Tuesday, November 20, 2012

FRAND issues key to ITC review of preliminary dismissal of Samsung's complaint against Apple

Earlier this year, the ITC investigations of Motorola Mobility's complaints against Apple and Microsoft prompted policy makers, competition regulators and a number of high-profile industry players to make public interest submissions expressing their views on the question of import bans over FRAND-pledged standard-essential patents (SEPs). Preliminary rulings held both respondents to infringe one or more Motorola SEPs. Both investigations were remanded. In the Apple case, no more SEP is at issue (though this could change on appeal); in the Microsoft case, two WiFi patents have been withdrawn and the two remaining patents, which have been declared essential to the H.264 video codec standard, may be dismissed for certain reasons, and should the ALJ unexpectedly recommend a finding of a violation on remand, there would be another Commission review. As a result, the general question of SEP-based ITC exclusion orders is not getting much attention in connection with Motorola Mobility's (i.e., Google's) SEPs.

But this important matter may prove outcome-determinative in the investigation of Samsung's complaint against Apple. In mid-September, an Administrative Law Judge (ALJ) held that Apple doesn't infringe any valid Samsung patents-in-suit. Late on Monday, the Commission, the six-member decision-making body at the top of the ITC, issued its notice of review. It has decided to review the ALJ's initial determination in its entirety, though it appears that one of the four patents-in-suit, U.S. Patent No. 7,450,114 on "user interface systems and methods for manipulating and viewing digital documents", is not of much interest, if any, at the review stage, given that none of the review questions relates to it (there are two fully-redacted review questions, but the positions at which they appear suggest that they are related to one or two other patents). In my analysis of the detailed version of the initial determination I already said that "[t]his is probably the most difficult patent for Samsung to prevail on".

Of the three patents that will be addressed in detail by the parties' submissions, two are standard-essential. The non-standard-essential one, U.S. Patent No. 6,771,980 on a "method for dialing in a smart phone", is at issue in two of the review questions, but the hurdle is significant and even if the Commission's related review questions were answered in Samsung's favor, a finding of a violation would not be a given.

Clearly, U.S. Patent No. 7,706,348 on an "apparatus and method for encoding/decoding transport format combination indicator in CDMA mobile communication system" (an allegedly UMTS-essential patent) is going to be the most important patent at this stage. In my aforementioned analysis I already said that "[t]his patent is probably Samsung's best shot at the review stage", and the Commission asks three review questions related to claim constructions, one of which actually comprises multiple questions.

The Commission's list of questions starts with a group of four general questions concerning FRAND import bans, and while only the parties are requested to comment on the other questions (most of which relate to infringement, validity and domestic industry), the first four FRAND questions are explicitly directed not only to the parties but also to "interested government agencies, OUII [the ITC staff], and any other interested parties". Lawmakers on Capitol Hill aren't explicitly mentioned here, but they chimed in on other occasions and they are always free to do so again. There are stakeholders who believe that legislative intervention (a modification of Section 337, the statute governing ITC investigations) is needed to prevent that the ITC issues exclusion orders based on SEPs in cases in which federal courts would not.

These are the questions on which the Commission now solicits input from stakeholders beyond the parties themselves:

  1. 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)(1) public interest factors preclude issuance of such an order.

  2. 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?

  3. Would there be substantial cost or delay to design around the technology covered by the '348 and '644 patents asserted in this investigation? Could such a design-around still comply with the relevant ETSI standard?

  4. What portion of the accused devices is allegedly covered by the asserted claims of each of the '348 and '644 patents? Do the patents cover relatively minor features of the accused devices?

Questions 1, 3 and 4 were asked in a very similar form in the review notice in the investigation of Motorola's complaint against Apple. This time the design-around question (question 3) is a bit tricky for Apple because it will have to take a position on whether a designaround does or does not comply with the standard -- and if a designaround conforms to the standard, the patent isn't actually standard-essential.

Question 2 is new. It's a request for input on the framework for FRAND compliance of an offer. A trial is underway in Seattle, in a Microsoft v. Motorola Mobility FRAND contract case, at which the parties propose different methodologies. After the current trial, the judge will set a FRAND rate (a range and a point), and in a subsequent step the question of whether Motorola breached its FRAND contract by making a blatantly unreasonable demand will be addressed. The ITC now has to get to this question in the investigation of Samsung's complaint unless the ALJ's initial determination is affirmed, in which case the Commission again won't reach the FRAND issues.

Many industry leaders are concerned about injunctive relief (such as ITC exclusion orders) based on SEPs and will submit amicus curiae briefs to the Federal Circuit, the appeals court to which Google (Motorola Mobility) appealed the FRAND part of Judge Posner's ruling. I believe there will also be a number of interesting submissions to the ITC this time around. Some stakeholders may more or less recycle the submissions they already made in the two investigations of Motorola's complaints, but question 2 on what FRAND really means for a demand that a party makes will require some new thought and is really a very important one. I wish to strongly encourage all of the corporate decision-makers among my readers to express their views to the ITC at least on this particular question. The filing deadline for answers is December 3.

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