Policy Statements, Patent Pools and IEEE Changes
“The IEEE announced the latest updates to its Standards-related Patent Policy on September 30 of this year, which become effective January 1, 2023. The new policy backed away from two of the most controversial aspects of its 2015 amendments…and is certainly an improvement…but the jury is still out on how patent owners will respond.”
While 2022 was somewhat less eventful than 2021 in terms of significant developments in fair/reasonable and non-discriminatory (FRAND/RAND) licensing occurring in the United States, the past year still did not disappoint and underscores the continued and growing interest from government in the standards related patents space. In 2022, the most progress was made on matters and issues we wrote about last year: i.e. government policy developments, Continental v. Avanci, the IEEE’s standards-related Patent Policy, and Ericsson v. Apple / Apple v. Ericsson (see here and here)
Government Policy Developments
This year saw several developments with respect to the United States’ government’s policy regarding standards-related patents, each of these appearing to indicate a movement away from the more hands-off / “New Madison” approach espoused by the former Assistant Attorney General, Antitrust Division, U.S. Department of Justice (DOJ), Makan Delrahim.
First was the Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (2021 Draft Policy Statement) released by the U.S. Patent and Trademark Office (USPTO), the National Institute of Standards and Technology (NIST), and DOJ on December 6, 2021, public comments for which were accepted until February 4, 2022. Following a wave of criticism from property rights advocacy groups, sitting members of congress, and former government officials, to name a few, the 2021 Draft Policy Statement was not adopted. Rather, the DOJ announced on June 8, 2022, that the December 19, 2019, Trump-era Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (2019 Policy Statement) was withdrawn. Among other issues, the 2021 Draft Policy Statement was criticized for being published before the leadership of the United States Patent and Trademark Office (USPTO) and National Institute of Standards and Technology (NIST) had been confirmed.
Another such development was Federal Trade Commission (FTC) Chair Lina M. Khan and FTC Commissioner Rebecca Kelly Slaughter submitting a public interest statement to the U.S. International Trade Commission’s (USITC) investigation in Certain UMTS and LTE Cellular Communication Modules and Products Containing the Same on May 17, 2022, expressing an increasing concern “that SEP holders who have committed to license SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms are seeking exclusion orders to ban products from the marketplace for the purpose of gaining leverage over existing or potential licensees.” The public interest statement further said that “where a complainant seeks a license and can be made whole through remedies in a different U.S. forum, an exclusion order barring standardized products from the United States will harm consumers and other market participants without providing commensurate benefits.” Philips’ entitlement to an exclusion order in view of its FRAND licensing related commitments was left unresolved, however, because Philips was unable to establish any of its patents were infringed, and its patents were found unenforceable due to implied waiver. On a related note, the U.S. Court of Appeals for the Federal Circuit upheld a decision of the U.S. District Court for the District of Delaware denying a bid by Thales to prevent Philips from seeking an exclusion order at the USITC. According to the opinion, “[e]vidence of speculative harms, such as customers merely expressing concern that a potential future ITC exclusion order could affect Thales’ ability to deliver products down the road, is insufficient to show a likelihood of irreparable harm.”
More recently, on November 10, 2022, the FTC released a policy statement regarding Section 5 of the Federal Trade Commission Act, titled “FTC Restores Rigorous Enforcement of Law Banning Unfair Methods of Competition”. The associated press release announcing the policy statement provides as follows:
Congress gave the FTC the unique authority to identify and police against these practices, beyond what the other antitrust statutes cover. But in recent years the agency has not always carried out that responsibility consistently. The FTC’s previous policy restricted its oversight to a narrower set of circumstances, making it harder for the agency to challenge the full array of anticompetitive behavior in the market. Today’s statement removes this restriction and declares the agency’s intent to exercise its full statutory authority against companies that use unfair tactics to gain an advantage instead of competing on the merits.
How the FTC plans to wield such powers remains to be see. Notably though, the FTC lists “fraudulent and inequitable practices that undermine the standard-setting process…” and “discriminatory refusals to deal which tend to create or maintain market power” as “Historical Examples of Unfair Methods of Competition”. Regarding discriminatory refusals to deal, the policy statement does not mention FTC v. Qualcomm but does cite to Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 608-10 (1985) which figured prominently therein. Among other points, FTC v. Qualcomm was notable for being initiated in the final days of the Obama administration by a split FTC and opposed by its sister agency the Department of Justice, as well as the Department of Energy and Department of Defense, during the Trump administration.
Avanci Patent Pool
Another significant development occurring in 2022 related to the sub-issue of refusals to deal potentially attracting antitrust scrutiny, was the U.S. Court of Appeals for the Fifth Circuit reaching a decision in the matter of Continental v. Avanci et al., but not without some controversy. To make a long story short, the Fifth Circuit withdrew its original decision finding Continental lacked Article III standing, was not an intended third-party beneficiary of any licensing commitment and had not suffered any injury, and instead affirmed the lower court’s ruling as follows:
Having reviewed the district court’s detailed order, and considered the oral arguments and briefs filed by the parties and amicus curiae, we AFFIRM the judgment of the district court that Continental failed to state claims under Sections 1 and 2 of the Sherman Act. See Cont’l Auto. Sys., Inc. v. Avanci, LLC, 485 F. Supp. 3d 712 (N.D. Tex. 2020).
This case also featured a Statement of Interest filed by the Department of Justice during the time of the Trump administration.
More recently, a letter dated October 17, 2022, was sent to Assistant Attorney General Jonathan Kanter of the DOJ by “28 former government enforcement officials, professors, and public interest advocates” urging the DOJ to “reconsider the Avanci business review letter the Antirust Division issued in July 2020.” The business review letter pertains to a 5G licensing platform proposed by Avanci (whereas the aforementioned case involving Continental related to Avanci, and other pool participants’, 2G, 3G and 4G licensing activities). According to the October 2022 letter “… Avanci’s refusal to license suppliers violates its members’ FRAND commitments and causes competitive harm.” Even more recently, a counter-letter supporting the Avanci business review letter was sent to AAG Kanter by a group of “former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law.” Commentators in the industry have stated that the DOJ is unlikely to reconsider the business review letter.
IEEE
One of the rare times (the only time?) a business review letter was revisited was when the DOJ prepared a supplemental business review letter to the Institute of Electrical and Electronics Engineers’ (IEEE), regarding proposed revisions to its Standards-related Patent Policy, in the waning days of the Trump Administration. The supplemental business review letter was in response to a 2015 Business Review Letter from the Antitrust Division to the IEEE, which the supplemental business review letter states “has been cited, frequently and incorrectly, as an endorsement of the IEEE Policy, which was not our purpose or intent.” In addition to being second guessed by the DOJ, the 2015 revisions were wildly unpopular with patent owners and resulted in many “negative” letters of assurances being submitted to the IEEE. The supplemental business review letter was subsequently removed from the DOJ business review letters website in April of 2021.
Despite the refiling of the supplemental business review letter, the IEEE nonetheless announced the latest updates to its Standards-related Patent Policy on September 30 of this year, which updates become effective January 1, 2023. Most notably, the IEEE backed away from two of the most controversial aspects of its 2015 amendments, including requiring use of the “smallest saleable Compliant Implementation that practices the Essential Patent Claim” for determining a “Reasonable Rate”, and limiting the seeking of a Prohibitive Order to situations where an implementer “fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review…” of RAND terms and conditions. Regarding the latter, the updated IEEE Standards-related Patent Policy now prohibits pursuing a Prohibitive Order “against an implementer who is willing to negotiate in good faith for a license” but, somewhat confusingly, notes that “choosing to litigate or arbitrate over any of the foregoing issues… does not by itself mean that a party so choosing is unwilling to negotiate in good faith.” Litigation over what makes an implementer willing / unwilling now appears inevitable. Though heralded as a win for patent owners, and certainly an improvement over the IEEE’s 2015 Standards-related Patent Policy, the jury is still out on how patent owners will respond. Most notably, Qualcomm has expressed concerns with the latest updates.
Ericsson v. Apple and Apple v. Ericsson
The ongoing battle between Ericsson and Apple involves many actions in courts around the world. Focusing on the United States, the saga began with Ericsson suing in the Eastern District of Texas for a declaration that it complied with its FRAND-related obligations to ETSI. Jurisdiction for Ericsson’s declaratory claim was based on Apple’s statement regarding FRAND licensing, which is posted on the latter’s website. Apple responded with its own suit in the Eastern District of Texas claiming, among other allegations, breach of Ericsson’s FRAND-related commitments and seeking a declaration of FRAND royalties for Ericsson’s global portfolio of essential patents and declarations of non-essentiality and non-infringement regarding three of Ericsson’s patents. Ericsson responded with two patent infringement suits in the Western District of Texas and three USITC cases. Apple filed its own complaint with the USITC seeking to block importation of Ericsson network equipment and submitted over 30 inter partes review petitions.
In terms of notable FRAND licensing related developments, Ericsson unsuccessfully sought an order from Judge Rodney Gilstrap requiring Apple to confirm that “Apple has committed to accept and perform under the terms of Ericsson’s offer if it is found to be FRAND”, while Apple failed in its bid to obtain an order requiring Ericsson to “indemnify Apple from any fines, fees, penalties, and costs it incurs” as a result of an injunction obtained by Ericsson in Colombia. Ericsson also brought a motion to compel discovery from Apple regarding, among other matters, “Revenue Information for Downloads From Apple’s App Store” and “Documents Related to Devaluing SEPs or Licensing as Adjudicated,” which motion was denied as moot after being resolved by the parties. On the USITC front, Ericsson failed to strike Apple’s affirmative defenses that the patents in question are barred based on the equitable doctrine of unclean hands and that Ericsson’s seeking of an exclusion order constitutes patent misuse.
Coming back to the Eastern District of Texas, perhaps most bizarre was Apple’s motion to stay its patent related claims “pending resolution of “portfolio-wide FRAND claims” in the first filed Ericsson case. In denying Apple’s request the court noted its puzzlement with “the hot-then-cold positions taken by Apple throughout this case and the co-pending -376 action”, specifically highlighting the inconsistency between Apple’s assertion that the patent claims would be “‘mooted’ by the outcome of [the first filed Ericsson case]” and its prior vehement opposition to being bound to accept FRAND licenses. More recently, in an Ericcson v. Apple (Order on Pretrial Motions and MIL), Judge Rodney Gilstrap denied Ericsson’s motion for summary judgment on Apple’s claim seeking a declaration of FRAND royalties for Ericsson’s global portfolio of essential patents (now a counterclaim in the first action), which is significant given the obligation to ETSI does not refer to “royalties” but rather to FRAND “terms and conditions”. Notably, with respect to Ericsson’s Motion to Strike Reference from Apple’s Experts that Apple has Allegedly Agreed to be “Bound,” the Order provides as follows:
The Court will not tie the parties’ hands as to how they can characterize their respective conduct. Regardless of how the jury may judge the parties’ prior conduct, the Court will tell the jury that it will set a rate that is fair, reasonable, and non-discriminatory between the parties as to these patents at a later date and that the jury need not be concerned about what an appropriate rate is. The jury need only concern themselves as to the prior conduct between the parties and whether that conduct comports with FRAND and good faith. The parties are free to describe that conduct as they perceive it but are prohibited from stating that either party “is” bound by any subsequent rate setting undertaken by the Court.
Further noteworthy is Judge Rodney Gilstrap’s denial of Apple’s Daubert #4: Motion to Exclude Theoretical Opinions Related to Holdout, as well as the following Motion InLimine issued by the Court sua sponte regarding permissible terminology:
The terms “holdout,” “holdup,” or “unwilling licensee” will not be used before the jury by any counsel or witness without prior leave of the Court.
Unfortunately for those of us trying to understand what is and is not required as a matter of FRAND licensing-related obligations, the court dockets are not very helpful, as many of the most interesting documents are sealed. Further, Ericsson announced the signing of a global patent license agreement with Apple on December 9, 2022, meaning we will not be learning anything from the trials.
