Jurisprudence Evolved in Cases Involving Standard Essential Patents

Abstract

SSO IPR Policies generally require two specific commitments from members who intend to submit their underlying technology toward standard development process. The undertaking provided by a prospective implementer to an SSO is that it will make full disclosures of the existing patents and any pending patent applications that are relevant toward the standards development process. SSO members pledging patents toward standard development process are also under an obligation to issue licenses to all implementer on fair, reasonable, and non-discriminatory terms.

1 Introduction

SSO IPR Policies generally require two specific commitments from members who intend to submit their underlying technology toward standard development process. The undertaking provided by a prospective implementer to an SSO is that it will make full disclosures of the existing patents and any pending patent applications that are relevant toward the standards development process. SSO members pledging patents toward standard development process are also under an obligation to issue licenses to all implementer on fair, reasonable, and non-discriminatory terms.¹ This chapter examines the scope and wider ramifications of the obligations undertaken by the innovators who participate in the standard development process.

2 Disclosure Requirement

Multiple entities tend to submit their technologies toward standard development process, and it is necessary that SSO members are aware of the varied technologies that are subject matters of such a process, more so, if some of them have been patented. Members would also prefer to be informed about instances where patents are pending on relevant technologies. Awareness about granted and pending patents will enable members to assess between alternative technologies that can either work around existing patents or avoid instances of running into patent thickets. Knowledge about patents essential to a standard development will also enable members to an SSO to include or exclude certain technological features in a standard.²

Disclosures are usually made at the time of the standard development process but does not necessarily end after the standard has been developed.³ However, there are instances wherein granting of patents might take more time or there could be instances where the patent office might require the applicant to modify the scope of the claims in the patent application. This might result in instances wherein there is over declaration (about the scope of the patent) on the part of the implementer during the standard development process or instances wherein the innovator after gaining knowledge during the development process modify the patent application to make it relevant to the declared standard. In both instances, implementers interest could be affected especially with regards to seeking a FRAND encumbered license.

3 Non-disclosure at the Time of Standard Development

Non-compliance with the disclosure requirement has resulted in litigations and complaints of anticompetitive practices between implementers and innovators. One of the earliest cases involved Dell Computers which had withheld patent information that was relevant to the development of standards related to computers. Dell Computers, a member of Video Electronics Standards Association (VESA), withheld information about a patent it owned that was essential toward the development of a standard on VL-bus, that relay information between the ‘computer’s central processing unit and its peripheral devices’. Dell had obtained a patent in 1991 but did not disclose it to VESA during the development of the standard. Instead, after eight months from the adoption of the standard and incorporation of the technology in nearly 1.4 million computers, Dell started enforcing its patent against implementers of the VL-bus standard.⁴ VESA argued that its policies required members to act in good faith and disclose information relevant to the standard being developed. Dell had also agreed to do so during the standard development process. Therefore, if Dell had acted in good faith and disclosed about the patent, members would have adopted a non-proprietary standard that would have reduced the implementers cost. The Federal Trade Commission (FTC) in its consent order stated if “Dell had acted in good faith and informed about the patent conflict during the standard development process, then it would have enabled VESA to adopt a non-proprietary standard. The FTC opined that Dell’s non-disclosure would have caused harm to competition and affected consumer welfare”.⁵ Dell agreed not to enforce its patent pledged to the standard development and entered into a consent order.⁶

In Rambus v Federal Trade Commission,⁷ Rambus participated in the standard development process of the Joint Electronic Device Engineering Council (JEDEC). During the development phase of dynamic random-access memory technology, Rambus failed to disclose information about the patent it owned, patent applications it had filed that were relevant to the standard development. FTC found that Rambus benefitted by participating in the standard development phase that enabled it to amend the pending patent applications. Rambus withdrew its membership from JEDEC and subsequently asked implementers of the DRAM standard to renegotiate the license as it had held patents that are relevant to the JEDEC standard. This resulted in FTC finding that Rambus violated the Sherman Act as it unlawfully monopolized the market through its deceptive conduct. However, the District Court of Columbia Circuit opined that the FTC failed to prove that lack of disclosure enabled Rambus to monopolize the market. It stated that:

[A]n antitrust plaintiff must establish that the standard-setting organization would not have adopted the standard in question but for the misrepresentation or omission.

However, in Europe, the EC alleged that Rambus indulged in deceptive practices relating to patents that were relevant to DRAM standards developed by JEDEC. Non-disclosure of relevant patents to the SSO enabled Rambus to demand unreasonable royalties from implementers. Had Rambus disclosed the relevant patents at the time of the standard development process; SSO members would have the option of exploring alternatives that could have become part of the standard. EC was of the view that this amounted to abuse of dominant position and as such breached Article 102 of the TFEU. EC observed that standard setting process usually progresses based on declaration of the relevant proprietary rights owned or patent applications filed by the participants. This requires members to declare existing patents and pending patent applications on good faith basis as such declaration would enable SSO’s to assess the availability of viable alternative technologies as well as secure a commitment from patent holders that they would license the technology on reasonable terms. JEDEC required members to disclose all patent related information as it relied on such compliance to assess and evaluate whether to include such technologies in the standard or to choose other viable alternatives. Rambus not only captured the standard by not providing patent-related information, but also locked the industry to a standard where members were not aware of patents owned by Rambus. EC opined that:

suppression of the relevant information necessarily distorted the decision-making process within a standard-setting body … save for Rambus’ alleged deceit, JEDEC Members were likely to have designed a “patent-free” standard around Rambus’ patents … there were substantial barriers to entry on the market and that the industry was locked into the JEDEC DRAM standards.⁸

EC emphasized that deceptive conduct does not in itself amount to abuse of dominance. However, the subsequent lock-in meant that implementers had to use the technologies owned by Rambus which was now in a position to assert that some of the relevant patents necessary to practice the standard is owned by it and is not subject to FRAND terms. This enabled Rambus to illegally monopolize the market as members would have to either pay the royalty demanded by Rambus or face infringement action or leave the market. EC closed the investigation as Rambus in its commitment proposed not to charge the JEDEC members for the past royalties and agreed to cap its royalties for the DRAM chips.

3.1 Non-disclosure Amounting to Equitable Doctrine of Implied Waiver

Standard setting organizations play a key role in developing new standards which enables interoperability of technologies among various competitors and as such facilitate wide dissemination of the underlying technologies. One of the key elements of participating in the standard setting process is that the patent holder submitting the patented technology agrees to offer licenses to all those seeking the license on a fair, reasonable, and non-discriminatory (FRAND) term. This commitment made toward the SSOs and third parties is the key foundation on the basis of which the standard setting process is undertaken. Any breach of the FRAND commitment by the patent holder after the adoption of standard would amount to deception as the breach of promise would enable the patent holder to exercise monopoly power as all prospective licensees would want to implement the standard and are forced to seek a license from the patent holder without having any recourse to alternative technology.

In Qualcomm v Broadcom, the key issue raised by Broadcom was that the breach of FRAND commitment by Qualcomm after the adoption of the patented Wideband Code Division Multiple Access (WCDMA) into the Universal Mobile Telecommunication Service (UMTS) standard amounted to anticompetitive behavior as it conferred monopoly power that enabled it to charge supra-competitive prices.⁹ The Court of Appeals held that:

(1) in a consensus-oriented private standard-setting environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on FRAND terms, (3) coupled with an SDO’s reliance on that promise when including the technology in a standard, and (4) the patent holder’s subsequent breach of that promise, is actionable anticompetitive conduct.¹⁰

It further opined that a private standard setting environment requires all participants to fully disclose their underlying patented technology at the time of developing a standard and also agree to comply with the FRAND commitments. Non-observance of the FRAND commitment to prospective licensees also amounts to deception as it confers monopoly power on the patent holder. Such behavior results in “competitive harm” and denies prospective implementers who have adopted the standard no plausible alternative.¹¹

4 Injunctive Relief

Injunctive relief is one of the rights enshrined in the Charter to Fundamental Rights.¹² In SEP-related matters SEP holders can use it effectively to compel implementers to enter into licensing agreement by threatening them with injunction suits. This may favor the SEP holders and thus distort competition.¹³ On the other hand, refusal to grant injunctive relief to SEP holders in genuine cases might serve as an incentive to implementers not to enter into a licensing agreement or delay the negotiation process.¹⁴ Therefore, it is necessary to have a framework to provide injunctive relief in disputes involving SEPs.

4.1 Pre-Huawei Jurisprudence

Depending on the facts of each case courts have dealt with interim injunction relief claims either in favor of SEP holder or in favor of implementer.¹⁵ Lemley and Shapiro observed that:

the threat of an injunction can enable a [SEP] holder to negotiate royalties far in excess of the patent holder’s true economic contribution. Such royalty over-charges act as a tax on new products incorporating the patented technology, thereby impeding rather than promoting innovation.¹⁶

Therefore, courts across jurisdictions were reluctant provide to injunctive relief in cases involving SEPs as the patent holder is under an obligation to issue licenses on FRAND terms and the threat of injunctive relief would normally force an implementer to agree to royalty rates higher than FRAND terms.¹⁷

SSO policies further exacerbated the issue by excluding SEP holders from seeking injunctive relief. For instance, the IEEE policy ensured that the SEP holder was excluded from obtaining injunction against an unwilling licensee. The IEEE amendment on injunctive relief was phrased as:

A statement that the Submitter will make available a license for Essential Patent Claims to an unrestricted number of Applicants on a worldwide basis without compensation or under Reasonable Rates, with other reasonable terms and conditions that are demonstrably free of any unfair discrimination to make, have made, use, sell, offer to sell, or import any Compliant Implementation that practiced the Essential Patent Claims for use in conforming with the IEEE Standard. An Accepted LoA that contains such a statement signifies that reasonable terms and conditions, including without compensation or under Reasonable Rates, are sufficient compensation for a license to use those Essential Patent Claims and preclude seeking, or seeking to enforce, a Prohibitive Order except as provided in this policy. The Submitter of an Accepted LoA who has committed to make available a license for one or more Essential Patent Claims agrees that it shall neither seek nor seek to enforce a Prohibitive Order based on such Essential Patent Claim(s) in a jurisdiction unless the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review, if sought by any party within applicable deadlines, in that jurisdiction by one or more courts that have the authority to: determine Reasonable Rates and other reasonable terms and conditions; adjudicate patent validity, enforceability, essentiality, and infringement; award monetary damages; and resolve any defenses and counterclaims. In jurisdictions where the failure to request a Prohibitive Order in a pleading waives the right to seek a Prohibitive Order at a later time, a Submitter may conditionally plead the right to seek a Prohibitive Order to preserve its right to do so later, if and when this policy’s conditions for seeking, or seeking to enforce, a Prohibitive Order are met.¹⁸

The above amendment in the IEEE policy was contrary to universally acknowledged relief available to a patent holder when faced with the scenario of an unwilling licensee.¹⁹ Injunctive relief is available to the SEP holder only in case the implementer does not abide by the arbitral award or decision of the court.²⁰ The other exceptions being instances wherein SEP holder could bring a claim against implementer were instances involving disputes related to reasonable rates of royalty, patent validity, essentiality, and award of monetary damages.²¹ This had tilted the balance in favor of implementers, and SEP holders had very little leverage against infringers who were unwilling to seek license from SEP holder. Furthermore, it can also result in increased litigation between SEP holders.²²

The Federal Circuit Court in Apple, Inc. v Motorola Inc., stated that there was no such rule that per se prohibited the SEP holder from seeking injunctive relief in a FRAND encumbered SEP matter.²³ It stated that ‘an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreason—ably delays negotiations to the same effect’.²⁴ Moreover, the US Federal Trade Commission (USFTC), in Google/Motorola consent decree settlement, stated that injunctive relief should be available against unwilling licensees/infringers in certain limited situations.²⁵

The revised IEEE policy, by making it conditional to seek injunctive relief, failed to provide a reasonable justification as to its qualified availability to SEP holders who have complied with the FRAND commitments.²⁶ This had often resulted in SEP holders failing to get injunctive relief in FRAND encumbered cases even though there had been a clear and blatant infringement of the said patents.²⁷ Courts had in the past refused to entertain claims for injunctive relief even in instances where there was nonpayment of royalties or patent hold-out or bad faith negotiation of licenses by implementers.²⁸ Theodore Essex, in his ITC Investigation report noted that:

… standards implementers using the technology incorporated in the standard but without seeking a license or without engaging in licensing negotiations can lead to SEP holders filing a suit against and the standards implementers being forced to pay royalties at the FRAND rate, the same FRAND rate at which they were willing to pay the royalties in the first place.²⁹

Such unwilling conduct on the part of implementers shifted the risks associated with negotiation of licenses and placed SEP holders at the mercy of implementers. Further, it would take away the incentive to participate in the standard setting process and pledge the underlying technology to become a standard if there was no prospect of earning royalties from implementers who could simply refuse to negotiate in good faith.³⁰ As Judge Essex succinctly summed up:

taking away the right to seek injunctive relief from SEP holders not only “puts the risk of loss entirely on the side of the patent holder,” but also “encourages patent hold-out”, which is as unsettling to a fair solution as any patent hold-up might be.³¹

Further, the Federal Court of Justice in Germany had developed the Orange Book Standard. In a patent infringement dispute, the defendant can set up a defense by stating that the conduct of the plaintiff amounted to an abuse of a dominant position which affects the fair competition in the market.³² The defense can be raised by the defendant only if showed that it was ready to unconditionally accept the licensing terms at the royalty rate determined by the plaintiff and the defendant despite having reservations with the terms of the agreement pays the royalty through an escrow account.³³ The objective behind the standard is to prevent a patent holder from seeking injunction against the defendant who is willing to take a license. The standard relied more on the EU competition law to prevent a patent holder from seeking injunctive relief against the willing defendant who might have had disagreements as to what would be an appropriate royalty rate.³⁴ In SEP-related cases, the implementers who were willing to negotiate a license and paid in the escrow account would normally use this as a defense if the SEP holder sought injunctive relief against them.

4.2 Huawei v ZTE

In Huawei Technologies Co. Ltd v ZTE,³⁵ the Court of Justice in European Union (CJEU) stated that the following factors have to be met before an SEP holder can seek an injunctive relief:

it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.

… where the proprietor of an SEP has given an undertaking to the standardisation body to grant licences on FRAND terms, it can be expected that it will make such an offer. Furthermore, … the proprietor of the SEP is better placed to check whether its offer complies with the condition of non-discrimination than is the alleged infringer.

… it is for the alleged infringer diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith, a point which must be established on the basis of objective factors, and which implies, in particular, that there are no delaying tactics.

Should the alleged infringer not accept the offer made to it, it may rely on the abusive nature of an action for a prohibitory injunction or for the recall of products only if it has submitted to the proprietor of the SEP in question, promptly and in writing, a specific counteroffer that corresponds to FRAND terms.

Furthermore, where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counteroffer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit. The calculation of that security must include, inter alia, the number of the past acts of use of the SEP, and the alleged infringer must be able to render an account in respect of those acts of use.

In addition, where no agreement is reached on the details of the FRAND terms following the counteroffer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.

Lastly, … an alleged infringer cannot be criticised either for challenging, in parallel to the negotiations relating to the grant of licences, the validity of those patents and/or the essential nature of those patents to the standard in which they are included and/or their actual use, or for reserving the right to do so in the future.³⁶

In Huawei, the CJEU is focusing on the behavior of the implementer and the SEP holder.³⁷ It provided guidelines that an SEP holder has to follow in order to be eligible to file a suit against an implementer for patent infringement or even seek injunctive relief. These guidelines enable the SEP holder to avoid the pitfalls of violating Article 102 of TFEU.³⁸ In the process, the CJEU also requires the implementer to conduct itself in a manner that demonstrates its willingness to negotiate a FRAND-encumbered license. If the implementer negotiates in good faith and follows the steps laid out by the CJEU, then it can claim abuse of dominance on the part of the SEP holder if the negotiation breaks down.³⁹ However, the CJEU failed to take into consideration that even if the SEP holder has notified the implementer there is a possibility wherein SEP holder could still be abusing its dominant position.⁴⁰

The CJEU clearly laid down that seeking injunctions must not be seen as per se abusive practice on the part of the SEP holder. The factors laid down can further be split into multiple stages. The first step of issuing a written communication to the implementer about the existence of the SEPs and respective technological information should be treated as the Notice Stage. The SEP holder should first notify the implementer about the infringement. Notification should specify the patent numbers that have been infringed by the implementer along with information about the exact manner in which it has been infringed.⁴¹ Subsequent stage wherein the SEP holder informs the implementer about the rate of royalty and the basis on which the royalty is calculated should be treated as an Offer Stage.⁴² The SEP holder is required to make an offer to the implementer which should be on FRAND terms and also royalty that needs to be paid and the method of calculating the royalty. As stated by CJEU, the SEP holder who is encumbered by FRAND obligations needs to offer the license at a reasonable rate and has the obligation to ensure that the terms and conditions of the license are non-discriminatory. While making an offer, the SEP holder should ensure that it contains information related to undertaking given by it to the concerned SSO. For instance, the ETSI IPR Policy mandates that all SEP holders have to agree to give out FRAND encumbered license to all willing licensees.⁴³ Additionally, Huawei guidelines states that an offer should contain requisite information related to amount of royalty that needs to be paid and also specify the method of calculating royalty rates.⁴⁴ However, the judgment fails to specify the extent to which the detailed information needs to made in the offer.

As per the CJEU, the implementer is under an obligation to consider the offer made by SEP holder in good faith as per established commercial practices. If the implementer accepts the offer, it can be regarded as the Acceptance or Response Stage. This step is dependent upon the willingness demonstrated by the implementer to negotiate a FRAND-encumbered license with the SEP holder.⁴⁵ The implementer is expected to promptly respond to the offer made by the SEP holder in good faith. The implementer is expected to respond to offer keeping in mind the prevailing commercial practices and refrain from any delaying tactics (Response Stage).⁴⁶ The Implementer can accept the offer, seek further clarification about the offer in the form of an enquiry, make a counteroffer, or reject the offer. It can be inferred from the Huawei guidelines the implementer needs to demonstrate diligence, respond to the offer as per the prevailing commercial practices, act in good faith, without delaying the negotiation of the license.⁴⁷ Huawei guidelines also notes that if the implementer rejects the offer made by the SEP holder, then it is necessary to make a counteroffer which is on FRAND terms in order insulate itself from any legal action that might be initiated by the SEP holder.⁴⁸

In case there is disagreement as to the royalty rate or the terms of the license agreement, the implementer has the obligation to provide a counteroffer. This can be regarded as the Counteroffer Stage. If both parties are unable to agree upon the royalty rate, they have to reach out to an independent third party to decide the same without delay. The implementer can bring an action against the “abusive nature of the injunctive suit” filed by the SEP holder, but only after making a counteroffer which is on FRAND terms (Counteroffer stage).⁴⁹ If for any reason the negotiation could not be concluded between the parties, then the implementer is under an obligation to provide a security deposit as per commercial practice given that the implementer might be using the infringing patent.⁵⁰ An independent third party may be approached by the to parties determine the amount of royalty if the negotiation breaks down or if parties could not agree upon FRAND terms.⁵¹

As per CJEU, if an implementer is engaged in delaying the negotiation of license or acting in bad faith, then such conduct can be regarded as unwillingness on the part of the implementer and the SEP holder can seek injunctive relief as a remedy. Further, in a country like India, where IP awareness is still in its infancy and not pervasive, injunctive remedies can act as a deterrent against IP violations, create awareness about IP rights, and provide incentives for firms to invest in R&D, which is critical to make the ‘Design in India’ vision a reality. The CJEU has clearly ruled that if an implementer remains passive, unresponsive, or engages in delaying tactics after being approached to enter a licensing negotiation such implementer cannot be considered as ‘willing’.⁵² While the Huawei guidelines provided a general framework, there are many unanswered questions.

The Huawei ruling provides a framework to negotiate a license on FRAND terms and this requires the SEP holder to make an offer and the implementer to show willingness to negotiate a license. Unwillingness on the part of the implementer will allow the SEP holder to seek legal remedies for patent infringement, recover unpaid royalties and claim damages. Despite the Huawei ruling, it must be noted that several cases have come up before the court wherein the primary contention is related to the reasonable period within which an implementer should respond to the offer. CJEU in Huawei deliberately left it unclear in order to enable the courts to decide reasonable time period based on the context of each case.

4.3 Post Huawei

The Huawei case came up before the CJEU as the court in Dusseldorf sought clarification regarding the approach courts are required to take in cases involving injunctive relief. Dusseldorf court wanted to understand whether it was required to apply the Orange Book Standard⁵³ or the jurisprudence developed in the Samsung and Motorola decisions.⁵⁴

While negotiating license agreement it is fairly common for the parties to exchange multiple instances of offers, counteroffers, and clarifications about the terms of the agreement between the SEP holder and the implementer. The Huawei case does not clarify how this aspect needs to be treated. Would multiple exchanges between parties be regarded as negotiations done if good faith or will it be treated as delaying tactics? Some of these issues came up before the courts in EU countries.⁵⁵

The Huawei guidelines have been applied by the German courts to determine the willingness of the parties to negotiate a license in good faith and determine whether parties have followed the negotiation process.⁵⁶

The Regional Court in Dusseldorf has ruled that notice provided by the SEP holder serves as a possible instance wherein the implementer is notified of the requisite information related to the underlying SEPs and it could double up as notifying the implementer of possible subsequent legal action that could be taken by SEP holder if there is refusal to negotiate on the part of the implementer.⁵⁷ The CJEU decision in Huawei only lays down a general framework to negotiate a FRAND encumbered license between SEP holder and implementers. However, given that the CJEU only laid down general norms without necessarily providing precise directions on certain aspects of the license negotiation, it has led to varied interpretations of the framework by the German courts.

4.3.1 Transitional Cases

The Huawei framework requires the SEP holder to notify the implementer that the SEP holders’ specific patents have been infringed upon by the implementer and the notice needs to provide specific information about all the SEPs that have been used by the implementer and that they are required to take or negotiate a license with the SEP holder.⁵⁸ In Pioneer v Acer,⁵⁹ Saint Lawrence v Vodafone,⁶⁰ Sisvel v Haier,⁶¹ the German courts granted SEP holders a ‘transition time period’ as all the cases were filed before the judgment in Huawei. As SEP holder was not required to formally notify the implementer about the instances of infringement before the decision in Huawei it was only fair that the above cases were treated as ‘transitional cases’.⁶² The notice of infringement served on the implementer by the SEP holder was considered as sufficient instance of providing notice in such ‘transitional cases’. The German courts ruled that retrospective imposition of the notification requirement upon SEP holders would be unfair especially when the issue had progressed to subsequent stages of offer and counteroffer stage.⁶³ As the primary purpose or objective behind notifying the implementer was to equip them with all the necessary information about the SEPs, the German courts reasoned that the implementer had the necessary knowledge in all the above ‘transitional cases’ as the legal proceedings had already commenced.⁶⁴

4.3.2 Willingness to Take a License

In Pioneer v Acer, the Dusseldorf Court noted that the Huawei case does not merely provide a framework to negotiate a license, rather it should be seen as a tool that can determine the willingness of the parties to negotiate a license in good faith.⁶⁵

In NTT DoCoMo, the LG Mannheim Court and Pioneer reaffirmed that the SEP holder has an obligation to notify the implementer about the possible infringement by the implementer and also specify the relevant patents that have been used by the implementer.⁶⁶ In NTT DoCoMo, the court observed that the notice sent to implementer must identify that the patents infringed by the implementer are part of a standard, identify the SEPs used by the implementer and the manner in which it has been used by the implementer.⁶⁷ The court noted that contents of the notice can vary and is dependent on the scenario of each case.⁶⁸ In Saint Lawrence v Vodafone, the Dusseldorf Court noted that the notice should clearly identify the patent by its publication number and the manner in which the said patent has been used by the implementer.⁶⁹ The Dusseldorf Court, in In Saint Lawrence v Vodafone, noted that notice must have been sent to the implementer before the SEP holder can make out any claim for injunctive relief in the court.⁷⁰

Upon receiving the notice with relevant information about the specific patents that have been infringed, the implementer is required to respond and demonstrate willingness to negotiate a license with the SEP holder in good faith. In Saint Lawrence v Deutsche Telekom, Sisvel v Haier and Saint Lawrence v Vodafone, the German courts specifically observed the time taken by the implementer to respond to the notice received from the SEP holder.⁷¹ In Deutsche Telekom, it was observed that a duration of more than three months taken by the implementer was too long and could be seen as an instance of unwillingness on the part of the implementer.⁷² In Saint Lawrence v Vodafone, a delay of five months to respond to the notice was interpreted as too long a time taken by the implementer. Such delay can demonstrate the unwillingness on the part of the implementer to negotiate a license in good faith.⁷³ However, the Regional Court in Saint Lawrence v Vodafone noted that in order to determine unwillingness on the part of the implementer, it is necessary to take note of not only the duration taken to respond to the notice, but also the information provided by the SEP holder in the earlier notice.⁷⁴ For instance, the time taken to respond to a notice sent by the SEP holder would depend entirely on the kind of information provided in the notice. If the SEP holder has provided detailed information regarding the specific patents that have been infringed, then time taken to respond to such a notice should ideally be less. In case not enough information is available in the notice, it is only natural for the implementer to take more time to respond to such notice as the implementer would have to seek more clarification from the SEP holder.⁷⁵ In Pioneer v Acer, it was held that the implementer or its parent company’s conduct demonstrated unwillingness on its part to negotiate a license.⁷⁶ In Sisvel v Haier, it was held that willingness can only be determined based on the overall conduct of the implementer.⁷⁷

If the implementer indicates his willingness to take a license on FRAND terms without imposing any condition, the SEP holder has the obligation to send an offer containing the relevant information related to the royalty and the basis on which its calculated.⁷⁸

In Tagivan (MPEG-LA) v Huawei,⁷⁹ the implementers were negotiating a license with the MPEG LA’s standard licensing agreement that was publicly available. Tagivan, the SEP holder, was part of the pool. However, the negotiation with the implementer failed despite several months of negotiation. Subsequently, the SEP holder sought for injunctive relief, rendering of accounts, destruction of infringing products and a declaration that the implementer is liable for infringement. While the matter was before the District Court of Dusseldorf, the implementer made counteroffers to the SEP holder limited to SEPs owned by them in the pool. The implementer went to the extent of even providing bank guarantee to the SEP holder. The Dusseldorf Court stated that if the SEP holder and implementer have followed the Huawei guidelines then there is no reason to worry even if the SEP holder has in a dominant position. It stated that both the parties must discharge their obligations in good faith by following the various steps indicated in the Huawei guidelines. It also affirmed that a notice of infringement sent to parent company essentially complies with the guidelines as long as the infringing patents have been identified and the specific instances of infringement are clearly mentioned in the notice. Further, it indicated that any response made by the parent company that received the notice will be treated as an indication of willingness to negotiate the license in good faith.

4.3.3 FRAND Terms

When an offer is made by the SEP holder, it is necessary to ensure that it is based on FRAND terms. The Regional Court of Dusseldorf noted that whether offer is on FRAND terms can be determined by looking at comparable license agreements entered by the SEP holder. If the terms of the licensing agreements are similar, then there is a likelihood that the royalty rate offered by the SEP holder is more likely to be on FRAND terms.⁸⁰ In order to determine whether different license agreements are on similar terms, it is necessary to compare them and understand the scope of the offer made by the SEP holder. In Saint Lawrence v Vodafone, the Regional Court stated that there is no single mathematical value or number that would meet the FRAND requirement, rather a range of values that are ‘fair, equitable and non-discriminatory’ would be considered as FRAND.⁸¹ It is absolutely necessary for the SEP holder to clearly specify the consideration for the FRAND-encumbered license agreement.⁸² The SEP holder should have enough discretion to determine the FRAND terms.⁸³ If the offer made by the SEP holder is not accompanied with a comprehensible calculation of the royalties, then such an offer cannot be regarded as a FRAND offer.⁸⁴

4.3.4 Obligation to Respond to the Offer

Willingness of the implementer to negotiate a license based on FRAND terms can be assessed based on the time take by the implementer to respond to such an offer.⁸⁵ The Regional Court of Mannheim in Pioneer opined that the implementer is under an obligation to respond to the offer made by SEP holder even though the implementer is of the opinion that such an offer is not on FRAND terms.⁸⁶ If the implementer has failed to respond to the offer made by SEP holder, the courts have been reluctant to examine whether the offer was made on FRAND terms as any delay or failure to respond to the offer is regarded as unwillingness on the part of the SEP holder.^87,88 In Sisvel v Haier the court determined unwillingness of the implementer based on the response provided by the implementer. In Saint Lawrence v Deutsche Telekom, it was held that while the implementer need not always agree with royalty rate offered by the SEP holder, the willingness on the part of the implementer can be determined based on the kind of counteroffer provided. If the counteroffer provided by the implementer is too restrictive, then it can be ruled by the court that there was unwilling conduct by the implementer. Therefore, a counteroffer that only restricts the license to one country or region would be treated as a restrictive counteroffer especially when the offer made by the SEP holder was for a worldwide license.⁸⁹ If there is no comprehensible method to calculate the royalty rate in the counteroffer, then it may not be considered as a ‘concrete counteroffer’.⁹⁰ This is particularly the case as the implementer may be required to furnish a guarantee to the court during the negotiation process as there is no concrete reference point on the basis of which royalty is determined by the implementer.⁹¹ Further, any delay in making a written counter offer would mean that the implementer has failed to meet the obligation.⁹²

4.3.5 Security Deposit

Negotiation of license is a continuous process and does not end when an offer is made by SEP holder or when a counteroffer is made by the implementer. There can be several instances of back-and-forth inquiry into the terms of the offer or counteroffer, and as such the entire process needs to be seen a continuous process. As per the Huawei guidelines, the SEP holder is under no obligation to accept the counteroffer and instead could reject the same. In such instances, the implementer should make a security deposit as per the acceptable commercial practices in order to demonstrate his willingness to negotiate and agree upon a FRAND-encumbered license.⁹³ Based on the Huawei guidelines, courts had multiple opportunities to emphasize on the need to deposit appropriate security with SEP holder within reasonable time frame as this would demonstrate that the implementer is willing to negotiate a license and also goes a long way in assuring the SEP holder is not denied of the adequate royalty while the negotiation is ongoing. In Sisvel v Haier, the court was of the opinion that the obligation of the implementer does not end with the making of a counteroffer. There can be instances wherein the SEP holder may not agree with the terms of the counteroffer, in such instances it is necessary for the implementer to assure the SEP holder that while the negotiation might go on for a while, it is prepared to make a security deposit for the continued use of the underlying SEP. Therefore, after the rejection of the counteroffer it is necessary for the implementer to render the accounts to SEP holder on a timely basis and provide a security deposit.⁹⁴ This demonstrates that the implementer is acting in good faith.⁹⁵ The obligation arises the moment the counteroffer is rejected by the SEP holder.⁹⁶ In the Sisvel case, the implementer took more than 12 months from the rejection of the counteroffer to deposit the security and render the accounts. The court deemed this as a delay on the part of the implementer. The court was of the opinion that the clock started ticking the moment the counteroffer was rejected by the SEP holder and timeframe to deposit security and render accounts should be interpreted in a narrow manner.⁹⁷ A delay of the kind noted in the Sisvel case would be seen as an instance of delaying tactic on the part of the implementer and could be interpreted as an unwilling conduct on the part of the implementer.⁹⁸ In Pioneer, the court opined that demonstration of willingness to negotiate a license in such instances would be based on the immediate steps taken by the implementer.⁹⁹ This would certainly involve immediate measures taken by the implementer to furnish security, as such a measure in the immediate aftermath of the rejection of the counteroffer would go a long way to demonstrate the willingness on the part of the implementer to negotiate a license.

4.3.6 Unwired v Huawei

Unwired Planet v Huawei dealt with the FRAND issue and competition concerns related to SEP licensing.¹⁰⁰ The Supreme Court of England was required to decide upon four specific issues which are as follows:

• 1. Is it appropriate for courts in England to exercise jurisdiction in SEP related cases where the parties have not agreed to it jurisdiction? Can the English courts exercise the power to grant injunctions against the implementer and decide upon royalty rate?

• 2. Whether the English courts should have stayed the proceedings citing forum non conveniens?

• 3. Whether English courts can issue global FRAND rates and how does one go about the non-discrimination prong of the FRAND requirement?

• 4. Whether all aspects of the Huawei guidelines have to be followed for the SEP holder to file for injunctive relief and whether noncompliance of any aspect of the guidelines would enable the implementer to claim abuse of dominance against the SEP holder.

While ruling on the first issue, the Supreme Court observed that:

We agree with the parties that the FRAND obligation in the IPR Policy he IPR Policy is intended to have international effect, as its context makes clear. This is underlined by the fact that the undertaking required of the owner of an alleged SEP extends not only to the family of patents (subject only to reservations entered pursuant to clause 6.2 of the IPR Policy) but also to associated undertakings, as stated in the declaration forms in the IPR Policy. In imposing those requirements and more generally in its requirement that the SEP owner makes an irrevocable undertaking to license its technology, ETSI appears to be attempting to mirror commercial practice in the telecommunications industry. We do not accept the distinction which Huawei draws (in its third submission above (para 53)) between voluntary agreements which operators in the telecommunications industry choose to enter into on the one hand and the limited powers of a court on the other, since the IPR Policy envisages that courts may determine whether or not the terms of an offered licence are FRAND when they are asked to rule upon the contractual obligation of a SEP owner which has made the irrevocable undertaking required under the IPR Policy. It is to be expected that commercial practice in the relevant market is likely to be highly relevant to an assessment of what terms are fair and reasonable for these purposes. Moreover, the IPR Policy envisages that the parties will first seek to agree FRAND terms for themselves, without any need to go to court; and established commercial practice in the market is an obvious practical yardstick which they can use in their negotiation. In our view the courts below were correct to infer that in framing its IPR Policy ETSI intended that parties and courts should look to and draw on commercial practice in the real world.¹⁰¹

The Supreme Court opined that there is no harm in a national court setting the global FRAND rates and exercise its jurisdiction and to this effect it pointed out to several SEP-related cases decided by courts in other jurisdictions that indicated the willingness to exercise jurisdiction. The Supreme Court noted that if a case involves patents that were granted in UK, it is a good enough ground to intervene. It noted that “in the context of a global standard it is disproportionate to exclude an implementer from the UK market unless it enters into a worldwide licence of untested patents solely because it has infringed a UK patent”.¹⁰² If the issue involves national patents, then the English courts have every right to determine the validity of such patents and also determine the infringement of such patents. It examined ETSI’s IPR policy and held that the policy enables the SEP holder to seek an injunctive relief and also enabled courts to decide upon a global license. It held that it’s only fair for the English courts to determine whether an injunction is to be granted and also decide upon appropriate remedy when the issue involves a UK patent being infringed upon.¹⁰³

Huawei had raised the issue whether the English court were the appropriate forum given that Chinese companies were involved in the case and China might have been the appropriate forum to decide the case. To this, UK Supreme Court stated the parties had not showed that China was the appropriate forum as an alternative to the courts in England and Wales. The UK Supreme Court opined that:

the English court does have such a jurisdiction, even in the absence of consent by the parties, and it has of course exercised that jurisdiction in the Unwired case. Directions have been given in the Conversant case (subject to the outcome of this appeal) for it to be done again. Furthermore, against the speculative possibility that the Chinese courts might accept jurisdiction to settle a global FRAND licence by consent, there is the judge’s finding that Conversant had acted reasonably in refusing to give its consent, for reasons connected with the conditions which the appellants sought to impose, a conclusion which was not met with any persuasive challenge in this court.¹⁰⁴

The Supreme Court opined that there is an obligation on the part of the SEP holder to seek a global license, and this is enough reason for the English courts to intervene.¹⁰⁵

While deciding on how to go about determining the non-discrimination prong of the FRAND terms, the court stated that:

that the non-discrimination element in the FRAND undertaking is “general” and not “hard-edged” and that there had been no breach of it. The “non-discriminatory” part of the relevant phrase gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context. It indicates that the terms and conditions on offer should be such as are generally available as a fair market price for any market participant, to reflect the true value of the SEPs to which the licence relates and without adjustment depending on the individual characteristics of a particular market participant. Put another way, there is to be a single royalty price list available to all … [s]ince price discrimination is the norm as a matter of licensing practice and may promote objectives which the ETSI regime is intended to promote (such as innovation and consumer welfare), it would have required far clearer language in the ETSI FRAND undertaking to indicate an intention to impose the more strict, “hard-edged” non-discrimination obligation for which Huawei contends.¹⁰⁶

The court opined that while reading the term FRAND, it should be understood as a composite whole and should not be interpreted to have two different obligations. This meant that there is no need to interpret FRAND as having a fair and reasonable obligation as one prong and separately requiring the non-discriminatory prong.¹⁰⁷

The Supreme Court was required to decide whether the Huawei guidelines required the SEP holder to make FRAND offer, failing which he cannot seek injunctive relief. It was required to decide whether the FRAND offer made by the SEP holder acted as a safe harbor that prevented a finding of anticompetitive behavior. The Supreme Court noted that:

it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.

Then, it is for the alleged infringer “diligently to respond to that offer, in accordance with recognised commercial practices in the field and in good faith”, with “no delaying tactics”, and “it may rely on the abusive nature of an action for a prohibitory injunction … only if it has submitted … promptly and in writing, a specific counter-offer that corresponds to FRAND terms”.

Thus, it was necessary for the SEP holder to notify the implementer of the infringement and upon an expression of willingness make FRAND-encumbered offer, and it is necessary for the implementer to respond without any delay, and in case a counter offer is made, it is necessary to make a security deposit for the continuing use of the infringing while continuing to negotiate the agreement in good faith. If the SEP holder brings an action for injunctive relief without notifying the implementer of the infringement, then it amounts to a possible infringement of the Article 102 of the TFEU.

4.3.7 Non-disclosure Agreements

It is often necessary for the SEP holder to insist that the implementer should sign a non-disclosure agreement (NDA) as relevant technological information and know-how is disclosed to the implementer during the process of license negotiation. Implementer might refuse to sign the NDA resulting the collapse of the license negotiations or at times delaying the process.

In OLG Dusseldorf case,¹⁰⁸ the SEP holder was trying to conclude a portfolio licensing agreement with two implementers while suit for damages were continuing in the courts. The implementers though refused to sign the NDA during the pendency of the proceedings as they alleged that the SEP holder intend to protect the industrial secrets. The implementers on the other hand brought proceedings against the SEP holder stating that the insistence on signing the NDA was not in accordance with the FRAND obligations of the SEP holder. This resulted in a countersuit for injunctive relief brought by the SEP holder. While deciding both the suits, the court opined that the implementers’ refusal to sign the NDA does not absolve the SEP holder from carrying out his obligations as per the Huawei guidelines. However, the court noted if the implementers refuse to sign the agreement without any justification, then it might reduce the burden placed on the SEP holder to provide an explanation for the conditions laid out in the licensing agreement.

The Higher District Court of Dusseldorf in a case involving SEPs stated that it is necessary to examine whether the SEP holders claim related to confidential information is necessary and needs protection.¹⁰⁹ If the response to that inquiry is in the affirmative, then it might be necessary to protect such confidential information and only limited access may be provided to the implementer. However the SEP holder who is insisting on the confidentiality of business information is required to provide justification as to why such business information needs to be treated as confidential and also specify the measures that is necessary to protect such information. The SEP holder needs to clearly demonstrate how it would be inconvenienced if such business information is disclosed to third parties. The SEP holder who is giving out a FRAND encumbered license is under an obligation to be transparent towards all the stakeholders and if any information has to be kept confidential it is necessary to provide a justification to the implementer.

5 Developments in India

In India there have been several instances wherein the implementers have refused to sign the license agreement on the pretext that the terms are onerous, or the seat of arbitration is in a different jurisdiction, or that it requires them to sign NDA agreements or on the basis that the royalty rate is very high. In several instances the refusal to negotiate or sign the agreement had exceeded more than three or four years resulting in the SEP holder seeking injunctive relief in the Delhi High Court. In some instances, implementers brought in parallel proceedings by filing complaints before the Competition Commission of India (CCI) alleging abuse of dominance by SEP holders. The CCI in such cases accommodated the complaints filed by infringing implementers who had failed to negotiate the license on FRAND terms. This unfortunate scenario has exposed the SEP holder to multiple proceedings. Refusal to negotiate the license or delaying tactics by the implementers have forced the SEP holders to seek injunctive relief, while any such approach for injunctive relief by SEP holders enabled the implementers to file complaints before the CCI.¹¹⁰

While deciding on injunctive relief, the Delhi High Court has followed slightly different approaches in Micromax and Intex case. In the Micromax case the Delhi High Court restricted the implementer from importing infringing product and in the Intex case, the court restricted the implementer from stelling or promoting of product incorporating the infringing SEPs.¹¹¹ It must be noted that in both the cases, the implementers engaged in bad faith negotiation of the license, refused to take the license, continued to use the underlying SEPs without making any deposit to the SEP holder, delayed the entire process of negotiation, and also brought parallel proceedings against the SEP holder. Despite this, the Delhi High Court did not declare them as unwilling licensees.

The implementers have demonstrated their unwillingness to negotiate the license at multiple levels. There have been instances wherein the implementers have been totally unresponsive when the SEP holder sent them a notice of infringement specifying the instances of infringement. Further, implementers have demonstrated their unwillingness by raising several issues that are not directly pertinent to the license agreement. These issues have been raised after an offer has been made by the SEP holder. SEP license negotiations have happened over several years. In cases involving Ericsson trying to negotiate a license with implementers like Intex, Lava, and iBall¸ negotiations were delayed and carried out over a period of five, four, and three years, respectively.¹¹² The Delhi High Court in these instances thought the implementers were ‘unwilling’ to negotiate a license.¹¹³ Taking these above cases into consideration it can be summed up that there were two stages of negotiations, the offer stage and the counter offer stage, which took too long due to the concerns over the Non-Disclosure Agreement.¹¹⁴

The Delhi High Court did not declare unwillingness on the part of the implementer based on their conduct during the offer stage or the counter-offer stage, rather it determined unwillingness based on the overall conduct of the implementer and the time taken by them to negotiate the royalty rate after the initial offer was made by the SEP holder.^115,116 The Delhi High Court observed that the negotiations were done in bad faith and there was a visible unwilling conduct on the part of the implementers.¹¹⁷

It is also necessary to understand that the reason for extended periods of negotiations between implementers and the SEP holder is primarily due to the lack of awareness on the part of the implementers about the complex nature of SEP license agreements. This resulted in reluctance on the part of the implementers to understand what constitutes fair, reasonable, and non-discriminatory terms of agreement.¹¹⁸

6 Antisuit Injunction

SEP litigation has become more complex in recent years as parties to the litigation are increasingly moving from one jurisdiction to another to counter the other party from gaining an upper hand. The objective behind suing in multiple jurisdictions is to primarily force the other party to enter into a settlement without the court actually passing a verdict in the matter. Apple and Qualcomm,¹¹⁹ Motorola and Microsoft,¹²⁰ Samsung and Ericsson,¹²¹ Samsung and Huawei,¹²² Nokia and Intercontinental, Xiaomi¹²³ and InterDigital are some of the instances wherein the SEP litigation started in one continent and very quickly moved to multiple jurisdictions in other continents.

Antisuit injunction is largely a mechanism wherein an effort is made by one of the parties to an SEP litigation to move the court in a particular jurisdiction to restrain the other party in the SEP litigation to seek or continue proceedings in a foreign jurisdiction. While this sort of a move from a party enables it to consolidate all its disputes in a related set of issues to a single jurisdiction, it can trigger an Anti-anti suit injunction (AASI) by the other party in a forum of its choice trying to prevent the enforcement of the ASI.¹²⁴

Microsoft brought an action against Motorola in the US as it had failed to offer a license on FRAND terms.¹²⁵ Motorola then brought an infringement action against Microsoft in Germany which had an impact on Microsoft’s sale of software products.¹²⁶ Microsoft then sought an ASI against Motorola in the US so that Motorola could be prevented from enforcing the German Court order against Microsoft. The court in US granted an ASI and also called into question the timing of the infringement suit brought up before the court in Germany when the issue was pending in the US.¹²⁷

Similarly, Huawei brought an infringement action against Samsung in the US as parties were unable to enter into a licensing agreement since the last 5 years.¹²⁸ Huawei also filed a suit against Samsung in China and the matter was decided very quickly in the Shenzhen Court which held that Samsung had infringed two patents owned by Huawei. Subsequently, Samsung sought for an ASI against Huawei in the US courts in order to prevent Huawei from enforcing the order of the Shenzhen court.

Ericsson had filed a suit in the US courts against Samsung alleging that it had failed to comply with the FRAND terms while renewing a global licensing agreement.¹²⁹ Samsung had filed a suit before the Wuhan Court seeking a declaratory judgment that the licensing terms are as per FRAND terms and also sought for a world wide ASI against Ericsson.¹³⁰ The purpose of the ASI was to prevent Ericsson from litigating the FRAND matter in any other jurisdiction. Wuhan court granted a wide ASI against Ericsson which triggered an AASI being sought against Samsung in the US court. While granting the AASI, the US court noted that the effect of the wide ASI was to primarily frustrate Ericsson from seeking statutory relief that was available to Ericsson.

Xiaomi and Interdigital were involved in a multijurisdictional litigation involving SEPs. Xiaomi sought for a declaration in Wuhan that Interdigital’s licensing terms were not in compliance with FRAND and Interdigital brought an infringement action and sought injunctive relief against Xiaomi in the Delhi High Court. Xiaomi then filed for an ASI against Interdigital in Wuhan to prevent them from litigating the matter in other jurisdictions while litigation was pending before the Wuhan Court.¹³¹ The ASI granted by the Wuhan court was very wide which asked Interdigital to refrain from seeking injunctive relief in any court. Interdigital sought an ASI against Xiaomi in Germany and the Delhi High Court. The ASI was granted to Interdigital, and it prevented Xiaomi from enforcing the decision of the Wuhan court. Thus, it can be summed up that seeking ASI and AASI have become common among SEP holders and implementers, and this has resulted in multiple suits being filed in multiple jurisdictions without necessarily resulting in any decisive outcome or enforcement of the dispute between the parties.

7 Conclusion

SEP licensing negotiations can be complex and result in disagreements between the parties. Lack of clarity to negotiate a FRAND-encumbered license had resulted in multiple cases across the globe resulting in uncertainty as to what conditions have to be fulfilled to negotiate a license on FRAND terms. Lack of guidelines to negotiate a successful license meant that the SEP holder and implementers were wasting precious resources in fighting litigations. The Huawei framework enabled the parties to negotiate the license by following the various steps or stages. However, the CJEU deliberately laid out broad guidelines enabling the parties to negotiate the license as per global commercial or business practices. However, this in itself resulted in multiple suits before the courts to determine the willingness of the parties to negotiate the license in good faith. Further, the Unwired case elaborated on how FRAND needs to be interpreted and clarified that parties are negotiating a global FRAND license. However, despite some major developments that have clarified how parties can negotiate a FRAND license, we have witnessed an increase in SEP related litigation wherein parties are suing in multiple jurisdictions and indulging in forum shopping.