRAND rate
• If not already determine, the implementer in a hypothetical negotiation
would view the allegedly standard-essential’ patents with skepticism
• If already determined, no need to adjust the RAND rate in light of prelitigation uncertainty about the essentiality of a given patent
• Date of hypothetical negotiation:
“the appropriate date for the hypothetical negotiation is ... the time of
the initial adoption of [the standard], and therefore approximately the
time when the manufacturers began selling the [standard-]compliant
products that allegedly infringed the patents”
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Damages: Setting a FRAND rate
• Which comes first?
– Infringement
– Setting of FRAND rate?
– As suggested above, no need to determine one before the other
• Realtek Semiconductor Corp. v. LSI Corp.
“This court already determined that Realtek can simultaneously
pursue a determination of the RAND royalty rate while denying
infringement or asserting invalidity, even though those issues may
ultimately obviate the need for a license and that there is no reason
the RAND royalty rate cannot be determined first.”
946 F. Supp. 2d 998, 1007 (N.D. Cal. May 20, 2013) (Whyte, J.)(internal citations omitted).
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Damages: Attorney’s fees?
• Microsoft Corp. v. Motorola, Inc. court awarded attorney’s fees as
part of damages available to a licensee who sought a FRAND
license from an SEP owner
– SEP owner’s attempt to seek an injunction violated its duty of good
faith and fair dealing to negotiate a FRAND rate
“[I]n certain circumstances it may violate the duty of good faith and fair
dealing for a SEP holder to seek an injunction to enforce a RANDcommitted patent. Under those circumstances, the SEP holder has
effectively agreed not to sue implementers for injunctive relief. Thus,
under those circumstances and those circumstances only, the RAND
commitment is analogous to a covenant not to sue for injunctive relief,
and the implementer may recover attorney’s fees as an element of
damages in the bad faith action.”
No C10-1823JLR, 2013 U.S. Dist. LEXIS 113585, at *53 (W.D. Wash. Aug. 12, 2013)
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Obscure issue: The Noerr-Pennington doctrine
• Noerr-Pennington shields litigants from claims related to filing
litigation as part of a 1st Amendment right to petition the government
for a redress of grievances
• In FRAND context, two courts have held it does not apply because
the FRAND commitment is considered a waiver of the defense
– Microsoft Corp. v. Motorola, Inc.
“[H]aving waived its right to seek injunctive relief, Motorola cannot now rely on
Noerr-Pennington to nullify that waiver. . . . Here . . . Motorola’s RAND commitment
is analogous to a covenant not to seek injunctive relief in circumstances that would
amount to a breach of the duty of good faith and fair dealing. Thus, Motorola has
limited, by contract, its right to seek injunctive relief. As Judge Crabb ruled [in
Apple], it would be improper to use the Noerr-Pennington doctrine to bar Microsoft
from enforcing that contract.”
No C10-1823JLR, 2013 U.S. Dist. LEXIS 113585, at *53, 60 (W.D. Wash. Aug. 12, 2013)
– Apple, Inc. v. Motorola Mobility, Inc.
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886 F. Supp. 2d 1061, 1078 (W.D. Wash. 2012) (Crabb, J.) (same)
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Example case: Microsoft v. Motorola (facts)
• Motorola owns patents necessary to practice two standards
and committed to license them on FRAND terms
– SSOs at issue: IEEE and ITU (Microsoft and Motorola members)
– Two standards for WiFi and video coding technology:
• Motorola reached out to Microsoft and offered to license its
patents at a rate of 2.25% of the price of Microsoft end
products that used the standard
• 1 month later – Microsoft sued Motorola for breach of
FRAND contract in W.D. Wash.
– Motorola then sued in Germany seeking injunction
– Microsoft sought W.D. Wash. anti-suit injunction preventing
Motorola
from continuing with the action in Germany; granted by
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district court and affirmed by 9th Circuit
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Example case: Microsoft v. Motorola (case)
• Over the course of the litigation, court held:
– FRAND commitments to IEEE and ITU created enforceable
contracts between Motorola and the respective SSO
– Microsoft, a standard user and member of SSOs, is a third-party
beneficiary so can enforce the contracts as
– FRAND commitment = initial SEP license offers must be good faith
• Initial offers do not have to be on FRAND terms, so long as a FRAND
license eventually issues
– Injunctions could be sought based upon underlying facts
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Example case: Microsoft v. Motorola (injunction)
– The “[FRAND] commitment does not by itself bar SEP holders
from ever, in any circumstances, seeking injunctive relief to
enforce their patents. However, in some circumstances, it may be
a breach of the duty of good faith and fair dealing for a SEP
holder to seek injunctive relief against a SEP implementer”
– Where “violate[s] the duty of good faith and fair dealing for a SEP
holder to seek an injunction … the SEP holder has effectively
agreed not to sue implementers for injunctive relief. Thus,
under those circumstances and those circumstances only, the
RAND commitment is analogous to a covenant not to sue for
injunctive relief, and the implementer may recover attorney’s
fees as an element of damages in the bad faith action”
– “Having waived its right to seek injunctive relief, [the FRANDencumbered SEP owner] cannot [then] rely on Noerr-Pennington
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to nullify that waiver”
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Example case: Microsoft v. Motorola (trial)
• Microsoft lost all claims at trial
– Jury awarded over $3 million in attorney’s fees
– Jury also awarded $11 million in damages
• Microsoft’s claimed losses for moving a distribution center out of
Germany due to Motorola’s actions to seek an injunction in Germany
• Motorola is currently appealing to the Federal Circuit
– Why Federal Circuit, if contract action?
• To be decided …
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Thanks for your attention! Questions?
Jeffrey I. D. Lewis, Esq.
Patterson Belknap Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036-6710
Tel. (212) 336-2549
Fax (212) 336-2544
jidlewis@pbwt.com
www.pbwt.com
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