Tuesday, March 12, 2013

Huawei and ZTE mention Microsoft 42 times in joint 15-page FRAND motion in InterDigital case

Just like the "no injunction over FRAND-pledged patents"> part of Judge Richard Posner's Apple v. Motorola ruling is highly influential, Judge James Robart of the United States District Court for the Western District of Washington -- with support from the United States Court of Appeals for the Ninth Circuit -- has become the pioneer and thought leader in the U.S. with respect to the adjudication of FRAND licensing terms by federal courts through the substantive and procedural decisions has has already made in the Microsoft v. Motorola FRAND contract litigation before him. The coast-to-coast impact and global recognition of Judge Robart's thinking becomes increasingly clear, such as in a reply brief Huawei and ZTE -- the two leading Chinese telecommunications hardware makers -- filed yesterday in the District of Delaware in support of their request for an expedited FRAND determination in their disputes with InterDigital. The document mentions "Microsoft" 42 times on 15 pages -- almost three times per page -- and quotes extensively from Judge Robart's various decisions and, of course, the Ninth Circuit opinion supporting his stance.

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

13-03-11 Huawei and ZTE Reply Brief in InterDigital Case by Florian_Muelle_439

Technically, Huawei and ZTE are being sued by InterDigital in separate federal lawsuits due to the limitations on joinders (multi-defendant actions) created by the America Invents Act, but in the same ITC action. The federal lawsuits were filed in Delaware (also against Samsung and Nokia, the other respondents in the same ITC investigation). To be precise, InterDigital already sued Huawei and ZTE (as well as Nokia) in June 2011 in the ITC and in federal court. The ITC just held a hearing in that investigation. In this post I'll leave the other case aside and just focus on the January 2013 cases.

What's going on now is a race for the first dispositive ruling. InterDigital wants the ITC case to go ahead without delay in order to win an import ban as quickly as possible. Huawei and ZTE want the FRAND determination in federal court to happen first. They have asked the ITC to put its investigation on hold until that happens. The ITC staff, which participates in some investigations as a third party and doesn't make actual decisions, opposes a stay for purely institutional reasons: it's concerned that such stays would deprive the ITC of jurisdiction over an entire category of cases. The ITC staff isn't against Huawei and ZTE's FRAND defense: it just wants the ITC investigation to proceed unabatedly and any FRAND defenses to be considered by the ITC. But even InterDigital doesn't dispute that the ITC won't be able to set a FRAND rate: it can only grant or deny an import ban. Knowing that the ITC may, for institutional reasons that are enirely unrelated to the public interest in preventing hold-up at the threat of injunctive relief, deny a stay, Huawei and ZTE keep pushing for an accelerated FRAND determination in federal court. That's what the pleading published above relates to.

Earlier this month I published and commented on InterDigital's opposition to Huawei and ZTE's motions for expedited FRAND determinations. In that post I likened the timing problem here to what computer programmers call a "race condition": a program will only operate correctly if a particular part is completed at the right time; otherwise it will deliver erroneous results or crash entirely.

What Huawei and ZTE propose -- "FRAND first" eliminates the need for any decision on injunctive relief -- makes sense because a FRAND license on court-determined terms would be legally and commercially dispositive. There's no point in ordering an import ban against licensed products. What InterDigital proposes would be potentially commercially, but not legally dispositive. If InterDigital won an import ban before the license terms are set, it will probably have so much leverage that it effectively becomes the dictator of the royalties and achieve a settlement on its terms. This outcome runs counter to the public interest in rewarding patent holders fairly for their contributions to innovation whilst avoiding anticompetitive, undeserved overcompensation.

In their original motions (both in the ITC and in federal court) Huawei and ZTE emphasized the envisioned FTC-Google consent decree. InterDigital argued that an antitrust settlement isn't law and said that it "is not a basis to adjudicate subsequent cases". I've said all along that this is formally correct, but it will bear some weight with the courts nevertheless. Huawei and ZTE now clarify inhowfar they consider it relevant:

"Movants [Huawei and ZTE] do not contend that the FTC Google Consent Order is binding precedent. Rather, Movants cited the Consent Order because it reflects the FTC's view of the limitations on the availability of injunctive relief for SEPs against willing licensees. The Consent Order also reflects a broad consensus among policy makers on the basic premise that injunctive relief should not be available for SEPs where, as here, the licensees are willing to pay FRAND royalty rates. See Mulford v. Altria Group, Inc., [...] ('Although a[n FTC] consent order is directed to the parties to the order, clear rules can be announced in consent orders that have general application to the industry.”). Furthermore, the Lane Labs case cited by InterDigital states within the same footnote cited that consent decrees are 'instructive to this Court's determination.'"

But the emphasis is not on the FTC-Google deal. It's on what a federal court can and should do in a situation where parties cannot agree on FRAND rates. It's not a solution to just let a standard-essential patent (SEP) owner win an injunction. It takes care of the case in a way, but only with a bad and anticompetitive outcome. Huawei and ZTE point to Judge Robart's "inescapable conclusion that a forum must exist to resolve honest disputes between patent holder and implementer as to what in fact constitutes a [F}RAND license agreement," and that "the courthouse may be the only such forum". This conclusion is indeed inescapable if the objective is to uphold the rule of law against attempted hold-up.

Huawei and ZTE clarify in their filing that they accept to be bound by a FRAND determination, just like Microsoft in its Google-Motorola case. They just want to ensure that the determination will be made in time. With respect to infringement and (in)validity issues, they say that the court will hear testimony from licensing experts who address these questions all the time, but the FRAND determination will be about InterDigital's portfolio as a whole, not limited in scope to only a few patents-in-suit.

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