Wednesday, January 30, 2013

InterDigital responds to Samsung and Huawei's requests to postpone ITC investigation

InterDigital (often referred to by its stock ticker symbol, IDCC) is fighting hard to dissuade the ITC from adopting recommendations by Samsung and Huawei, on different grounds, to delay the institution of an investigation of a new complaint InterDigital filed against these two companies as well as Nokia and ZTE on January 2, 2013. Samsung argued that InterDigital basically jumped the gun by bringing a complaint before it had evidence of any importation of unlicensed products by Samsung into the U.S. market, given that a license agreement was in effect until December 31, 2012. Huawei pointed the ITC to its FRAND determination counterclaim in the District of Delaware, which appears structurally ocnsistent with what the envisioned FTC-Google settlement expects willing licensees to do. Those letters were submitted on Monday. InterDigital's replies were filed yesterday and entered the public record today.

InterDigital's letter in response to Samsung's request does not dispute that Samsung was licensed to six of the seven patents asserted against it until the end of last year. The samples of allegedly unlawful imports that InterDigital purchased from U.S. retailers were bought in December. But InterDigital argues that a license-based defense does not defeat the ITC's jurisdiction: the ITC should institute an investigation anyway, especially in light of the fact that its patent enforcement is prospective (banning future importation as opposed to awarding damages for past infringement), and Samsung should then raise a license defense if it has any. Even Samsung does not claim to have a license defense for the future. But Samsung argues that InterDigital failed to meet the factual pleading standard, which requires it to show unlawful imports to the ITC.

InterDigital says that even if only one of the seven patents asserted against Samsung was not subject to the license agreement (even Samsung concedes this much), that should be enough of a basis to institute an investigation.

What's happening between InterDigital and Samsung is a legal game and pretty much detached from common sense. There's no question that Samsung continues to import 3G- and 4G-capable products into the United States even without a license from IDCC. But there's also no question that if it had not been licensed until the end of last year, IDCC would have disputed that claim in its letter. Now both just take a "show me" position, or more precisely, a "show to the ITC" position: Samsung wants IDCC to show to the ITC that it is now importing (or about to import) unlicensed products into the U.S. market, and IDCC wants Samsung to show its license agreement to the ITC during the course of an investigation, knowing that an expired license agreement is not going to be relevant once the investigation has been instituted.

The ITC now has to think about the further implications of whatever decision it makes. If it sides with IDCC and institutes the complaint, then its pleading standard for Section 337 complaints will hit a new low, and it will, as a result, receive an increasing number of complaints with similar shortcomings. If it sides with Samsung, patent holders who wish to take action against a former licensee right upon expiration of a license agreement will have to wait until they have evidence of importation of unlicensed, infringing products. In my opinion, the latter is far less of a problem, at least from a public interest point of view, than the former.

The FRAND issues raised by Huawei -- IDCC's asserted patents are standard-essential patents (SEPs) -- are of even greater importance. And having read IDCC's response I'm even more convinced of the merits of Huawei's proposal. IDCC's letter argues that Huawei could always inform the ITC of a FRAND rate determination by a district court, but openly says that this will take years and that the ITC should in the meantime ban Huawei's products. This is preposterous. IDCC wants to create a situation in which the FRAND determination is going to be rendered irrelevant by injunctive relief, which will give IDCC the leverage to be the "dictator of the royalties" (to quote a research paper written by Iowa Professor Herbert Hovenkamp). This possibility is an argument for, not against, Huawei's suggestion that the ITC delay institution of an investigation while a FRAND determination action is ongoing in district court. IDCC's proposal comes down to requesting that the ITC serve as the key enabler of SEP-based hold-up in the United States.

IDCC tells the ITC that Huawei's reference to its sister agencies' (FTC, DoJ, USPTO) positions on SEP enforcement is selective because those agencies do say in their official statements that injunctive relief over SEPs is appropriate under certain circumstances. In particular, InterDigital quotes a passage of the DoJ/USPTO position paper that I also criticized even though I wholeheartedly agree with at least 95% of what that document says. However, even the passage that IDCC quotes does not give any specific examples ("specific" as opposed to an open-ended remark that the list of exception is "not exhaustive") other than situations in which "a putative licensee refuses to pay what has been determined to be a F/RAND royalty, or refuses to engage in a negotiation to determine F/RAND terms" -- none of which applies to Huawei, which has brought a FRAND determination action in Delaware and has declared itself bound to its outcome. That said, I do believe that the FTC, DoJ and USPTO should look at IDCC's letter, considering that many other SEP holders are going to try to leverage those agencies' position papers and settlements in similar ways, and should draw the appropriate conclusions from it, especially in connection with the proposed SEP agreement between the FTC and Google, which can still be optimized (and in my opinion needs to be improved) in the coming months.

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