Taking the RAND Case to Trial

Taking the RAND Case to Trial By Eric W. Benisek and Richard C. Vasquez Eric W. Benisek and Richard C. Vasquez are partners at Vasquez Benisek & Lindgren, LLP, where their practices focus on intellectual property litigation. They have been co-trying RAND cases for 11 years and most recently handled three patent jury trials in the Eastern District of Texas. They can be reached, respectively, at ebenisek@vbllaw.com and rvasquez@vbllaw.com. How do you try a RAND case? Much ink has been spilled on the academic discussion of standards setting organizations (SSOs), patent hold-up, and reasonable and nondiscriminatory (RAND) licensing commitments. But how should RAND be litigated in the trial courts, and what are the viable causes of action, defenses, and remedies that parties can pursue? Litigating patents subject to RAND licensing commitments is still the Wild West with very little precedent to guide practitioners. This article will discuss the recognized causes of action and defenses available to parties litigating patents subject to RAND licensing commitments, as well as important strategic considerations and available remedies. First, it summarizes the key appellate decisions that have recognized claims that may arise from a patent holder s breach of a RAND licensing commitment. Second, it looks at recent guidance from the Federal Trade Commission (FTC) with respect to how royalty disputes over standard-essential patents should be litigated. Third, it discusses past and current actions in district courts involving RAND licensing disputes, including the commentators own trial court experiences. Finally, it lays out some of the commentators recommendations on potential winning trial strategies for defendants litigating patents subject to RAND licensing commitments. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 1

Appellate Court Jurisdiction The federal courts have not yet developed a comprehensive body of law on how to litigate RAND licensing commitments by patent holders to SSOs. However, selected cases from the last five years provide guidance on particular causes of action and defenses that are available in certain situations. Depending on the factual scenario, a party facing infringement allegations for products that practice a standard may be able to leverage a plaintiff s commitment to license on RAND terms into both equitable defenses and offensive antitrust claims. In 2007, in Broadcom Corp. v. Qualcomm Inc., 1 the Third Circuit Court of Appeals affirmed a lower court decision allowing Broadcom to affirmatively sue Qualcomm for refusing to license its patents on RAND terms. In this instance, Broadcom cited 2 of the Sherman Act, and alleged that Qualcomm s refusal to license under RAND terms after making a RAND commitment to an SSO was anticompetitive. The Third Circuit agreed, holding that a patent holder s intentionally false promise to provide a RAND license for technology that has been incorporated into an SSO standard was indeed actionable anticompetitive conduct. 2 The following year, in Qualcomm Inc. v. Broadcom Corp. 3 (a separate litigation between the same parties), the Federal Circuit affirmed a lower court ruling that patents concealed by Qualcomm from an SSO in which it was a participant were unenforceable. The court reviewed the language of the SSO agreement into which Qualcomm had entered and determined that the participants were unambiguously required to disclose all patents that reasonably might be necessary to practice a standard being considered. 4 The Federal Circuit agreed with the lower court that the failure to disclose the patents during the standards setting process was inequitable conduct that resulted in an implied waiver of Qualcomm s patent rights. 5 The patents were rendered unenforceable against any product practicing the applicable standard. 6 The court also acknowledged that equitable estoppel may be an appropriate remedy when a patent holder Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 2

conceals patents from an SSO, but held that the estoppel determination was mooted by the court s finding of implied waiver. 7 Significantly, the Federal Circuit determined that the unenforceability ruling was proper even after a verdict of noninfringement. 8 Both offensive claims for antitrust violations and equitable claims seeking a finding of unenforceability provide defendants facing infringement claims against standard practicing products with additional options. Both can provide significant leverage against a plaintiff that has engaged in any deceptive practice with regard to an SSO. However, what happens when the dispute really boils down to a difference of opinion on what is a RAND royalty? What is missing in appeals court jurisprudence is a decision that lays out what constitutes a reasonable and nondiscriminatory royalty, or a framework for a finder of fact to make such a determination. FTC Guidance Before last May, the FTC had not officially weighed in on what constitutes a reasonable and/or nondiscriminatory royalty license. Prior enforcement actions largely involved the FTC responding to parties acting badly in the standards setting process, or trying to renege on RAND commitments. The famous examples of this were the FTC s administrative actions against Dell, 9 Unocal, 10 Rambus, 11 and N-Data. 12 However, in May 2011, the FTC issued a report that made several specific recommendations for handling the litigation of patents subject to RAND commitments. 13 Significantly, the FTC recommended that within the hypothetical negotiation framework, courts should cap the royalty at the incremental value of the patented technology over alternatives available at the time the standard was chosen. 14 This is a significant departure from Georgia-Pacific, which instructs that the fact finder consider the advantages of the patented technology over the available alternatives at the time of the hypothetical negotiation, which is the date of first infringement. The FTC s recommendation most likely pushes back the comparison date to an earlier time period when the standard was under development and various technologies were being considered. The FTC s recommendation with regard to timing makes sense, in that under Georgia-Pacific, 15 if first Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 3

infringement occurs years after the standard is developed, there likely will be no viable alternatives to the patented technology because the standard will have pushed them out. 16 The FTC recommendation also departs from Georgia-Pacific in capping the royalty based on this one consideration, whereas under Georgia-Pacific, the benefit of the patented technology over alternatives is only one of 15 factors that might influence the royalty rate. The FTC s recommendation is not law, but is persuasive authority for practitioners to use in advocating for jury instructions and/or as part of their equitable case. Most likely, arguing for a license fee based on the technological alternatives that existed at the time the relevant standard was developed (and before lock-in to the technology) will favor defendants arguing for a lower royalty. However, there may be circumstances where the timing favors plaintiffs. RAND in the District Courts What constitutes a reasonable and/or nondiscriminatory royalty has been litigated in the federal district courts, but no court has issued an opinion attempting to settle the issue. The case to watch is Microsoft Corp. v. Motorola, Inc. 17 Microsoft claims Motorola s standard license demand of 2.25 percent on Microsoft s Xbox violates Motorola s RAND obligation to license its wireless patents on reasonable and nondiscriminatory grounds. This case has already provided some interesting opinions on RAND issues and may ultimately be the first to decide what level royalty is reasonable and/or nondiscriminatory in the standards setting context. However, the arguments raised by Microsoft are not new. They date back to at least 2001, when Proxim Inc. sued a number of wireless companies in the International Trade Commission (ITC) and in federal court for alleged infringement of standard-essential patents subject to RAND licensing commitments. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 4

Proxim Inc. v. 3Com Corp. The Proxim 18 case was the commentators first experience with SSOs and RAND licensing obligations. Proxim had advocated for a certain wireless technology to be adopted by the Institute of Electrical and Electronics Engineers (IEEE s) 802.11 working group. However, when the committee went in a different technological direction, Proxim acquired a small startup with patents that were allegedly essential to practice the 802.11 wireless standard. By the time Proxim acquired the patents, the owners had already submitted a letter of assurance (LOA) to the IEEE and committed to license their patents on RAND terms. Undeterred, Proxim commenced litigation against a large portion of the wireless industry in multiple courts seeking injunctive relief and a multidollar per-unit royalty on wireless routers and network interface cards. The defendants argued that Proxim s licensing demands were not reasonable, and that Proxim s actions were really just an attempt to block the 802.11 standard after Proxim s technology had been rejected. Proxim countered that it was not bound by any RAND licensing obligation because it was the prior patent owners that had submitted the LOA to the IEEE not Proxim. Proxim further argued that its royalty demand was reasonable in any event because it only sought a few percentage points of revenue on the end products. The case eventually settled before the record was fully developed or any substantive determinations could be reached on the RAND licensing issues. CSIRO v. Toshiba RAND licensing issues soon arose again for the IEEE s 802.11 wireless standard. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is the research arm of the Australian government. In 1998, CSIRO provided the IEEE with an LOA stating that it would license its U.S. Patent No. 5,487,069 ( 069 Patent) on RAND terms if the patent was essential to practice the IEEE s 802.11a wireless standard. In 2003, CSIRO began attempts to license the 069 Patent and eventually sued Buffalo Technologies, a Japanese wireless equipment manufacturer, in the Eastern District of Texas. CSIRO obtained summary judgment on infringement and an injunction. CSIRO s Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 5

first action against Buffalo triggered a number of declaratory judgment actions, and additional lawsuits by CSIRO, that were all subsequently consolidated before Judge Davis in the Eastern District of Texas. 19 All of the defendants asserted various legal and equitable defenses based on CSIRO s alleged breach of its RAND licensing obligation. The defense group split between two damages experts. One of the experts opined that CSIRO s RAND licensing obligation was a factor in his reasonable royalty analysis, while the other damages expert did not consider CSIRO s RAND commitment. Additionally, the defendants retained a licensing expert to opine that the custom and practice of negotiating standard-essential patents typically results in royalties lower than patents not subject to RAND licensing obligations. CSIRO moved for summary judgment on all the defendants various RAND-based defenses. First, CSIRO argued that the IEEE s form LOA that CSIRO executed in 1998 required putative licensees to make a written request for a license, and that no defendant had satisfied this condition precedent. Second, CSIRO argued that its LOA was only for the 802.11a wireless standard, and not the subsequent 802.11g and 802.11n standards that were built on top of 802.11a. 20 Finally, CSIRO argued that the defendants attempts to limit their royalties ran afoul of 35 U.S.C. 284, which states that a patentee shall receive in no event less than a reasonable royalty. 21 CSIRO also sought to exclude testimony by the defendants licensing expert and the damages expert that had relied on CSIRO s RAND licensing commitment in his Georgia- Pacific analysis. 22 CSIRO argued that the defendants licensing expert had impermissibly injected parol evidence into questions of contract interpretation, and that the defendants damages expert had improperly injected issues of contract interpretation into his royalty analysis. 23 Judge Davis denied CSIRO s motions without a written opinion, but ordered that all RAND issues be tried to the court given their equitable nature. 24 The defendants put on several committee chairs for the 802.11 wireless standard that explained to the court that there were a number of equivalent alternatives to the technology CSIRO claimed in its patent. 25 The IEEE witnesses testified that it was the group s practice to avoid Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 6

higher cost alternatives, and had they been aware CSIRO would seek a multidollar perunit royalty, they would have certainly chosen a different alternative. 26 Indeed, the IEEE witnesses provided testimony corroborated by the official IEEE minutes regarding instances where they avoided technologies that might require expensive royalties, and incorporated patented technologies only after it was disclosed that the rates would be cents per-unit. 27 The defendants also put on evidence of the problem of royalty stacking. Prior to the CSIRO litigation, royalty stacking had been a theoretical problem envisioned by academics that could arise if every patentee came forward to collect royalties on the hundreds, if not thousands, of patents required to practice a technology standard. By the time of the CSIRO trial, numerous other patent holders had come forward seeking royalties on the 802.11 standard, including Wi-Lan, Mosaid, Linex, Northpeak, Via Licensing, and others. The defendants closed the RAND bench trial with their RAND licensing expert, who opined that standard-essential patents are typically licensed for de minimis consideration and always less than nonstandard-essential patents. 28 He explained that the economic incentive to contribute one s patents to a standard for a low royalty rate was simple: If the standard was successful, patent holders could make tens of millions of dollars by charging cents per-unit. 29 What s more, if the patent holder refused to contribute its patents on RAND terms, it would be excluded from the standard and its technology might become obsolete as the market migrated to the standardized solution. 30 Judge Davis never decided the issue because all the parties settled just before the case was to be submitted to the jury. However, the follow-on case Marvell Semiconductor v. CSIRO revealed that some RAND claims and defenses will not survive to trial. Marvell Semiconductor v. CSIRO The Marvell 31 case was consolidated with the other CSIRO cases, but set for trial approximately one year later. Marvell sought a declaratory judgment of noninfringement and invalidity of the 069 Patent, but also made several affirmative RAND-based claims including breach of contract and declaration of a license. 32 CSIRO again moved Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 7

for summary judgment on the RAND claims. CSIRO raised the same arguments from the prior case, but added that Marvell was not a proper third-party beneficiary of CSIRO s RAND licensing commitment because Marvell was not a direct infringer, and did not practice the standard. 33 CSIRO further argued that Marvell s damages claim was completely unforeseeable and speculative because it was based in part on indemnity demands from its customers that Marvell had yet to pay. 34 CSIRO s position was that it was not foreseeable that CSIRO s alleged breach of its RAND obligation would damage third-party beneficiaries through indemnity demands. 35 Moreover, given that Marvell had not actually acknowledged its indemnity obligation, or paid any money, its damages were speculative. 36 This time, the court granted CSIRO s motion for summary judgment on Marvell s RAND claims, stating that a written opinion would follow, but the parties settled before one was issued. 37 Network-1 Security Solutions v. Cisco Merlot Communications, a small telecommunications firm, was the original developer and assignee of U.S. Patent No. 6,218,930 ( 930 Patent). Merlot ran into financial difficulties, however, and in 2003, sold the 930 Patent to patent assertion entity (PAE) Network-1 Security Solutions. In 2004, Network-1 initiated its licensing campaign for the 930 Patent, and in 2005, Network-1 filed its first lawsuit alleging infringement of the 930 Patent against D-Link Corporation. Network-1 and D-Link settled in August 2008. In early 2008, Network-1 initiated a second round of lawsuits against a group of network equipment companies, including Cisco and Enterasys, alleging that the 930 Patent was essential to practice the IEEE s 802.3af standard for Power over Ethernet. 38 Prior to Network-1 s acquisition of the 930 Patent, Merlot had provided the IEEE with an LOA stating that it would license the 930 Patent on RAND terms if the patent was essential to the 802.3af standard. The complicating twist was that Merlot s LOA was submitted to the IEEE after the 802.3af standard was approved. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 8

During discovery, various members of the IEEE were deposed, including a member of the IEEE Patent Committee (PatComm). The PatComm member testified that the IEEE views a RAND commitment as a binding contract. However, the IEEE has never sought to define what constitutes a reasonable and/or nondiscriminatory royalty, and defers to companies and individuals who actually license standard-essential patents for the meaning of those terms. 39 If the parties cannot agree on RAND licensing terms, it is the IEEE s position that a court must resolve the dispute. 40 Enterasys proceeded to trial asserting three equitable defenses based on Network-1 s RAND obligation estoppel, waiver, and patent misuse. 41 Enterasys argued that Network-1 s royalty demand of 2 percent to 6 percent of gross revenue on the end product was not reasonable, and was also discriminatory because Network-1 had licensed the 930 Patent to others at a much lower per-port royalty rate. 42 Similar to the strategy in the CSIRO case, Enterasys developed testimony from IEEE participants that there were suitable alternatives to the claimed infringing process at the time the 802.3af standard was developed. Moreover, there was a specific instance where the committee avoided patented technology because the patent holder requested a $0.75 per-port royalty (less than Network-1 s demand). The committee deemed the rate unreasonable and pursued an alternative. Both Enterasys and Network-1 proffered licensing experts to opine on the custom and practice of licensing standard-essential patents. Enterasys requested that the court impose an equitable limit on any reasonable royalty the jury might award under 284. Prior to trial, Network-1 moved for summary judgment on Enterasys s RAND defenses. 43 Network-1 raised five primary arguments: (1) there was no reliance by the IEEE or Enterasys because Merlot s LOA was submitted after the 802.3af standard was approved; (2) Network-1 was not bound by a prior patent holder s (Merlot s) LOA; (3) a reasonable royalty under a RAND commitment is the same as a reasonable royalty under 35 U.S.C. 284 it is whatever the parties negotiate; (4) nondiscriminatory does not mean Network-1 must offer identical terms to all comers only that Network-1 must offer to license; and (5) Enterasys never requested or was refused a license. 44 Enterasys rebutted each of these arguments and the court carried the motion for further consideration after the evidence was presented at trial. 45 Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 9

At trial, Judge Davis set aggressive time limits on both sides, which ultimately led Network-1 and Enterasys to submit the RAND case on the papers, including allowing the expert reports to be treated as admissible declarations. Judge Davis never decided the RAND issues because the parties settled on the fourth day of the jury trial. Microsoft v. Motorola The RAND defense is currently playing out between Microsoft and Motorola at the ITC and in consolidated civil actions in the Western District of Washington over Motorola s wireless and video compression (H264) patents. 46 On April 23, 2012, after a trial on the merits, the administrative law judge for the ITC found that Microsoft infringed patents for each of the two standards. 47 Meanwhile, Microsoft has asserted a breach of contract claim based on Motorola s alleged breach of its RAND commitment in the Western District of Washington, with some success and some open questions. In November 2010, after Motorola made a written demand for 2.25 percent royalties on Microsoft s end products, such as the Xbox, Microsoft filed a complaint for breach of contract and declaratory relief. Through the complaint, Microsoft seeks: (1) to enjoin Motorola from seeking unreasonable royalties, and (2) contract damages for Motorola s breach of its RAND commitment. 48 In late February 2012, Microsoft won summary adjudication on two uncontested elements of its breach of contract claim: (1) that Motorola s RAND commitments to the IEEE and European Telecommunications Standards Institute were enforceable promises; and (2) that Microsoft, as an industry participant making 802.11 compliant products, was an intended third-party beneficiary with standing to assert breach. 49 However, the court denied Microsoft s motion for summary adjudication on the two contested issues. 50 First, Microsoft unsuccessfully sought a ruling that a RAND commitment is breached when an offer fails to meet the reasonable threshold. 51 The court found a lack of evidence presented on the question of whether the patent holder s opening licensing demand or the completed license must be reasonable. 52 Second, Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 10

Microsoft failed to submit sufficient evidence to substantiate its legal argument that Motorola s royalty demand of 2.25 percent on the end product was objectively unreasonable on its face. 53 The court did set forth a roadmap for further development of the evidence and renewal of the arguments. 54 The parties briefs have now been filed. Motorola argues that Microsoft s RAND claims must be dismissed because Microsoft repudiated the RAND commitment when it failed to negotiate with Motorola, and instead filed for declaratory relief. 55 Microsoft repeats its arguments that Motorola never intended to negotiate a RAND license, instead insisting on a patently unreasonable royalty rate and threatening an injunction. 56 This time, however, Microsoft has supplemented the record with further examples of why Motorola s licensing request is both unreasonable and discriminatory, including the submission of other Motorola license agreements, and other standard-essential royalty rates on the same WLAN standard. 57 Under Rule 56 of the Federal Rules of Civil Procedure, the court is constrained from summarily adjudicating issues where the evidence is in dispute. Both sides have pointed to conflicting expert testimony. Therefore, in the commentators opinion, the court seems destined to deny the motions for summary adjudication once again, and leave the issue of whether Motorola s licensing offer is reasonable for trial. A second issue to be decided by the Washington court is Microsoft s motion to dispose of Motorola s request for injunctive relief. 58 Microsoft argues that Motorola cannot satisfy the first two ebay requirements of irreparable injury and that monetary damages are inadequate to compensate for any injury because Motorola has declared a willingness to license all comers on RAND terms. 59 Motorola s response is that such a blanket rule is not warranted, and is even discouraged, under ebay. 60 Moreover, Motorola argues that if patent holders were deprived of the opportunity to seek an injunction, there would be nothing to deter parties from negotiating in bad faith, and forcing patent holders to litigate. 61 In the commentators opinion, Microsoft appears to have the stronger argument. Even if infringers refuse to negotiate in good faith, Motorola has already revealed through its RAND commitment that monetary damages are sufficient compensation. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 11

Tips to Pass Along Asserting Breach of Contract Is Not Usually the Right Move In any RAND-based defense, all the action should eventually center on whether the plaintiff s royalty is reasonable and/or nondiscriminatory. In the Microsoft case, Motorola stipulated that its RAND commitment is a binding contract and Microsoft is an intended third-party beneficiary because of a prior judicial statement on the same issues. However, as demonstrated from the Proxim, CSIRO, and Network-1 cases, whether an LOA gives rise to a binding contract can be hotly contested when the plaintiff has freedom to do so. The same is true with respect to a defendant s status as an intended third-party beneficiary. CSIRO contested it with respect to Marvell, and appeared to gain traction with the court. A further challenge is contract damages. In Marvell, the defendant was creative with its contractual damages theory based on customer indemnity claims, but Judge Davis did not appear to buy it, and eventually granted summary judgment. Microsoft will soon face a similar hurdle when it comes time to prove up all the elements of its breach of contract claim. The commentators have passed on asserting breach of contract based on a plaintiff s alleged breach of its RAND commitment primarily because of the challenges outlined above. However, it remains to be seen if Microsoft can break new ground and gain some traction exploiting this claim. Make an Effort to Negotiate, Even If the Plaintiff s Demand Seems Impossibly High A reccurring theme in all of the cases discussed herein is the plaintiff s argument that it is not in breach of its RAND obligation, or its RAND obligation has been extinguished, because the defendant has failed to request a license or negotiate in good faith. In the CSIRO case, none of the defendants requested a license from the plaintiff, and in the Microsoft case, after receiving Motorola s offer, Microsoft brought a lawsuit instead of a Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 12

counteroffer. Even if the plaintiff s initial offer appears patently unreasonable and/or discriminatory, a defendant will be better positioned to assert RAND defenses if it can demonstrate a good faith attempt to negotiate. The Risk of Having the Damages Expert Consider the Impact of RAND In many respects, a damages expert is best positioned to tie up all the relevant factors that influence the hypothetical negotiation, including the effect of a plaintiff s promise to license on RAND terms. However, there is risk injecting a plaintiff s RAND commitment into a Georgia-Pacific reasonable royalty analysis. If the RAND commitment is not enforceable, or does not extend to a particular defendant, then the expert has based his or her royalty opinion, in part, on a false legal premise. The Microsoft litigation provides insights on how this uncertainty might be managed. Microsoft can make use of Motorola s RAND commitment in the Georgia-Pacific analysis because Microsoft has already obtained a judicial determination on enforceability and application of Motorola s RAND commitment. Accordingly, moving early on the enforceability of the RAND obligation can allow for its use in a party s Georgia-Pacific analysis. If a damages expert is going to consider a RAND commitment as part of his or her analysis, then he or she should be supported by well-developed testimony from relevant standards participants and a standards licensing expert. It is the testimony from the licensing expert and standards participants that will provide the damages expert with a sufficient foundation to opine on the influence of a RAND commitment on the hypothetical negotiation. Take Advantage of the FTC s Guidance In the CSIRO and Network-1 cases, it was clear to the commentators that the intellectually correct time to evaluate noninfringing alternatives was at the time the standard was developed, and not years later at the time of infringement when the standard has rendered any competing technologies obsolete. Unfortunately, Georgia-Pacific requires analysis of alternatives at the time of infringement. Fortunately, the FTC has recognized the proper framework to analyze the value of standard-essential patents is at the Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 13

time the standard is developed and there is competition among alternatives. Courts should be educated on this framework and encouraged to adopt it in both jury instructions and the legal standard for the bench trial on equitable issues. It is then up to the practitioner to fill in the framework with testimony from the standard committee members that numerous suitable alternatives were available at the time of evaluation. In the commentators view, a reasonable royalty under a RAND commitment is the amount just below what would have caused the standard committee to switch to an alternative. The FTC agrees. Equitable Estoppel Is a Must Plead The affirmative defense of equitable estoppel is straightforward, and the easiest to prove among the various RAND-based claims and defenses. The elements are: (1) misleading conduct, (2) reliance on the conduct, and (3) harm as a result of the conduct. 62 The first element is proven by showing the plaintiff made a RAND commitment, but now seeks unreasonable and/or discriminatory royalties. The second element is proven by showing the SSO relied on the plaintiff s LOA in approving the standard, and that the defendant relied on the SSO s standards setting process in committing to produce standard-compliant products. Finally, the third element is proven by showing the defendant is now locked in to the standard with substantial investment costs, and has no other viable economic choice but to pay the higher royalties, or abandon the space altogether if the proposed royalty makes the product unprofitable. The remedy for equitable estoppel is for the court to impose the RAND rate. Accordingly, it is up to the practitioner to arm the court with sufficient evidence and data points to make an informed decision. This is clearly the opportune place to advance the FTC s framework and lay out the cost-benefit of the various alternatives available and considered by the SSO. While the commentators have never attempted this, a truly creative practitioner may seek early judicial determination of this defense. If the court is able to decide the RAND royalty and set an upper limit on the value of the case well before a jury trial, then chances of early settlement would vastly improve. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 14

Take an Early Swing against Injunctive Relief Whether a RAND licensing commitment precludes a plaintiff from seeking injunctive relief is an open question. The smart phone wars between Apple, Motorola, Microsoft, Samsung, HTC, and several other heavyweights have brought this issue to a head, and the Washington state court presiding over the Microsoft v. Motorola litigation will likely create law on the issue. However, for the vast majority of patent infringement cases, which are brought by PAEs, injunctive relief is not available. Endnotes 1. 501 F.3d 297 (3d Cir. 2007). 2. Id. at 314. 3. 548 F.3d 1004 (Fed. Cir. 2008). 4. Id. at 1015 18. 5. Id. 6. Id. The equitable defense created by nondisclosure during the standards setting process has been utilized in the years since the decision by parties accused of infringement. In Apple Inc. v. Samsung Elecs. Co., 2012 U.S. Dist. LEXIS 9921 n.13 (N.D. Cal. Jan. 27, 2012), the court acknowledged the relevance of SSO-related discovery because of Apple s affirmative defense based on Samsung s alleged breach of its duty to disclose. In Barnes & Noble, Inc. v. LSI Corp., 2012 U.S. Dist. LEXIS 12719 (N.D. Cal. Feb. 2, 2012), the court denied a motion to strike LSI s affirmative defense of unenforceability due to fraud, which included failure to disclose patents to the related SSO. 7. Qualcomm, 548 F.3d at 1024. 8. Id. at 1025. 9. Dell Corp., 121 F.T.C. 616 (1996) (Docket No. C-3658). 10. Union Oil Co. of Cal. (Unocal), Docket No. 9305 (FTC Nov. 25, 2003), rev d (FTC July 6, 2004). 11. Rambus, Inc., Docket No. 9302 (FTC Aug. 2, 2006). Rambus was charged with lying in wait for not disclosing patents during the standards setting process that it believed were essential to the JEDEC standard. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 15

12. Negotiated Data Solutions LLC (N-Data), Docket No. C-4234 (FTC Sept. 22, 2008). In N-Data, the respondent was charged with attempting to renege on a RAND commitment provided by the original owner of the patent, despite acquiring the patent with full knowledge of the RAND commitment. 13. FED. TRADE COMM N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION (2011), available at http://www.ftc.gov/os/2011/03/110307- patentreport.pdf. 14. See id. at 22 23 (emphasis added). 15. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). 16. Indeed, the commentators faced this very scenario. In Commonwealth Scientific & Indus. Research Organisation (CSIRO) v. Toshiba, Nos. 6:06-cv-549, 6:06-cv-550, 6:06-cv-551 (E.D. Tex. Dec. 23, 2008), the plaintiff argued there were no viable alternatives under Georgia-Pacific because at the time of the hypothetical negotiation years after the 802.11 standard had been developed the standard was the dominant form of wireless transmission and all older competing technologies had faded away. The defendants argued that the evaluation of alternatives should be when the technology was adopted into the standard. This argument had to be made to the court as part of the defendants equitable defenses because it was not the law under Georgia-Pacific. 17. No. C10-1823-JLR (W.D. Wash. Oct. 1, 2010). 18. No. 1:01-cv-00155-SLR (D. Del. Mar. 8, 2001). 19. Commonwealth Scientific & Indus. Research Organisation (CSIRO) v. Toshiba Am. Info. Sys., Inc., Nos. 6:06-cv-549, 6:06-cv-550, 6:06-cv-551 (E.D. Tex. Dec. 23, 2008). 20. See, e.g., Transcript of Hearing, CSIRO, No. 6:06-cv-550 (E.D. Tex. Mar. 26, 2009) (No. 659). 21. See id. 22. Id. 23. Id. 24. Order, CSIRO, No. 6:06-cv-550 (E.D. Tex. Mar. 27, 2009) (No. 617). 25. Transcripts of Bench Trial, CSIRO, No. 6:06-cv-550 (E.D. Tex. Apr. 14, 16 17, 2009) (Nos. 722, 725, 726). 26. See id. 27. Id. Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 16

28. Transcript of Bench Trial, CSIRO, No. 6:06-cv-550 (E.D. Tex. Apr. 17, 2009) (No. 726). 29. See id. 30. Id. 31. No. 6:07-cv-00204-LED (E.D. Tex. May 4, 2007). 32. In its complaint, Marvell asserted four causes of action based on CSIRO s alleged breach of its RAND licensing commitment: count 3 for declaration of a license, count 4 for breach of contract, count 5 for specific performance, and count 6 for promissory estoppel. Complaint, Marvell Semiconductor v. CSIRO, No. 6:07-cv-00204-LED (E.D. Tex. May 4, 2007) (No. 1). 33. See, e.g., Transcript of Hearing at 77:20 102:15, Marvell, No. 6:07-cv-00204-LED (E.D. Tex. Apr. 22, 2010) (No. 373). 34. Id. 35. Id. 36. Id. 37. See, e.g., Order, Marvell, No. 6:07-cv-00204-LED (E.D. Tex. Apr. 28, 2010) (No. 363). 38. Network-1 Sec. Solutions, Inc. v. Cisco Sys., Inc., 6:08-cv-00030-LED (E.D. Tex. Feb. 7, 2008). 39. Id. 40. Id. 41. ENTERASYS PROPOSED FINDINGS OF FACTS AND CONCLUSIONS OF LAW REGARDING AFFIR- MATIVE DEFENSES OF EQUITABLE ESTOPPEL, PATENT MISUSE, AND WAIVER, Network-1, No. 6:08-cv-00030-LED (E.D. Tex. Jul. 7, 2008) (No. 491). 42. See id. 43. See Corrected Motion for Partial Summary Judgment of Defendants RAND Related Defenses and Counterclaims, Network-1, No. 6:08-cv-00030-LED (E.D. Tex. May 24, 2010) (No. 344). 44. See Transcript of Hearing, Network-1, No. 6:08-cv-00030-LED (E.D. Tex. June 24, 2010) (No. 510). 45. See Order, Network-1 v. Cisco, No. 6:08-cv-00030-LED (E.D. Tex. Jun. 25, 2010) (No. 472); Notice of Filing of Official Transcript of Pretrial Hearing held on 6/24/10, Network-1, No. 6:08-cv-00030-LED (E.D. Tex. June 24, 2010) (No. 510). Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 17

46. Microsoft Corp. v. Motorola, Inc., No. C10-1823-JLR (W.D. Wash. Oct. 1, 2010). 47. See Certain Gaming & Entm t Consoles, Related Software & Components Thereof, USITC Inv. No. 337-TA-752 (Apr. 23, 2012) (Notice of Initial Determination). 48. Id. 49. Id. 50. Id. 51. Id. 52. Id. 53. Id. 54. Id. 55. See Brief, Microsoft Corp. v. Motorola, Inc., No. C10-cv-01823 JLR (W.D. Wa. Sept. 23, 2011) (No. 86). 56. Id. 57. Id. 58. See Brief, Microsoft, No. C10-cv-01823 JLR (W.D. Wa. Dec. 15, 2011) (No. 141). 59. Id. 60. See Brief, Microsoft, No. C10-cv-01823 JLR (W.D. Wa. Jan. 3, 2012) (No. 143). 61. Id. 62. See A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992). Published in Landslide, Volume 5, Number 1, 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 18