Posts by: Jay Jurata

SEP licensing in supply chains: ECJ gets opportunity for a major trend-setting decision

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Patent License agreement on a table Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

In a decision of November 26, 2020 in a patent infringement case of Nokia Technologies Oy against Daimler AG, the Düsseldorf Regional Court (file number 4c O 17/19) referred several questions to the European Court of Justice (ECJ) regarding the licensing of standard essential patents (SEPs) within multi-level supply chains. The Düsseldorf Regional Court suspended the infringement action until the decision of the ECJ. These questions referred to the ECJ address whether SEP owners are obligated to make licenses available to upstream component suppliers and the implications for the failure to do so, which are some of the biggest unresolved disputes involving SEPs. The questions also seek clarification on some of the “safe harbour” requirements for seeking injunctions set forth in the ECJ’s decision in the Huawei./. ZTE case (judgment of July 16,2015, C170/13).

In the lawsuit, Nokia is seeking an injunction against Daimler for an infringement of the German part of its European patent EP 2 087 629 B1. The patent concerns a method for sending data in a telecommunications system, whereby the patent is essential for the LTE standard (4G). LTE-capable modules from various suppliers of automotive parts make use of this standard. These modules are installed in cars of the automobile manufacturer Daimler and enable mobile radio-based services such as music or data streaming and/or over-the-air updates of specific software in cars.

In September 2014, Nokia’s predecessor in title indicated that it considered its patent essential to the LTE standard and issued a statement committing to grant licenses to third parties on terms that are fair, reasonable and non-discriminatory (FRAND). Both Daimler and many of its suppliers have so far used the patent without paying royalties.

Nokia argues that, as the owner of an SEP, it is free to decide at which stage of a complex production and supply chain it grants licenses on FRAND terms.

In contrast, Daimler and its upstream component suppliers argue that, based on the rules of the EU internal market and the FRAND declaration of September 2014, Nokia, as the owner of the SEP, must offer every license seeker, who is willing to obtain a license for the SEP, an individual unlimited license for all patent-relevant types of use of the SEP. Therefore, priority should be given to the license-seeking suppliers, which would correspond to the standard procedure in the automotive industry.

In the referral decision, the Düsseldorf Regional Court assumed that Nokia has a claim for injunction against Daimler due to a patent infringement. However, the court raises the question whether Nokia’s assertion of its injunctive relief against Daimler can be regarded as an abuse of its undisputed dominant position in the licensing market. The decisive question would be whether and, if so, under which circumstances the owner of an SEP abuses his dominant position if he files an action for injunction on the grounds of a patent infringement against the seller of an end product without first having complied with the licensing request of the suppliers that use the SEP as well.

Specific questions referred to the ECJ

  1. May a company, that is active on a downstream economic level, raise the objection of an abuse of a dominant position within the meaning of Art. 102 TFEU against an action for injunction due to the infringement of an SEP, if the standard (or a part of the standard) is already implemented in an intermediate product purchased by the infringing party whose supplier are willing to obtain a license and the patent owner refuses to grant an unlimited license for all patent-relevant types of use under FRAND conditions for products implementing the standard?
  2. Does the prohibition of an abuse of a dominant position require that the supplier be granted its own unlimited license for all types of use on FRAND terms for products implementing the standard in the sense that the final seller (and possibly the upstream buyers) in turn no longer need a separate license from the SEP owner in order to avoid the infringement of the patent through the intended use of the relevant parts of the suppliers?
  3. If the question 1) is answered in the negative: Does Article 102 TFEU impose specific qualitative, quantitative and/or other requirements on the criteria according to which the owner of an SEP decides against which potential patent infringers at different levels of the same production and exploitation chain he takes action for injunction?
  4. Notwithstanding of the, fact that the duties of conduct to be performed by an SEP owner and an SEP user (notification of infringement, licensing request, FRAND license offer; license offer to the supplier to be licensed with priority) must be fulfilled prior to a court proceeding, is it possible to make up for duties of conduct that were missed prior to a court proceeding in the course of a court proceeding?
  5. Can a considerable licensing request by the patent user only be assumed if a comprehensive assessment of all accompanying circumstances clearly and unambiguously shows the intention and willingness of the SEP user to conclude a license agreement with the SEP owner on FRAND conditions, whatever these (in the absence of a license offer not foreseeable) FRAND conditions may look like?

Timing and Implications

It likely will take between one to two years until the questions are fully briefed and the ECJ rules on the questions.

Notwithstanding the delay, these questions will provide the ECJ with an important opportunity to make a decision that will have a major impact on supply chains around the globe. They also will reduce the likelihood, pending the ECJ’s decision, that courts in Europe will issue injunctions against automotive manufacturers for cellular SEPs when upstream telematic component manufacturers are willing to enter FRAND licenses. Finally, they likely will influence ongoing efforts by the European Commission to provide policy guidance to improve transparency and predictability in SEP licensing.

The answers of the ECJ will give guidance and can be expected to have a tremendous effect not only in the automotive industry, but for any industry that relies on SEPs. The further proceedings will, thus, need to be followed closely.

Whistling in the Wind? DOJ’s Unusual Statement of Interest in FTC v. Qualcomm Case Highlights Disparity Between U.S. Antitrust Agencies on FRAND, SEPs, & Competition Law

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In a highly unusual move, the U.S. Department of Justice Antitrust Division (DOJ) recently filed a statement of interest in the Federal Trade Commission (FTC)’s unfair competition case against Qualcomm. The statement asks the court to order additional briefing and hold a hearing on a remedy if it finds Qualcomm liable for anticompetitive abuses in connection with its patent licensing program. As the FTC pointed out in its short response to the DOJ, the court had already considered and addressed the question of whether liability and remedies should be separately considered, and the parties had already submitted extensive briefing regarding remedies.

The DOJ’s “untimely” statement of interest, in the words of the FTC, comes three months after a bench trial concluded in January of this year, while the parties are awaiting a decision on the merits from Judge Koh. The DOJ’s filing represents the most direct clash between the DOJ and the FTC on the issue of standard-essential patents (SEPs) subject to a commitment to license on fair, reasonable, and nondiscriminatory terms (FRAND). The two agencies have expressed divergent positions but up until recently had not directly taken any affirmative actions in the other’s cases or enforcement activities.

Though the statement of interest notes that the DOJ “takes no position . . . on the underlying merits of the FTC’s claims,” the DOJ’s views on this subject are well known. Assistant Attorney General for Antitrust Makan Delrahim has been a prominent and outspoken critic of the principal theory of the FTC’s entire case—that breach of a FRAND commitment can amount to an antitrust violation—despite the fact that legal precedent is well-settled in favor of the FTC’s position.

The Filing Represents Another Step by DOJ to Protect SEP Holders

For some time now, the DOJ has articulated a position largely hostile to the FTC’s underlying theory in its case against Qualcomm: the applicability of competition law upon a breach of a FRAND commitment. As background, SEPs are patents that have been voluntarily submitted by the owner and formally incorporated into a particular technological standard by a standard-setting organization (SSO). Because standardization can eliminate potential competitors for alternative technologies and confer significant bargaining power upon SEP holders vis-à-vis potential licensees, many SSOs require that the patent holder commit to license its SEPs on FRAND terms.

Beginning in late 2017, AAG Delrahim made a series of speeches presenting the DOJ’s new position on SEPs, FRAND commitments, and competition law. Among other issues, AAG Delrahim stated that the antitrust laws should not be used to police the FRAND commitments of SEP holders, insisting that such issues are more properly addressed through contract and other common law remedies. This new position by the DOJ was notable not only because it reversed the approach of the prior administration but also because it was largely inconsistent with numerous U.S. court decisions—including Judge Koh’s denial of Qualcomm’s motion to dismiss the FTC’s case. At a conference last week, AAG Delrahim doubled down on the DOJ’s position and stated he is looking for the “right case” to test the DOJ’s views on this issue. But if the DOJ were to press its views in court, it would find itself in a difficult and awkward position of having to argue that other cases that have ruled on these issues were wrongly decided.

In addition to the speeches, the DOJ has taken measures to implement its new approach, which up until recently, stopped short of effectively challenging the FTC. First, the DOJ opened several investigations of potential anticompetitive conduct in SSOs by companies that make devices implementing standards. Second, the DOJ withdrew its support from a 2013 joint statement issued by the DOJ and the U.S. Patent & Trademark Office on remedies for FRAND-encumbered SEPs because of the DOJ’s view, as explained by AAG Delrahim recently, that the policy statement “put a thumb on the scale” in favor of licensees. Third, the DOJ sought to submit another statement of interest in a private lawsuit filed by u-Blox alleging that InterDigital breached its FRAND commitments by demanding supra-competitive royalty rates for various wireless communications SEPs.

The DOJ’s current position fails to recognize the market distortion that can result when an SEP owner fails to comply with a voluntary commitment to limit those same patents rights—and the market power that is conferred on SEP holders in return for that commitment. It also fails to recognize that such policy actions ultimately will embolden certain SEP owners to engage in even more aggressive behavior at a critical period when innovative companies are beginning to incorporate wireless communications SEPs into entirely new industries, such as automobiles and the Internet of Things.

DOJ’s Filing Is Highly Unusual

The DOJ’s decision to insert itself into a case brought by another enforcement agency is exceedingly rare (although not entirely unprecedented). This is especially true because the FTC is representing the interest of consumers by acting pursuant to its authority under the FTC Act. The timing is also curious because the DOJ waited three months after the bench trial ended to file its statement, likely long after the court began drafting its opinion. The statement could be seen as a warning to the court that if it finds an antitrust violation it should not impose a remedy based on the evidence presented at trial.

The DOJ’s statement of interest further begs the question of why the agency thought it was necessary to bring itself into the case. To the extent that Qualcomm believes that the court should order additional briefing and a hearing on the issue of a remedy, even though the issue has seemingly already been addressed, Qualcomm is perfectly capable of presenting those views to the court on its own. In its response, the FTC made clear that it “did not participate in or request” the DOJ to weigh in on the case.

DOJ’s filing notes it is concerned about the risk that an “overly broad remedy” could “reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology.” But such a statement is remarkable. First, it suggests that the DOJ believes its sister enforcement agency is not concerned about fostering competition and innovation. Second, the statement suggests that the DOJ is willing to second-guess from the sidelines the judgment of both a court and competition agency that have been evaluating in detail the effect of Qualcomm’s business practices. Even if both of those positions are true, it is surprising to see the DOJ submit such a controversial filing in a matter in which AAG Delrahim is recused.

Ultimate Impact of Filing

The DOJ could have had multiple underlying motivations for choosing to submit this filing. Consistent with the split between the DOJ and FTC noted above, the DOJ could be signaling to the court that it disagrees with the FTC’s theory of competitive harm in an effort to influence the outcome on the merits. The DOJ could also be attempting to apply subtle pressure on the FTC to reach a settlement with Qualcomm to avoid drawing further attention to the two agencies’ divergent views on breach of a FRAND commitment. The statement could also be intended to discourage litigants from bringing antitrust cases premised on a breach of FRAND theory, demonstrating that, like in the u-Blox case, the DOJ is not reluctant to intervene.

However, regardless of the DOJ’s intention, its filing is unlikely to achieve any of those objectives. Judge Koh is an experienced judge who is well versed in issues at the intersection of antitrust and intellectual property law and does not shy away from ruling on difficult issues. Notably, when the FTC and Qualcomm jointly requested that she delay ruling on the FTC’s motion for partial summary judgment to pursue settlement negotiations, she denied the request and issued a significant decision holding that Qualcomm’s FRAND commitment means that it must offer licenses to its SEPs to competing chipset suppliers. Judge Koh may also exercise discretion to deny the DOJ’s statement, as the FTC pointed out in its response. More broadly, it is also unlikely that such a public airing of disagreement will go over well with an agency very focused on the state of competition in technology sectors. And the statement is also unlikely to deter private plaintiffs in light of the well-established and increasing body of case law holding that a breach of FRAND can violate competition law. The DOJ’s statement of interest, as unusual as it is, may ultimately amount to nothing more than whistling in the wind.

The Antitrust Review of the Americas 2019

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As part of Global Competition Review’s The Antitrust Review of the Americas 2019, Orrick attorneys Jay Jurata, Alex Okuliar, and Emily Luken contributed a chapter titled “IP and Antitrust,” examining three important developments this year evolving from recent trends at the intersection of IP and antitrust law.  The chapter is part of GCR’s The Antitrust Review of the Americas 2019, first published in September 2018.

Japan SEP Licensing Guide Also Aims To Prevent Abuse

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In response to a recent article by former director of the U.S. Patent and Trademark Office David Kappos, Orrick Antitrust attorneys John “Jay” Jurata and Emily Luken weigh in with their perspective on the Japan Patent Office’s “Guide to Licensing Negotiations Involving Standard Essential Patents.” While they agree that the Guide provides a balanced approach to the issues, they also provide insight into how the Guide acknowledges and expands upon potential abuses of standard essential patents. Read more here.

Out of Sync? : DOJ’s Policy Reversal Towards SEPs Lacks Legal Support

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Jay Jurata and Emily Luken co-authored an article for Global Competition Review about the troubling policy shift by the DOJ’s Antitrust Division regarding the application of competition law to the assertion of standard-essential patents.

Please click here to read the full article.

UK High Court of Justice Issues an Injunction Prohibiting Huawei from Selling Wireless Telecommunications Products in Britain Due to its Failure to Enter Into a Worldwide Patent License

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Orrick antitrust practice team attorneys Matthew G. Rose, Jay Jurata and Emily Luken recently published an article in the e-Competitions Bulletin August 2017 discussing the implications of the UK High Court of Justice ruling that enjoins Huawei from selling wireless telecommunications products in Britain due to Huawei’s failure to enter into a patent license for Unwired Planet’s worldwide portfolio of standard-essential patents (SEPs), even though Huawei was willing to enter into a license for Unwired Planet’s United Kingdom (UK) SEPs.

The article examines the potential competitive harms that would result from a regime in which licensees are required to take worldwide SEP licenses.

Federal Trade Commission Publishes Study Analyzing Patent Assertion Entity Organization and Behavior

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For years, a debate has swirled in Washington and around the country about the role and economic value of “patent assertion entities” – often referred to derisively in the press as “patent trolls.” Some of these PAEs have been known to blanket small businesses with threatening letters claiming infringement of sometimes questionable patents hoping to receive a quick payout. The Federal Trade Commission just recently published a long-awaited Patent Assertion Entity Activity Study that analyzes the structure, organization, and behavior of PAEs, hoping to inform the debate about these entities. Using responses from a sample of 22 PAEs and more than 2,500 PAE affiliates and related entities, the study analyzes PAE acquisitions, litigation, and licensing practices over a six-year period. The findings in the study are extensive and are likely to provoke further discussion and debate. The Commission’s key findings and recommendations are discussed below. READ MORE →

FTC and DOJ Antitrust Division Request Comments on Proposed Revisions to Antitrust Guidelines for Licensing IP

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After several turbulent years of litigation and policy wrangling, many have asked whether the federal antitrust agencies should rewrite their two-decade old Antitrust Guidelines for the Licensing of Intellectual Property (“Guidelines”).  Should they provide clearer guidance regarding thorny questions about licensing standard essential patents (SEPs), patent assertion entities (PAEs), reverse payment settlements, or other matters that have prompted new guidelines from other enforcers around the world?  On August 12, the Federal Trade Commission and US Department of Justice’s Antitrust Division responded with modest updates to the Guidelines, likely setting themselves up for considerable commentary in the weeks to come.

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U.S. Supreme Court Reaffirms Prohibition on Post-Expiration Patent Royalties, and the Vitality of Stare Decisis, in the Kimble “Spider-Man” Case

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On June 22, 2015, in a 6-3 decision in Kimble et al. v. Marvel Enterprises, LLC, 576 U.S. (2015), the United States Supreme Court reaffirmed its holding in Brulotte v. Thys, 379 U.S. 29 (1964), that it is per se patent misuse for a patentee to charge royalties for the use of its patent after the patent expires.  While acknowledging the weak economic underpinnings of Brulotte, the Court relied heavily on stare decisis and Congressional inaction to overrule Brulotte in also declining to do so itself.  Although Kimble leaves Brulotte intact, the decision restates the rule of that case and provides practical guidance to avoid its prohibition on post-expiration royalties.  Critically, the Court appears to condone the collection of a full royalty for a portfolio of licenses until the last patent in the portfolio expires.  In addition, the Court’s reasoning provides guidance as to how patent licensors can draft licenses to isolate the effect of a later finding that patents conveyed under those licenses were previously exhausted.

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