Injunctions Difficult Against Infringers of Patents Subject to FRAND Licensing

Updated development on February 11th, 2013

Renata Hesse of the DOJ suggested in a February 8, 2013 speech that refusals to honor FRAND commitments could violate Section 2 of the Sherman Act.  Hesse described arguments for and against using Section 2, saying that although some commentators advocate using contract law and the FTC has always used Section 5 of the FTC Act, others suggest that “Section 2 continues to retain vitality in this space even in the absence of deception during the standard setting process.”1  These commentators argue that even if the patent holder did not engage in intentional deception in the standard setting process, competition may still be harmed if there were alternatives that the SSO excluded because of the patent-holder’s FRAND commitment.2 Although Hesse did not express her or the DOJ’s views on using Section 2, she did say that the DOJ is looking into the possibility.3


Introduction

In standard setting organizations (SSOs), members who are holders of patents that are essential to the standard (SEPs) frequently commit to license their patents on fair, reasonable, and non-discriminatory (FRAND) terms. SEP holders typically make this so-called FRAND commitment  a quid pro quo to have their patented technology included in the standard and declared essential. Courts and regulators have been wary of such SEP holders seeking injunctive relief against alleged infringers, based on the concern that the SEP holders may be engaging in “patent holdup” by representing to SSOs that they will offer to license their SEPs on FRAND terms, but then failing to offer FRAND terms and suing to enjoin competitors from manufacturing and seeking standard-compliant products.

Apple v. Motorola4

In a case in which both parties alleged that the other violated its smartphone patents, Judge Richard Posner dismissed both parties’ requests for injunctive relief and held that the FRAND-encumbered party may not obtain an injunction against an accused infringer. Although the case is in district court, Judge Posner, a well-respected Seventh Circuit judge, offered to preside as trial judge due to his interest in patents.5

Motorola made a commitment to the SSO that it would license its cell phone technology patents on FRAND terms as a condition of having its technology included in the standard.6 Motorola later sued Apple for infringement of those patents, seeking damages and injunctive relief, and claimed that it offered Apple a 2.25% royalty rate for a license to a group of patents but that Apple rejected the offer.7 Motorola argued that since Apple refused to negotiate after rejecting the license offer, Apple lost the FRAND safe harbor, and Motorola was entitled to seek injunctive relief.8

Judge Posner rejected this argument, stating that “Apple’s refusal to negotiate for a license…was not a defense to a claim by Motorola for a FRAND royalty.”9 The court held that because Motorola committed to license on FRAND terms as a quid pro quo for having the SSO include its patented technology in the standard, Motorola “implicitly acknowledged that a royalty is adequate compensation for a license to use that patent,” making injunctive relief unavailable.10 Judge Posner noted: “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.”11 The case is currently on appeal to the Federal Circuit.

Microsoft v. Motorola12

In a holding similar to that of Apple v. Motorola, the court in this case held that a company that declares its commitment to an SSO to license on FRAND terms cannot obtain an injunction against a third-party beneficiary to that commitment. Motorola not only wrote numerous letters of assurance and declarations to SSOs stating its commitment to license its SEPs on FRAND terms but also sent letters to potential licensees, including Microsoft, offering to license its patents on FRAND terms.13 Microsoft sued Motorola, alleging that Motorola’s licensing offers were unreasonable and breached Motorola’s FRAND commitment to the SSOs, harming Microsoft as a third-party beneficiary of those commitments. Motorola counterclaimed and sought an injunction against Microsoft for patent infringement.14

Both parties moved for summary judgment. The court found that Motorola’s statements to the SSOs constituted binding agreements to license its SEPs on FRAND terms, that Microsoft was a third-party beneficiary of those agreements, and that Microsoft, therefore, had a right to a FRAND license.15

The court then conducted a bench trial in November 2012 to determine a FRAND royalty rate, at which Microsoft conceded that it was ready and willing to accept a compulsory license to obtain Motorola’s SEPs at a rate determined by the court.16 After the bench trial, Microsoft moved to dismiss Motorola’s request for injunctive relief. The court granted the motion, holding that Motorola could not meet the test for permanent injunctive relief because Motorola could not demonstrate that it had suffered or would suffer irreparable injury.17 The court noted that it had already determined that Microsoft was entitled to a FRAND license and that Microsoft had agreed to accept such a license.18 Specifically, the court held that “because Microsoft will pay royalties under any license agreement from the time of infringement within the statute of limitations, this license agreement will constitute Motorola’s remedy…[a]ccordingly, Motorola cannot demonstrate that it has been irreparably harmed.”19

Enforcement Agency Positions

In addition to the courts, both the Department of Justice and the Federal Trade Commission have addressed the availability of injunctive relief for FRAND-committed SEP holders. The agencies have taken the position that, with certain limited exceptions, such patent holders should not be allowed to seek injunctions.

FTC Conditions for Termination of Investigation of Google

The FTC closed its investigation of Google on January 3, 2013 in exchange for Google’s commitment to change some of its business practices, including those related to Motorola Mobility, which Google acquired in 2012.20 Google agreed to withdraw its claims for injunctive relief around the world for its FRAND-encumbered SEPs and to offer FRAND licenses for its SEPs to companies that seek them in the future.21

The FTC noted that “[i]n addition to harming incentives for the development of standard-compliant products, the threat of an injunction can also lead to excessive royalties that may be passed along to consumers in the form of higher prices.”22

FTC Consent Order re Bosch Acquisition of SPX 23

Although the FTC approved Robert Bosch GmbH’s acquisition of a division of SPX Corporation, it alleged that SPX violated Section 5 of the FTC Act by continuing to seek injunctions against competitors after committing to license its patents on FRAND terms, even when the defendants were willing to take licenses on FRAND terms.24

The FTC argued that seeking injunctions in this case was a form of FRAND evasion and patent holdup.25 The consent order required Bosch, as a condition of the acquisition, to affirm to the SSO that it will conduct future licensing on FRAND terms and will not seek injunctive relief against third parties for SEPs it obtains in the acquisition of SPX unless the third parties refuse to take licenses on FRAND terms.26

Apple v. Motorola Amicus Brief27

The FTC submitted an amicus brief in Apple v. Motorola that supported the denial of injunctive relief. The FTC emphasized SEP holders’ likelihood to engage in patent holdup when an entire industry is locked into the standard, thereby giving the SEP holder the ability to demand and obtain anticompetitive royalty rates.28 FRAND commitments mitigate the risk of patent holdup, and injunctions hinder FRAND protection because “a royalty negotiation that occurs under the threat of an injunction may be heavily weighted in favor of the patentee in a way that is in tension with the [F]RAND commitment. High-switching costs combined with the threat of an injunction could allow the patentee to obtain unreasonable licensing terms despite its [F]RAND commitment because implementers are locked into practicing the standard.”29 The FTC also argued that injunctive relief should be denied because it could decrease innovation and deprive public access to innovative products.30 Additionally, by committing to FRAND, Motorola acknowledged that royalties were adequate compensation for use of its patents.31

DOJ/USPTO Policy Statement32

The DOJ has taken a position similar to that of the FTC and, in collaboration with the US Patent and Trademark Office, released a policy statement on January 8, 2013 about the remedies available to FRAND-committed SEP holders. The DOJ and USPTO noted that in some cases, allowing such patent holders to obtain injunctions or exclusion orders may be inconsistent with the public interest, especially where “an exclusion order based on a F/RAND-encumbered patent appears to be incompatible with the terms of a patent holder’s existing F/RAND licensing commitment to an [SSO].”33

The policy statement also noted that injunctions may be appropriate in some circumstances, such as when a potential licensee is unable or refuses to take a FRAND license, acts outside the scope of the terms of the patent holder’s FRAND commitment, or is not subject to the jurisdiction of a court that could award damages.34

DOJ Speeches

In a recent speech, DOJ Deputy Assistant Attorney General for Economic Analysis Fiona M. Scott-Morton noted that FRAND commitments can reduce the risk of anticompetitive activity, but an ill-defined FRAND commitment may ultimately lead to competitive harm.35 To address this problem, Scott-Morton suggested placing limits on the right of FRAND-committed patent holders to exclude licensees through injunctions.36 Scott-Morton notes that in her view, SEP holders should be able to obtain injunctive relief only when the potential licensee is unwilling to have a neutral third party determine the appropriate FRAND terms or is unwilling to accept the FRAND terms determined by the third party.37

Scott-Morton also discussed the treatment of non-standard essential patents that may still be “commercially essential.” In these cases, several factors that may influence whether courts and regulators should scrutinize the actions of such patent holders include whether the patent is essential to implementing a popular optional feature of the standard, whether the owner made public commitments to licensing rates and terms, and whether the innovation was adopted by joint decision-making.38

Commentary

  • Although regulator statements and judicial decisions have leaned toward denying FRAND-committed patent holders the ability to seek injunctive relief, the law is by no means settled.
  • Regulator statements in particular have left open several possibilities of cases in which a FRAND-committed SEP holder may still obtain injunctions, such as when the potential licensee refuses to allow a neutral third party to determine the FRAND rate or refuses to accept that FRAND rate.
  • One question that remains unanswered is whether patent holders that are part of SSOs or patent pools but whose patents are not essential, or patent holders that have not committed to licensing on FRAND terms but whose patents pertain to commercially popular or “commercially essential” technology, are eligible to obtain injunctive relief. While Ms. Scott-Morton suggested limits on the rights of such patent holders to seek injunctive relief, the situation seems quite different from the ability of a SEP holder to obtain injunctive relief after making a FRAND commitment. A patent holdup would be difficult in circumstances where the patent is not essential to a standard or where no commitment to license on any terms had been made. In those circumstances the popularity of a technology may be seen as something the patent holder should be able to exploit without further limitation, but this issue has not been directly addressed by the courts.

Endnotes    (↵ returns to text)
  1.  Renata Hesse, Deputy Assistant Attorney General, Department of Justice Antitrust Division, IP, Antitrust and Looking Back on the Last Four Years, Presented at Global Competition Review 2nd Annual Antitrust Law Leaders Forum (February 8, 2013), available athttp://www.justice.gov/atr/public/speeches/292573.pdf.
  2.  Id.
  3.  Id.
  4. 2012 WL 2376664 (N.D. Ill. June 22, 2012).
  5. Dan Levine, Judge Who Shelved Apple Trial Says Patent System Out of Sync, Reuters (July 5, 2012), available athttp://www.reuters.com/article/2012/07/05/us-apple-google-judge-idUSBRE8640IQ20120705.
  6. Apple, 2012 WL 2376664, at *9.
  7. Id. at *11.
  8. Id. at *11 – *12.
  9. Id. at *12.
  10. Apple’s claim for injunctive relief was dismissed for reasons unrelated to FRAND.
  11. Apple, 2012 WL 2376664, at *12.
  12. 2012 WL 5993202 (W.D. Wash. Nov. 30, 2012).
  13. Id. at *3.
  14. Id.
  15. Id. at *4.
  16. Id. at *5.
  17. “According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). To obtain an injunction, a plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. Id.
  18. Microsoft, 2012 WL 5993202, at *6.
  19. Id.
  20. Press Release, Federal Trade Commission, Google Agrees to Change its Business Practices to Resolve FTC Competition Concerns in the Markets for Devices like Smart Phones, Games and Tablets, and in Online Search (Jan. 3, 2013), available at http://www.ftc.gov/opa/2013/01/google.shtm.
  21. In the Matter of Google, Inc., Statement of the Federal Trade Commission, FTC File No. 121-0120 at 1 (Jan. 3, 2013), available athttp://www.ftc.gov/os/caselist/1210120/130103googlemotorolastmtofcomm.pdf.
  22. Id. at 2.
  23. FTC, Robert Bosch GmbH; Analysis of Agreement Containing Consent Orders to Aid Public Comment, 77 Fed. Reg. 71,593 (Dec. 3, 2012). 
  24. See id. at 71,596. 
  25. See id. 
  26. See id.
  27. Brief for Federal Trade Comm’n as Amicus Curiae Supporting Neither Party, Apple, Inc. v. Motorola, Inc., No. 12-1548 (Fed. Cir. Dec. 14, 2012).
  28. Id. at 3 – 4.
  29. Id. at 6.
  30. Id. at 12 – 13.
  31. Id. at 3.
  32. Department of Justice and Patent & Trademark Office, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments (January 8, 2013), available at http://www.justice.gov/atr/public/guidelines/290994.pdf
  33. Id. at 6.
  34. Id. at 7.
  35. Fiona M. Scott-Morton, Deputy Assistant Attorney General for Economic Analysis, Department of Justice Antitrust Division, The Role of Standards in the Current Patent Wars, Address at Charles River Associates Annual Brussels Conference: Economic Developments in European Competition Policy (Dec. 5, 2012), available at http://www.justice.gov/atr/public/speeches/289708.pdf
  36. Id. 
  37. Id. 
  38. Id.

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