Chinese telecommunications giant Huawei yesterday wrote a letter to the United States International Trade Commission (USITC, or just ITC) requesting that InterDigital's latest complaint, filed on January 2 (against a group of defendants also including Samsung, Nokia and ZTE), not be investigated until the FRAND issues surrounding InterDigital's asserted standard-essential patents (SEPs) have been resolved in federal court in Delaware or, as a fallback, at least until the ITC has concluded the investigation of InterDigital's July 2011 complaint against Huawei, ZTE and Nokia. The first suggestion -- that the ITC wait for a federal court to adjudge FRAND licensing issues -- is a very interesting proposal, particularly in light of concerns expressed by the Federal Trade Commission, the Department of Justice and the United States Patent and Trademark Office.
The way in which Huawei responded to InterDigital's latest request for a U.S. import ban over SEPs could serve as a model for other defendants to ensure that FRAND issues can be addressed in the appropriate forum -- a federal court -- before the ITC potentially orders an import ban. Huawei's letter argues that a "delay in institution of [an investigation of] InterDigital's complaint will significantly conserve Commission and party resources, as well as permit the Commission to implement the recommendation of its sister agencies [i.e., FTC, DoJ and USPTO] and federal district courts concerning exclusion orders applicable to FRAND-committed SEPs".
Huawei is reacting to InterDigital's latest enforcement activity with measures that have undoubtedly been inspired by the FTC's envisioned settlement with Google, which potentially enables a willing licensee to avoid an injunction (ITC import bans are one form of injunctive relief) by bringing a FRAND determination action in federal court and declaring himself bound to the outcome of such determination. Here's how Huawei describes its related initiative in yesterday's letter to the ITC:
At the same time that InterDigital filed its latest complaint with the Commission, InterDigital also filed complaints in the U.S. District Court of the District of Delaware against the proposed respondents alleging infringement of all of the patents asserted in the ITC. See Exhibit A (InterDigital Communications Corp. v. Huawei, Civ. Action No. 13-08, Complaint (D. Del. 2013)). Huawei does not intend to seek an automatic stay of the Delaware Action pursuant to 28 U.S.C. § 1659 [an article that provides for stays of federal companion (mirror) lawsuits while an ITC investigation of the same issues is ongoing]. Instead, Huawei has filed an answer asserting counterclaims, including for breach of contract and equitable estoppel, relating to InterDigital's FRAND commitments, as well as declaratory judgment counterclaims asking the district court to set FRAND terms for InterDigital's United States 3G and 4G LTE patents. See Exhibit B at Counts I-III, V, VI (Huawei Answer, Civ. Action No. 13-08 (Jan. 24, 2013)). Huawei will be bound by the district court's determination of a FRAND rate.
I have uploaded Huawei's letter and its Exhibit B (Huawei's answer and counterclaims to InterDigital's Delaware complaint) to Scribd. In case you don't want to look up the full documents, I'm now going to list the FRAND counterclaims Huawei referenced in the paragraph quoted above:
Count I: Breach of Contract
Count II: Breach of Contract -- Third Party Beneficiary
Count III: Equitable Estoppel
Count V: Declaratory Relief -- IDC Has Not Offered or Granted Huawei Licenses on FRAND Terms
Count VI: Declaratory Relief -- Determination of FRAND Terms
Count IV (waiver of right to enjoin) is also FRAND-related but Huawei did not consider it relevant in this context. The most important counterclaim now, against the background of the proposed FTC-Google settlement, is obviously Count VI -- Determination of FRAND Terms. Here's the full text of that claim (apart from general explanations provided elsewhere in the document and incorporated by reference, all of which you can find in the document itself):
79. There is an actual controversy between the parties concerning FRAND terms for IDC's patents that have been declared essential to a standard used by any of the products accused in the earlier filed case or this action.
80. The controversy is of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.
81. Huawei is entitled to a declaratory judgment determining an appropriate FRAND royalty for IDC's United States 3G and LTE 4G patents that have been declared essential to a standard used by any of the products accused in the earlier filed case or this action.
The related prayer for relief requests "a declaratory judgment setting an appropriate FRAND royalty to license IDC's United States 3G and 4G LTE patents that have been declared essential to a standard used by any products accused in the earlier filed case or in this action".
Huawei's filing in Delaware does not say explicitly what its letter to the ITC now says: "Huawei will be bound by the district court's determination of a FRAND rate." And even this affirmative statement may fall short of what InterDigital's lawyers consider sufficient: being bound to a rate is not necessarily the same as saying affirmatively that one will take a license on court-ordered terms. Apple's FRAND case against Google's Motorola in the Western District of Wisconsin is an example where a similar distinction played a role. But this could always be clarified.
The ITC has the right to stay investigations, and it will particularly do so for efficiency considerations concerning parallel proceedings. And it can delay the institution of an investigation. Huawei notes that in addition to the Delaware counterclaims, it "has also initiated contract and antitrust lawsuits in China and asked a Chinese court to set a royalty rate for InterDigital's Chinese essential patents". According to Huawei, "InterDigital has opposed the setting of a royalty rate" because it's "far more interested in exploiting the hold-up power of the ITC process than complying with its FRAND obligations". There are certainly strong indications that this is what InterDigital is trying to do. As a result, there is now the challenge of how a "willing licensee" can prove that he is prepared to take a license.
It would certainly be much better if U.S. antitrust regulators and the ITC could simply rule out injunctive relief against an identifiable defendant whom the patent holder can always sue for damages in federal court. But the ITC appears reluctant to give up its jurisdiction over SEP-based complaints, and antitrust regulators don't appear to be determined to apply the simplicity and clarity of the SEP-related parts of the FTC agreement with Bosch to all other SEP cases. As a result, patent holders like InterDigital can continue to pursue injunctive relief by arguing that someone has somehow not done enough to qualify as a "willing licensee". Under the circumstances, Huawei's response to InterDigital's complaint is a possible way out of this mess. Even in disputes in which an ITC complaint is not mirrored by a federal companion lawsuit, respondents could implement this strategy by bringing a FRAND determination action as a standalone lawsuit (as opposed to counterclaims), and if this happens during the 30 days that it typically takes the ITC to decide on whether to institute an investigation, a delay in institution may be the most efficient choice for everyone involved.
At least this would work against non-practicing entities like InterDigital. In cases in which two operating companies are suing each other over patents, the "defensive use" clause in the FTC's proposed patent agreement with Google is a huge problem.
In the particular case of InterDigital's complaint, Samsung has also raised an issue that could delay institution of an investigation, but Samsung's insistence on compliance with the ITC's factual pleading standard would likely result in a delay of only a few months, while the FRAND determination in federal court that Huawei requests would probably take about two years (not counting appeals).
Huawei is not only a defendant in connection with SEPs. It is asserting some of its SEPs against another Chinese company, ZTE, in several countries, particlarly in Germany. In mid-December the Mannheim Regional Court held a Huawei v. ZTE trial, and two such trials will take place in another German city, Dusseldorf, on Thursday. Huawei is seeking injunctive relief against ZTE, but there are no signs so far of ZTE asking for a FRAND determination by a court.
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