FRAND/ UK/ UP v. Huawei

Huawei Faces UK Sales Ban After Judge Sets FRAND Rate

Share us on: By Ryan Davis

Law360, New York (April 5, 2017, 10:14 PM EDT) -- A British judge has ruled that Huawei may be barred from selling its smartphones in the U.K unless it licenses standard-essential Unwired Planet wireless technology patents at a rate he determined to be reasonable, a decision that sets guidelines for licensing essential patents.

The 163-page opinion by Justice Colin Birss of the High Court of Justice is the first ever issued by a U.K. judge on the closely watched issue of what constitutes a patent royalty rate that is fair, reasonable and nondiscriminatory, or FRAND. Owners of patents that are essential to industry standards often commit to license them on such terms.

The judge found that neither U.S.-based Unwired Planet International Ltd.’s offers to license its standard-essential 3G and 4G wireless patents to Chinese smartphone maker Huawei Technologies Co. Ltd., nor Huawei’s counteroffers, were FRAND, but that Unwired Planet’s offers and its suit seeking an injunction did not violate competition law.

Since he had already found last year that Huawei infringed the patents, the judge proceeded to set a FRAND rate himself and concluded that Huawei must accept it or face an injunction barring U.K. sales of the infringing products.

“Since Unwired Planet have established that Huawei have infringed ... and since Huawei have not been prepared to take a licence on the terms I have found to be FRAND, and since Unwired Planet are not in breach of competition law, a final injunction to restrain infringement of these two patents by Huawei should be granted,” he wrote.

The judge set a hearing on the injunction later this month if Huawei does not agree to license the patents. If an injunction is imposed, Huawei will also have to pay damages in the form of back royalties at the FRAND rate, Judge Birss ruled.

Unwired Planet acquired numerous standard-essential patents from Ericsson and used them to sue Huawei, Google Inc. and Samsung Electronic Co. Ltd. in the U.K., but Google and Samsung have settled. The judge’s decision on Huawei addressed numerous issues of first impression for the U.K. regarding standard-essential patents and FRAND rates.

Judge Birss held that the court has the authority to establish a FRAND rate and is not limited to determining whether offers by the parties were FRAND, and that only one set of licensing terms is FRAND in a given situation.

He also held that a company that infringes standard-essential patents and refuses to take a license on the court's FRAND terms can be subject to an injunction.

He ruled that FRAND rates should be established by setting a benchmark rate governed by the value of the patent owner's portfolio and by reviewing comparable licenses, and that the rate does not vary depending on the size of the licensee.

Based on those principles, he concluded that the Unwired Planet’s licensing offers were too high and Huawei’s counteroffers were too low. Since neither offer was FRAND, he calculated the rate himself.

The judge rejected Huawei's argument that Unwired Planet violated competition law and abused its dominant position in the market for the essential patents by seeking a worldwide license, rather than a license only for sales in the U.K.

He held that "willing and reasonable parties would agree on a worldwide licence" so Unwired Planet is entitled to insist on one. He also said it was not a violation of competition law for Unwired Planet to seek an injunction in its infringement case.

EIP Legal, the law firm that represents Unwired Planet, said in a statement that the decision makes clear that unless Huawei agrees to enter into a worldwide license for Unwired Planet's patents, it could be barred from selling mobile devices in the U.K.

Gary Moss, who led the EIP team, called the ruling an "important contribution to the worldwide body of case law" on standard essential patents and a validation of Unwired Planet's licensing approach.

Moss said that before the ruling, there had been a widespread view that even if an infringer of essential patents were successfully sued, it would only have to pay the rate it would have had to pay anyway, and only in the countries in which it was sued.

"That gave an incentive for implementers to hold out in the hope of achieving a more favorable royalty rate," Moss said. "Today's judgment confirms that this need not be the case, and that the English court will take a commercially sensible, 'real-world' approach to such issues."

Huawei said in a statement that it welcomed the decision that Unwired Planet's royalty rate demands were unreasonable, but is evaluating the entire ruling and considering its next steps.

Unwired Planet is represented by Adrian Speck QC Sarah Ford, Isabel Jamal and Thomas Jones of of 8 New Square, EIP Legal and Enyo Law LLP.

Huawei is represented by Andrew Lykiardopolous QC of 8 New Square and James Segan of Blackstone Chambers and Powell Gilbert LLP.

The case is Unwired Planet International Ltd. v. Huawei Technologies Co. Ltd., case number 2017EWHC711, in the U.K. High Court of Justice.

--Editing by Jill Coffey.

Comparable Settlement Agreements

Last month, Federal Circuit Judge Taranto, writing for a unanimous panel, laid out a complete road map to the admissibility of settlements in patent infringement litigation. That detailed opinion, Prism v. Sprint, is likely to put an end to the seven-year unsettled period that has followed the Federal Circuit decision in ResONet v.  Lansa. That 2010 opinion upset case law reaching back to 1889 that rarely deemed settlement agreements admissible in patent infringement litigation. ResONet asserted, to the contrary, that "the most reliable license in this record arose out of litigation." Since then, district courts have tended to follow their own inclinations on the issue, with some assessing the admissibility of settlements in a fact-dependent case-by-case analysis, and others remaining more inclined to exclude settlements.
In Prism, the Federal Circuit lays out a detailed scheme for the balancing act required under Rule 403, whereby a district court "may exclude relevant evidence if its probative value is substantially outweighed" by such dangers as unfair prejudice and misleading the jury. The opinion addresses such issues as:

• What evidence is needed to show value of the asserted patents when the old settlement covers more than the patents in the present controversy;
• How the timing of the settlement of an earlier dispute affects its probative value for a settlement late in trial, meaning the record was more fully developed; and
• How settlements are not that different from licenses, because "the potential for litigation...must loom over patent licenses generally, including those signed without any suit ever being filed."

Prism v. Sprint: http://patent-damages.com/2017/03/14/cafc-issues-detailed-opinion-on-comparable-licenses-addresses-cost-savings-approach/

Impression v. Lexmark

Impression v. Lexmark (SCOTUS Oral Argument) case summary

-          Summary[1]

The case involves the doctrine of “exhaustion,” under which a patentholder’s rights to enforce its patent ordinarily are “exhausted” with regard to any particular object at the moment the patentholder sells the object. As applied to this case, for example, Lexmark’s rights to control the use of its patented refillable print cartridges would be “exhausted” when it sells those cartridges to retail buyers, even if Lexmark conditions the sale on the promise that the buyer will not refill the cartridge. That, at any rate, is the argument of Impression Products, which makes a business out of refilling Lexmark cartridges in violation of those agreements. Lexmark’s argument, by contrast, is that modern commerce requires that innovators have the flexibility to devise contracting structures that segment the market into separate sectors, each of which gets a different price commensurate with the uses to which products will be put in that sector.

이 케이스는 소진 이론에 대한 것으로, 소진 이론이란 특허권자의 특허권 행사가, 관련 제품을 판매하는 순간에 소진된다는 것임.  (Lexmark는 프린터 카트리지를 2가지 종류로 판매함.  소비자가 카트리지를 다 쓰면 Lexmark에게 반환한다는 조건으로 20퍼센트 싸게 파는 “Return Program Cartridge” 와 이러한 single-use 제한조건없이 판매되는 regular cartridge임.) 

이번 대법원 건의 원고인 Impression 의 주장은, 1) Lexmark의 특허권 행사권리는, 설령 Lexmark가 single-use 제한조건을 계약으로 명시하였다고 하더라도 그 카트리지를 소비자에게 파는 순간에 소진된다는 것임.  (Impression은 외국에서 Lexmark 카트리지를 사서, 그 안에 있는 chipset을 변경하고, 잉크를 재주입하여, 재생 카트리지를 만들어 미국에 판매하고 있음)  2) 특히, Impression은 대법원이 2013년도에 copyright law의 exhaustion doctrine에 대해서 판결한 Kirtsaeng 사건이 이번 특허법 케이스에도 그대로 적용되어야 한다고 주장.

본 사건의 하급심, Federal Circuit 건에서는 Lexmark의 주장이 맞다고 판결하였음. Lexmark는 Federal Circuit의 두 가지 판례를 인용하였음.  1) 1992년 Mallinckrodt 사건에서 Federal Circuit은 특허권자가 post-sale restriction을 할 수 있다고 하였음.  2) 또한, 2001년 Jazz Photo 사건에서는 외국에서의 제품 판매가 미국 내에서의 특허권 행사를 소진하지 않는다고 하였음.

-          Fact of the Case[2]

Lexmark is a manufacturer of laser printers and their toner cartridges.  It owns patents covering the toner cartridges’ some aspects like the "encoder wheel" which determines how much toner remains in the cartridge and optimizes the print settings accordingly.

Lexmark makes most of its profits not by selling the laser printers, but by selling the toner cartridges.  Lexmark offers end-user customers a choice when they purchase these replacement cartridges: a "Regular Cartridge" sold at full price without any use limitations, or a "Return Program" cartridge sold at a discount in exchange for the purchaser's agreement to use the cartridge only once.  The two types of cartridges are physically identical.  But, customers, who buy the 20%-cheaper cartridges under the Return Program, agree that after the cartridge's toner is exhausted, they will return the empty cartridge only to Lexmark.  In contract, customers who buy regular cartridges pay full price, but are not subject to the single-use restriction.  That is, the 20% discount applied to the cartridge under the Return program reflects the single-use limitation of the cartridge.

The Return Program is a restriction on both sale (by resellers) and use (by customers) of the cartridge.  Lexmark sells Return Program cartridges directly (to end-user customers) and indirectly (through "authorized resellers"). The Return Program contractually binds both Lexmark's authorized resellers and its customers. Lexmark resellers are not allowed to sell a Return Program cartridge that is not subject to the single-use restriction. And whether a customer buys a Return Program cartridge directly from Lexmark or indirectly from an authorized Lexmark reseller, it does so subject to a user agreement that obliges the customer to use the cartridge only once.

The use restriction--a combination patent license and contract--is clearly displayed on the package of a Return Program cartridge and on Lexmark's website.

Lexmark runs the Return Program (Recovering the cartridges after a single use) partly because the Program’s sing-use restriction may reduce the opportunity for third-party grey-market activities, e.g., transfer of a product sold at a lower price in one country to another country where the same product is sold at a higher price.  Lexmark decided to give customers a choice of two cartridges (Return Program and regular ones) rather than restricting post-sale use across the board.

Each Return Program cartridge contains a computer chip that enforces the single-use restriction. The chip monitors the cartridge's toner level: once all the toner in a Return Program cartridge is consumed, the chip stores this fact in its memory. If the cartridge is later reinstalled, the chip will interact with the printer to disable the cartridge. 

Impression hacked the chip, refilled the cartridges.  Once the chip is circumvented, Lexmark's Return Program cartridges may be reused multiple times, in violation of the single-use restriction.  With respect to Lexmark cartridges first sold outside the United States, Impression contends that Lexmark's sales abroad precluded Lexmark from suing for infringement of its U.S. patents when those cartridges were imported, remanufactured, or resold in the United States.

Impression acknowledged that its position contradicted this Court's ruling in Jazz Photo, which held that a foreign sale does not exhaust U.S. patent rights. But Impression contended that Jazz Photo had been implicitly overruled by the Supreme Court's decision in Kirtsaeng.

-          District Court[3]

The district court disagreed, noting that Kirtsaeng construed a distinct provision of the Copyright Act and therefore did not implicitly overrule Jazz Photo's application of the Patent Act.

-          CAFC (En Banc)[4]

A majority of the en banc Federal Circuit reaffirmed its prior decisions in Mallinckrodt v. Medipart, 976 F.2d 700 (Fed. Cir. 1992) and Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001) on two issues of the patent exhaustion doctrine:

1)      Post-sale limits on use and resale: In reaffirming Mallinckrodt, the court held that a patentee may preserve its right to allege infringement when selling a patented article through “clearly communicated, otherwise-lawful restrictions.”  Specifically, the court upheld that a patentee has the ability to “sell[] a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser” without exhausting the patentee’s rights in that item.

2)      Foreign sales and exhaustion a patentee’s U.S. rights: In reaffirming Jazz Photo, the court also held that importing patented articles sold abroad constitutes infringement, unless the patentee has authorized the importation, because foreign sales do “not authorize the buyer to import the article and sell and use it in the United States.”

a.       Distinguishing the Supreme Court’s recent decision in Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013), which analyzed foreign sales under section 109 of the Copyright Act, the Federal Circuit determined that Kirtsaeng “does not answer the question presented under the Patent Act.”

b.       After concluding that Kirtsaeng did not control the outcome, the court held that a patentee does not waive its U.S. rights to a patented article “simply by making or authorizing a foreign sale of an article.” The court explained, however, that U.S. patent rights may be exhausted by a foreign sale under an express or implied license, but that that question was not presented here.

-          Supreme Court (Impression v. Lexmark)

o   Issues

§  (1) Whether a “conditional sale” that transfers title to the patented item while specifying post-sale restrictions on the article's use or resale avoids application of the patent-exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy; and

§  (2) whether, in light of this court’s holding in Kirtsaeng v. John Wiley & Sons, Inc. that the common-law doctrine barring restraints on alienation that is the basis of exhaustion doctrine “makes no geographical distinctions,” a sale of a patented article – authorized by the U.S. patentee – that takes place outside the United States exhausts the U.S. patent rights in that article.

o   Oral Arguments (held on Mar 21 2017)[5]

---

[1] Edited from http://www.scotusblog.com/2017/03/argument-analysis-justices-skeptical-categorical-exhaustion-patent-rights/

[2] https://patentlyo.com/patent/2015/04/lexmark-impression-facts.html

[3] Id.

[4] http://www.finnegan.com/publications/federalcircuit/FCCDetail.aspx?pub=39e12032-91c8-4f8e-ae77-f58111271ad2

[5] http://www.scotusblog.com/2017/03/argument-analysis-justices-skeptical-categorical-exhaustion-patent-rights/

Fourth Industrial Revolution

https://www.whitehouse.gov/sites/whitehouse.gov/files/images/EMBARGOED%20AI%20Economy%20Report.pdf

https://www.google.com/search?q=US+Government+IP+committee&oq=US+Government+IP+committee&aqs=chrome..69i57.10911j0j7&sourceid=chrome&ie=UTF-8