Court in Microsoft v. Motorola Dismisses Injunctive Relief for Motorola Asserted Patents and Motorola s Entire H.264 SEP Portfolio

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1 DECEMBER 3-7, 2012 WRITTEN BY KOREN W. WONG-ERVIN PATENTS Court in Microsoft v. Motorola Dismisses Injunctive Relief for Motorola Asserted Patents and Motorola s Entire H.264 SEP Portfolio In Microsoft v. Motorola, U.S. district court Judge James Robart granted Microsoft s motion for partial summary judgment dismissing the relief of an injunction sought by Motorola. The court concluded that Motorola did not satisfy the Supreme Court s test set forth in ebay Inc. v. MercExchange, which requires the plaintiff to 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 the hardships between the parties, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. The court concluded: At this stage of the litigation, and based on this court s prior rulings, the court concludes that Motorola cannot demonstrate irreparable harm. Here, the court has previously ruled that Microsoft is a third-party beneficiary of Motorola s commitments to the ITU (and the IEEE) [standard-setting bodies] such that Microsoft is entitled to a RAND license agreement for Motorola s H.264 (and ) standards essential patents.... As Microsoft has committed to accept a license on RAND terms..., and the litigation is continuing to determine the details of such a license, it is now clear that at some point in the future (either by agreement of the parties or by court adjudication) a license agreement for the Motorola Asserted Patents will become a reality. (Order at 13.) For similar reasons, Motorola cannot show that it has no adequate remedy other than injunctive relief.... Motorola s remedy is a RAND license agreement. (Id. at 14.) -1-

2 The court also addressed the anti-suit injunction issued early in the suit, stating that the dismissal of injunctive relief in this order takes the place of the court s prior anti-suit injunction that enjoined Motorola from enforcing an injunction in the German action. (Id. at 17.) The court reasoned that its decision logically extends to all of Motorola s H.264 standard essential patents... because the RAND litigation involves not only the Motorola Asserted Patents, but all of Motorola s H.264 standard essential patents on a worldwide basis. (Id.) Thus, the court s order not only dismisses injunctive relief for the Motorola Asserted patents, but also for Motorola s entire H.264 standard essential patent portfolio including the European Patents at issue in the German action. (Id.) Order, available at SJ Ben James, Motorola Can t Use SEPs to Ban Microsoft Products, Law360 (Dec. 3, 2012), available at gy (subscription required) DOJ Chief Economist Explains Why SEPs Are of Greater Concern than Commercially Essential Non-SEPs In a speech last week at a conference in Brussels, DOJ Deputy Assistant Attorney General for Economic Analysis, Fiona M. Scott-Morton stated that the difference that causes F/RAND encumbered SEPs to be of concern to competition authorities including the [DOJ] is the presence of a collective decision by competitors. (Speech at 7.) Harm can occur when companies come together and bestow market power on each other by agreeing on a common technology. F/RAND commitments are designed to reduce occurrences of opportunistic or exploitative conduct in the implementation of standards. It is these commitments, along with other things, that make competition authorities more comfortable with these collective decisions. (Id. at 6.) Although non-seps can be used to hold up licenses,... this is an issue that arises out of the power that a patent gets when it is issued, which may or may not be market power in a competition law sense. However notice that the holdup power of the non-sep owner does not stem from a collective decision by competitors. Rather, it springs only from a single innovation deployed unilaterally by its owner. (Id. at 6-7.) This is not to say that competition concerns are irrelevant with non-standard essential patents.... Those with market power can be used in anticompetitive ways, said Scott-Morton. (Id. at 9.) However, [l]et s keep in mind that legitimately possessing market power is not illegal. In fact, the potential to achieve a leading, or even monopoly position is viewed as a strong driver of competition and innovation that can facilitate the development of leap frog technologies. And there is a big difference between technology that became powerful because it was adopted as part of a -2-

3 formal standard when alternatives may have been available and technology that became popular because it differentiated a device in a way consumers desired i.e., because it was a better mousetrap.... There is also a key difference in business strategy between the two types of patents: when the SEP owner makes a F/RAND commitment, it is explicitly agreeing that users of its IP may compensate the owner with money. With a differentiating patent, by contrast, the strategy of the firm may be to exclude other producers from using the IP in order to drive sales of its own product. (Id. at 8-9.) Source: Scott-Morton Speech, The Role of Standards in the Current Patent Wars (Dec. 5, 2012), available at FTC Files Amicus Brief Stating That It Is Ordinarily Inappropriate for a Court to Issue an Injunction Barring the Sale of Products Incorporating FRAND-Encumbered SEPs Last week, the FTC, private companies, and public interest groups filed six separate amicus briefs in the Federal Circuit in Apple v. Motorola. All briefs were filed in support of neither party. The appeals involve patent infringement claims asserted by Apple Inc. and Motorola Inc. against each other relating to technologies used in mobile phones and tablets. In June 2012, Judge Posner, sitting by designation in the district court, granted both sides summary judgment on the grounds that neither was entitled to relief either damages or an injunction. Judge Posner then dismissed the case. In its brief, the FTC argued that the district court properly applied ebay in determining that Motorola was not entitled to an injunction, where Motorola had committed to license... [its standard-essential patents (SEPs)] to anyone willing to accept... [FRAND] terms, and hence implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. (FTC Br. at 3 (quoting Remedy Opinion at 18-19).) According to the FTC, two of the ebay factors (a showing that the patent holder would be irreparably harmed without an injunction and that monetary relief would be inadequate) are generally inconsistent with the underlying basis of the RAND commitment. The FTC also argued that the other ebay factors (the balance of hardships between the patent holder and the alleged infringer and the public interest) will usually militate against injunctive relief in the case of SEPs because (1) an injunction usually will harm the alleged infringer more than not getting an injunction will harm the patent holder, and (2) if courts routinely grant injunctions in cases involving SEPs, it will undercut the procompetitive benefits of standard setting and discourage future investment in standard-compliant products and innovation by firms that contribute to and depend on the standard. The Commission vote approving the amicus brief filing was 4-1, with Commissioner Maureen Ohlhausen voting no. Five separate amicus briefs were also filed by entities such as the AAI, Cisco Systems, Ford Motor Company, and Verizon Communications. The AAI argued that ebay should be construed as calling for a strong presumption against the grant of an injunction in cases involving a standard-essential patent that is subject to an ex ante FRAND commitment. (AAI Br. at 12.) Cisco focused on damages methodologies, contending that the [g]eneralized methodologies -3-

4 currently used to calculate reasonable royalty damages lead to inconsistent and unreliable results because they are not sufficiently tied to the patented invention. (Cisco Br. at 3.) Cisco argued that, in lieu of the traditional Georgia-Pacific and entire market value approaches, the Federal Circuit should establish three methodologies for determining the value of the patented invention (1) determination of the incremental value of the patented invention over the next best alternative, (2) determination of the patented invention s value through apportionment, and (3) consideration of an established royalty for the patented invention to determine its economic value. (Id. at ) Ford Motor Company and Verizon Communications argued that (1) injunctive relief is inappropriate for RAND-encumbered SEPs, (2) such relief is unwarranted where only minor features in a complex device are infringed, and (3) reasonable royalty damages should not exceed the value of the patented technology over alternatives at the time of design. FTC Press Release and Amicus Brief, (Dec. 5, 2012), available at AAI Amicus Brief, available at _December/applevmotorola--antitrustinstamicus.pdf Cisco Systems et al. Amicus Brief, available at _December/applevmotorola--ciscoamicus.pdf Verizon Communications et al. Amicus Brief, available at _December/applevmotorola--verizonamicus.pdf Intellectual Property Law Assoc. of Chicago Amicus Brief, available at _December/applevmotorola--IPLACamicus.pdf Institute of Electrical & Electronic Engineers Amicus Brief, available at _December/applevmotorola-IEEEamicus.pdf Technology Companies File Comments at the ITC on the Issue of Exclusion Orders for RAND-Encumbered SEPs Last week, in response to the ITC s request for public comments on the effects of imposing import bans on standards-essential patents (SEPs), numerous technology companies, including Apple, Samsung, Motorola, RIM, HP, and Qualcomm, filed comments in In the Matter of Certain Electronic Digital Devices and Components Thereof (Samsung v. Apple). Specifically, the ITC sought public comment on questions such as: -4-

5 Does the mere existence of a FRAND undertaking with respect to a particular patent preclude issuance of an exclusion order based on infringement of that patent? Please discuss theories in law, equity, and the public interest, and identify which (if any) of the 337(d)(l) public interest factors preclude issuance of such an order. Where a patent owner has offered to license a patent to an accused infringer, what framework should be used for determining whether the offer complies with a FRAND undertaking? How would a rejection of the offer by an accused infringer influence the analysis, if at all? Apple, HP, Intel, and Sprint submitted comments stating that exclusion orders generally should not be available to SEP holders, while Samsung, Ericsson, RIM, and Qualcomm took the opposite position. Specifically, Apple, the Complainant, stated that [t]he existence of a FRAND obligation precludes issuance of an exclusion order, other than in the exceptional scenarios such as where a potential licensee has refused to pay a royalty after a U.S. court has determined that royalty to be FRAND, or where no U.S. court has jurisdiction over the potential licensee in order to set a FRAND rate. (Apple Comments at 1.) As to the second question, Apple contended that monetary damages are the only available remedy, and that federal courts should properly determine appropriate FRAND royalty rates where the parties are unable to do so. HP argued that awarding exclusion orders on standards-essential patents (SEPs) is contrary to, and will never serve, the public interest. (HP Comments at 2.) [E]xclusion orders in this context undermine the continued functioning of standard-setting organizations that play a critical role in the modern economy, threaten to create anticompetitive hold-up in industries where access to standards-essential patents is required, lead to an increase in costs to consumers, and reduce consumer choice, market efficiency, fluidity in international trade, and innovation. (Id. at 2-3.) Intel Corp. argued that the public interest factor should generally preclude an Exclusion Order on SEPs that are subject to a FRAND commitment, except in limited circumstances, such as when: (1) a U.S. court with competent jurisdiction or a binding arbitror previously determined (and prior to institution of the ITC investigation) in a final, non-appealable judgment that the complainant has made an offer to the respondent that satisfied its FRAND obligations and the respondent rejected the offer; or (2) the respondent and its affiliates are not subject to the jurisdiction of the U.S. courts and the ITC s in rem authority is the only recourse. (Intel Corrected Stmt. at 1.) Sprint argued that the ITC should not investigate FRAND cases, stating that [t]he appropriate remedy in FRAND cases is to impose a reasonably royalty. Because the ITC cannot do so, it should not investigate FRAND cases. (Sprint Comments at 3.) Sprint also, however, stated that FRAND patents should not be subject to an Exclusion Order unless the patent owner can reasonably demonstrate no effective means to obtain FRAND compensation through district courts, such as where an accused infringer has taken steps designed to frustrate or avoid FRAND licensing. (Id.) Samsung argued that hold-up is not unique to SEPs and that the hold-up threat is concurrent with the threat of reverse hold-up in which the putative licensee can reject any offer as not FRAND, refuse to pay a license, and continue to create products that infringe upon the patents. Samsung -5-

6 contended that removing exclusion orders from the SEP equation ignores this reality, and that the availability of an exclusion order balances the bargaining power between an SEP holder and an unwilling licensee. Samsung also contended that Congressional intent is clear that exclusion orders should be available, and that the current system protects against abuse or hold-up by, among other things, requiring substantial evidence. Motorola argued that, [a]ssuming that the patent holder has complied with its FRAND obligations, there should be no categorical rule against exclusion orders. (Motorola Comments at 1.) According to Motorola, the burden should lie with the respondent raising a FRAND defense. Where the respondent has failed to meet its burden, and the ITC has found a violation of Section 337, the ordinary presumption in favor of issuance of an exclusion order should apply. In particular, where a party has been unwilling to license standard essential patents, even when offered FRAND terms, a rule that would allow it to continue to import infringing products with impunity would undermine both the patent and standard setting systems and the statutory mandate of the ITC. (Id. at 2.) Lastly, Motorola argued that there should be no rigid framework for evaluating FRAND offers, but rather the ITC should consider the parties course of conduct and related factors on a case-by-case basis. Qualcomm argued that the ITC should treat FRAND commitments as purely contractual relationships. Under this framework, the following guidelines would apply: (1) a FRAND commitment is not a waiver of the right to seek an exclusion order; (2) failure of a FRAND holder to negotiate in good faith does not constitute waiver of or otherwise preclude the right to seek an exclusion order; (3) an offer is only the first step in negotiations, and the initial offering of an unacceptable license would not by itself constitute bad faith negotiations; (4) FRAND allows for a wide range of outcomes, and the definition of what is FRAND is subjective to each party and negotiating relationship; (5) adherence to accepted licensing terms should provide a safe harbor ; and (6) the ITC can consider intrinsic and extrinsic evidence of bad faith. Ericsson argued that declared SEP should be eligible for entry of an exclusion order, however, the ITC should not issue such an order if the patent holder has failed to abide by its commitment to offer a license on... [FRAND] terms, as prescribed by the relevant standard-setting organization. (Ericsson Comments at 1.) Ericsson then focused on a number of equitable defenses that could preclude an exclusion order if the patent holder has failed to abide by its commitment to offer a license on FRAND terms, including equitable estoppel, waiver, implied waiver, unclean hands, and implied license. Ericsson Comments, available at Intel Corrected Statement, available at HP Comments, available at 20comments.pdf -6-

7 Motorola Comments, available at Samsung Comments, available at Response - Sprint Comments, available at Federal Jury Finds 3M Violated Antitrust Laws by Engaging in Sham Patent Litigation A New Jersey federal jury found that 3M violated Section 2 of the Sherman Act by knowingly asserting two invalid and fraudulently obtained patents related to oil-resistant and oil-proof respirators and the fluorinated filtration media that is a critical component of these respirators. According to the complaint, 3M sought to enforce these patents against TransWeb, the only other supplier capable of producing these products. The complaint further alleged that 3M purchased the assets of a company to whom TransWeb had sent samples of its filtration technology, analyzed those samples, and then began purchasing from TransWeb. Approximately one year later, 3M filed a patent application based on the technology in TransWeb s samples, which it began asserting against TransWeb after a failed acquisition attempt. TransWeb contended that 3M s patent assertion amounted to a sham litigation intended to create a monopoly in government approved oil-proof respirators. TransWeb was awarded lost profits of $34,412, plus attorneys fees. The jury also found that TransWeb had not infringed on the two patents but that 3M had not engaged in objectively baseless litigation. Jury Verdict, available at %3A%2F%2Fecf.njd.uscourts.gov%2Fcgibin%2Fshow_doc.pl%3Fcaseid%3D245860%26de_seq_num%3D1490%26dm_id%3D %26doc_num%3D512&label=Case+Filing Linda Chiem, Jury Hands TransWeb Win in 3M Patent Infringement Suit, Law 360 (Dec. 3, 2012), available at (subscription required) President of European Patent Office Says Poor Quality Patents Approved Outside of Europe is a Contributing Factor to the Smartphone Wars Last week, the president of the European Patent Office (EPO), Benoit Battistelli, said that [m]ost of the patents that are contested in the world would not have been granted by the EPO. According to Battistelli, the EPO grants patents only for inventions that deserve to be patented. -7-

8 If you don t have petty or controversial patents, you don t have a patent war. He acknowledged that some of the disputed patents have been granted by the EPO, but stated that not as many as those granted by the USPTO. Battistelli advised patent-granting bodies to be very selective and restrictive when they grant patents. Source: Magnus Franklin, EPO chief points to patent quality as factor in smartphone litigation, mlex (Dec. 7, 2012), available at (subscription required) REVERSE PAYMENTS Supreme Court Grants Cert in AndroGel Reverse Payments Case On Friday, the Supreme Court granted the FTC s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals Inc. (AndroGel). In AndroGel, the Eleventh Circuit held that reversepayment settlements are lawful so long as they are within the scope of the patent and in absence of fraud or sham. Justice Alito took no part in the consideration or decision. Source: Melissa Lipman, Supreme Court to Hear FTC Pay-for-Delay Antitrust Suit, Law 360 (Dec. 7, 2012), available at (subscription required) New Jersey Federal Court Holds That K-Dur Is Limited to Cash Payments, Dismissing Lamictal Putative Class Action Last week, a New Jersey federal court dismissed a reverse payments putative class action holding that the term reverse payments in the Third Circuit s K-Dur decision is limited to cash payments. Under the Third Circuit s decision, any payment from a patent holder to a generic patent challenge who agrees to delay entry into the market is prima facie evidence of an unreasonable restraint on trade. The plaintiffs alleged that GlaxoSmithKline PLC (GSK) and Teva Pharmaceutical Industries Ltd. entered into an unlawful pay-for-delay scheme involving the drug Lamictal. The settlement agreement at issue provided, among other things, that: (1) Teva was permitted to sell generic lamotrigine chewables by June 1, 2005, approximately 37 months before the expiration of GSK s patent, and also before the FDA approved Teva s ANDA; (2) Teva was permitted to sell generic lamotrigine tablets on July 21, 2008, the expiration date of GSK s patent, and if GSK did not receive pediatric exclusivity from the FDA (the FDA had asked GSK to conduct pediatric studies), Teva would be allowed to market and sell the tablets six months earlier; (3) GSK would grant Teva an exclusive waiver of any pediatric exclusivity that might be granted to GSK; and -8-

9 (4) GSK would not launch its own authorized generic versions of Lamictal products until January 2009 by giving Teva an exclusive license. The defendants argued that reverse payment means cash payment. The plaintiffs argued that payment includes any significant consideration, incentives, and benefits in exchange for its delayed entry. (Opinion at 9.) The court found that, without doubt Teva received consideration in the settlement. Otherwise, there would be no incentive to settle. (Id. at 10.) However, the court ultimately found that the term reverse payments is not sufficiently broad to encompass any benefit that may fall to Teva in a negotiated settlement. (Id.) The court reasoned that (1) K-Dur contemplates a cash payment when it uses the term reverse payments (id. at 10); (2) the Third Circuit s reliance upon the 2010 FTC Study supports the defendants position because the court cited that study, which says that the majority of settlements do not involve compensation, in support of its statement that the vast majority of pharmaceutical patent settlements will remain unaffected by its decision; (3) the court has not located, nor do the parties cite to, any case where a Hatch-Waxman settlement without cash payments was subject to antitrust scrutiny (id. at 11); and (4) from a policy perspective, this settlement did not introduce generic products onto the market sooner than what would have occurred had GSK s patent not been challenged (id. at 12.). Source: Opinion, available at (subscription required) EU s Highest Court Raises the Bar for IP Monopoly Abuse Last Thursday, the European Court of Justice (ECJ) upheld a 2010 EC decision that found that AstraZeneca abused its dominance by manipulating the drug and patent regulatory systems in order to block generic versions of the ulcer drug Losec. Although the ECJ upheld the $68 million fine, it did so under an arguably stricter standard. While the lower court held that a company can abuse its dominance by submitted objectively misleading information, the ECJ affirmed the lower court s decision focusing on AstraZeneca s consistent and linear conduct... which was characterized by the notification to the patent offices of highly misleading representations and by a manifest lack of transparency... and by which [AstraZeneca] deliberately attempted to mislead the patent offices and judicial authorities in order to keep for as long as possible its monopoly on the... market, fell outside the scope of competition on the merits. (Judgment at 93.) Judgment, available at &doclang=en&mode=req&dir=&occ=first&part=1&cid=10159 Court of Justice of the EU, Press Release, available at -9-

10 TECHNOLOGY SECTOR DOJ Top Economist Says DOJ Takes a Cautious Approach in Creating Remedies in High-Tech Markets Last Friday, Fiona M. Scott-Morton, the DOJ s top economists, stated that [a] light hand in shaping [remedies in high-technology markets] is the way to go, noting that the Division is cautious not to hamper innovation in dynamic markets. Leah Nylen, DOJ uses light hand in high-tech markets, top economist says, mlex (Dec. 7, 2012), available at (subscription required) Upcoming Programs How Far Can Patent Holders Go? January 15, :00-1:15 Eastern In this second program of a series of joint programs hosted by the Intellectual Property and International Committees, panelists will explore the question of how far patent holders can go in exercising their intellectual property rights, and how those limits change depending on jurisdiction. Panelists from the DOJ and private practice, including former enforcers from the KFTC and MOFCOM, will discuss issues such as refusals to license, field of use and territorial restrictions, extending the patent through post-expiration royalties, and the scope of the patent misuse doctrine under the laws of the United States, Japan, and Korea. Location: Arnold & Porter LLP 555 Twelfth St. N.W. Room 220 Washington, D.C To attend in-person, please RSVP to Deborah.Morman@aporter.com To participate via teleconference, please register at A special thanks to Debbie Bellinger and Ian Horkley for their weekly contributions to tidbits. -10-

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