The team is joined by: GuestKats Mirko Brüß, Rosie Burbidge, Nedim Malovic, Frantzeska Papadopoulou, Mathilde Pavis, and Eibhlin Vardy; by InternKats Ieva Giedrimaite, Rose Hughes, and Cecilia Sbrolli; and by Verónica Rodríguez Arguijo (TechieKat), Hayleigh Bosher (Book Review Editor), and Tian Lu (Asia Correspondent).

Monday, 1 January 2018

Supersize this! Unwired Planet American style in TCL v Ericsson

Bigger judgment, smaller royalty rate -
the US courts make their mark on
the FRAND setting arms-race
Having digested the Unwired Planet judgment one too many times, the AmeriKat was relieved that longtime Kat friend Richard Vary (Bird & Bird) volunteered to devour the epic FRAND judgment from California that was recently delivered in the TCL v Ericsson battle.  Richard helpfully summarizes the case and compares the reasoning with the current FRAND setting approach in the UK following Unwired Planet.  Over to Richard:

"Last Friday evening, as many of us were settling down to celebrate Christmas, from the City of Angels came tidings of a FRAND injunction.   

In the case of TCL v Ericsson, the Honourable James V. Selna, Judge of the District Court of the Central District of California (Los Angeles) handed down a court-ordered FRAND license[1]. The case has much in common with the UK's UnwiredPlanet decision earlier in the year. Like Mr Justice Birss, Judge Selna has used comparable licences and a top-down analysis to reach a FRAND rate. But this decision considers the entire Ericsson portfolio. It uses a wider range of comparable licences. And it weighs in at 140 pages in total. It's been supersized.

There were three issues before the court:

1)      Had Ericsson complied with its obligations to offer its cellular standards-essential patents (SEPS) on Fair, Reasonable and Non-Discriminatory (FRAND) terms?
2)     Were Ericsson's two licensing offers FRAND?
3)     If not, what would be a FRAND rate?

These were dealt with in a 10 day bench trial (no jury) in February 2017. During these 10 days Judge Selna managed to get through an impressive 24 witnesses, and written opinions from three experts on foreign law.

Judge Selna concluded that Ericsson had not breached its obligations. However, Ericsson's licensing offers were not FRAND. Following Microsoft v Motorola Judge Selna found that a patent owner does not violate FRAND obligations merely by offering higher rates than are ultimately awarded. This is not unlike Birss J.' findings that Unwired Planet did not violate EU anti-trust law (Article 102 TFEU) merely by demanding a rate that was higher than FRAND.

The court went on to set FRAND rates for Ericsson's 2G, 3G and 4G cellular SEPs.

The rate setting part of Judge Selna's decision will not bring tidings of comfort and joy to the holders of standards-essential patent portfolios. While adopting a similar methodologies to those used in Unwired Planet, on many points Judge Selna has adopted TCL's arguments over Ericsson's. For a fuller explanation see the full article here. As a result, the numbers generated are more favourable to implementers. The final rates were as follows:


US
Europe
RoW
4G
0.45%
0.314%
3G
0.3%
0.264%
0.224%
2G
0.164%
0.118%
0.090%

These rates for the Ericsson portfolio are less than half of the 0.8% rate derived for the Ericsson portfolio as the basis for comparison by Birss J.  Applying these rates to TCL's past unlicensed use of Ericsson's SEPs, TCL was ordered to pay a little over $16m ages for the past.

As in Unwired Planet, Judge Selna gave an injunction. But the English court had only felt itself able to grant a "FRAND" injunction: an injunction against infringement of certain local patents, unless the implementer agreed to take a global licence on specific terms. This was because Birss J accepted that his court could not force an infringer to take a FRAND license. It could merely enforce UK patents against the infringer if he chose not to take a FRAND licence.

Judge Selna did not have any such difficulty. He imposed a global 5-year licence agreement upon both parties, and set the royalty rates not just for the US, but also for Europe and the rest of the world. With both parties pushing for a court determined rate, it seems that the Californian court had few jurisdictional concerns.

Interestingly, TCL did not appear to raise the Smallest Saleable Patent Practising Unit argument to argue that the value of the SEPs must be lower than the cost of the chip. Or if it did, it did not make it to the final arguments at trial. We may be starting to see the end of that argument.

Whilst there is some consistency emerging in the methodologies used to value SEPs, this illustrates how two courts faces with similar information and applying similar methodologies can reach quite different numerical conclusions. There is little doubt that this is a low result, and in his costs award Judge Selna regards it as a win for TCL  It will reinforce the perception that, for cellular standards technologies at least, the US courts remain the friend of the implementer.

But this isn't the end of the story. Shortly before this decision, on 7 December another US district court awarded Ericsson $75m in damages for TCL's infringement of one of Ericsson's non-essential patents for mobile phones. It is interesting to compare that $75m figure, awarded for past use in the US of a single non-essential patent, with the $16m awarded by Judge Selna for the past use globally of Ericsson's entire, substantial, SEP portfolio. Something still doesn't add up across the pond."

If ever there was a time to do some post-Christmas forum shopping for your SEP disputes, thinks the AmeriKat, now is the time! 

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