Monday, February 25, 2013

Huawei and ZTE file motion to stay ITC investigation of InterDigital's latest complaint

The ITC investigation of InterDigital's early-January standard-essential patents (SEP) complaint against Samsung, Nokia, Huawei and ZTE is the first one of its kind to have been instituted after the FTC announced a consent decree in the Google (Motorola Mobility) SEP antitrust case. In fact, the envisioned consent decree was announced on the day following the filing of InterDigital's related complaint. China's leading telecommunication hardware makers, Huawei and ZTE, have just brought a motion to stay the ITC investigation. The motion was filed on Friday and entered the public electronic record today. In a February 11 filing with the United States District Court for the District of Delaware, where InterDigital had filed its companion federal lawsuits, Huawei had already announced its intent "to move the ITC to stay the most recently [launched] investigation".

Huawei and ZTE present a united front against InterDigital despite being embroiled in a SEP dispute with each other in various jurisdictions (particularly Germany). They agree that in light of the proposed FTC-Google consent order, a FRAND determination action in federal court warrants a stay of an ITC investigation. What's interesting about this is that so far it used to be the rule that companion (or mirror) lawsuits in federal court were stayed pending final adjudication of an ITC complaint (including appeals). Under the law, defendants are entitled to a stay after the ITC instituted an investigation, and in the cases I watched over the last few years, every defendant moved for a stay. But for SEPs it makes sense to do the opposite thing: the ITC can't set FRAND royalty rates because its only remedy is injunctive relief (import bans and concomitant cease-and-desist orders and bonding requirements), but district courts can do so, and once an implementer of a standard is licensed, there's no more basis for injunctive relief.

Here's the motion (this blog post continues below the document):

13-02-22 Huawei and ZTE Motion to Stay ITC Investigation of InterDigital Complaint by

In late January Huawei had already asked the ITC to postpone the institution of an investigation, but on January 31, the ITC launched an investigation regardless of Huawei's proposal to sort out FRAND licensing issues in federal court and/or resolve another ITC investigation before the new one would start. Another defendant, Samsung, had also requested a postponement on SEP-unrelated grounds. Samsung has meanwhile brought a motion to terminate the investigation with respect to the patents it had a license to when InterDigital's lawyers purchased samples of allegedly unlawful imports. And in their public interest statements filed a few days ago, Nokia (also a defendant) and Huawei complained that InterDigital is trying to leverage the threat of a U.S. import ban to force them into worldwide license deals.

The joint Huawei-ZTE motion reminds the ITC of overall developments in U.S. case law and the procedures that enable a defendant to avoid injunctive relief according to the envisioned FTC-Google consent decree (which procedures Huawei and ZTE claim to have done by requesting a FRAND determination in federal court and declaring themselves bound to its outcome) as well as the SEP-related part of the FTC's previous settlement with Bosch, which disallowed the pursuit of SEP-based injunctive relief altogether. While Bosch is clearer than Google, Huawei and ZTE appear to meet even the requirements of the Google deal:

"The Moving Respondents have also committed to the Delaware court that they will be bound by the district court's determination, and so each of the Moving Respondents unquestionably is a willing licensee with respect to InterDigital's patents."

Huawei and ZTE liken InterDigital's conduct to Google's conduct that resulted in an FTC investigation and (proposed) consent decree:

"InterDigital's behavior with respect to the Moving Respondents is for all relevant purposes identical to Google's behavior as documented in the Consent Order. InterDigital, like Google, participated in the ETSI standard-setting process and declared that its patents may be essential to the standards under development (see Exh. E, Analysis of Proposed Consent Order at 3; cf. Exhs. A-C). Also like Google, InterDigital 'promised to license its patents essential to these standards on FRAND terms, inducing ETSI . . . to include its patents in cellular . . . standards.' (see Exh. E, Analysis of Proposed Consent Order at 3; cf. Exhs. A-C at 2). And like Google, InterDigital 'filed patent infringement claims at the ITC where the only remedy for patent infringement is an exclusion order.' See Exh. E, Analysis of Proposed Consent Order at 3. The FTC explained why this behavior is unlawful when carried out by a company that is bound by FRAND commitments: 'Because of the ITC's remedial structure, filing for an exclusion order before the ITC on a FRAND-encumbered SEP significantly raises the risk of patent hold-up in concurrent licensing negotiations because an exclusion order may be entered by the ITC before a FRAND rate is reached.' Id."

The motion says "there has been a sea change in the way that federal district courts and governmental agencies view the commitment to license patents on FRAND terms". I wouldn't necessarily call it a "sea change" because it's not like SEP holders had easy access to injunctive relief before, but there's certainly been a wave of high-profile decisions (such as the one made by Judge Posner in a case involving Apple and Motorola Mobility) because of so many recent SEP cases:

"In the last year alone, the Department of Justice, the Federal Trade Commission, the Patent and Trademark Office, the United States Court of Appeals for the Ninth Circuit, the United States District Court for the Northern District of Illinois, and the United States District Court for the Western District of Wisconsin have all uniformly concluded that seeking an exclusion order against a party willing to pay FRAND compensation is violative of a patentee's FRAND commitment."

I have reported on all of these statements and cases, and linked each institution in the quote above to a related blog post.

It's easy to predict how InterDigital will react. It will presumably dispute that Huawei and ZTE are truly willing licensees, as it already did in district court, and it's going to repeat the argument made by others before it that the ITC should order import bans rather than let a district court set a FRAND rate. What's harder to predict is how the ITC will decide. In my opinion a stay is warranted in this case.

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