An unprecedented decision came down yesterday in the Northern District of California, where a federal judge granted an implementer of the IEEE 802.11 (WiFi, or WLAN) standard a preliminary injunction against enforcement of a potential ITC exclusion order based on standard-essential patents (SEPs). The implementer is RealTek Semiconductor; the patent holder is Agere, which was spun off of Lucent in 2000 and acquired by Taiwanese integrated circuit designer and supplier LSI, another party to this action, in 2001.
In a decision strongly inspired by Judge James Robart's anti-enforcement injunction (concerning a German SEP injunction) in Microsoft v. Motorola in Seattle and its affirmance by the United States Court of Appeals for the Ninth Circuit (this circuit also includes California), San Jose-based Senior District Judge Ronald Whyte granted a preliminary injunction based on a summary judgment finding in RealTek's favor on Realtek's allegation that LSI and Agere breached their FRAND licensing obligation by seeking an ITC exclusion order without previously offering a license on FRAND terms.
This is the first time for a United States district court to rule out the ITC's only remedy, at least in connection with SEPs. As I'll discuss further below, this also has implications for Apple's FRAND disputes, particularly with a view to the decision the ITC has scheduled for May 31 on Samsung's complaint against Apple. Here's Judge Whyte's landmark decision (this post continues below the document):
The injunction binds LSI and Agere, which (unless they get this injunction lifted) cannot enforce or seek to enforce an exclusion order injunction pending a full FRAND trial, which will result in a rate-setting decision comparable to Judge Robart's recent Microsoft v. Motorola ruling. The ITC itself is free to continue its investigation. But if the ITC found in LSI and Agere's favor and granted "an exclusion order or injunctive relief" (the latter presumably referring to a cease-and-desist order, which the ITC can grant in addition to an import ban), the preliminary injunction would go into effect and LSI/Agere would face contempt sanctions in California should it actually enforce. Whether the ITC will continue the investigation under these circumstances or stay it (since the federal FRAND case, which RealTek brought in order to resolve its dispute with LSI and Agere over FRAND terms, is going to be dispositive of the whole dispute) remains to be seen. Absent a reversal of the injunction or the incredibly unlikely scenario of RealTek failing to take a license on court-determined terms, it would be a total waste of resources for the ITC to carry on with the investigation, but for institutional reasons it may decide to keep going anyway, anyhow.
LSI and Agere face a steep challenge with an appeal because the circumstances in this case are really extreme. While SEP holders like Samsung and Google's Motorola at least made formal licensing offers (even if lightyears outside of the FRAND ballpark), LSI and Agere prior to bringing an ITC complaint never made a formal licensing offer relating to the latest version of the relevant standard. They had made an offer (with an out-of-this-world 5% royalty demand) back in 2002 and 2003 with respect to the 802.11b standard, but nine years later simply sent RealTek a cease-and-desist order over the more recent versions of the standard (the most recent one is 802.11n, and LSI and Agere specifically claim to hold patents essential to 802.11e and 802.11g) and then filed an ITC complaint.
Two years ago, Judge Barbara Crabb in the Western District of Wisconsin had denied Apple a preliminary injunction against Motorola's pursuit of a SEP-based ITC exclusion order. And about a year ago, Microsoft was denied the kind of partial summary judgment (on breach of contract) RealTek just won. Judge Robart preferred to resolve the case step by step and set a FRAND rate (and range), which he did last month, prior to having a jury determine whether there's been a breach of contract, which will happen in August.
Even without a partial summary judgment ruling in Microsoft's favor on breach of contract, Judge Robart enjoined Motorola. In the Microsoft case it was key that the FRAND contract case had been brought in the United States approximately eight months before Motorola filed the related German lawsuits, and Motorola had offered, in a letter sent from Illinois to Washington State in 2010, a worldwide license covering its declared-essential H.264 and IEEE 802.11 patents, also listing the European counterparts of the relevant U.S. patents. In late November, after a rate-setting bench trial, Judge Robart dismissed Motorola's claim for SEP-based injunctive relief and simultaneously dissolved the preliminary injunction concerning enforcement in Germany, as he found that the summary judgment decision on injunctive relief was "in no way specific" to the U.S. patents at issue in that case, "so the dismissal of injunctive relief in [the summary judgment] order [took] the place of the court's prior anti-suit injunction that enjoined Motorola from enforcing an injunction in the German action". Judge Robart did not mention the ITC Xbox investigation in that decision, though there was a filing at some point in which Microsoft responded to a question by the judge about the status of the ITC proceedings. Google's Motorola withdrew all of its SEPs from that investigation, so the question of whether the summary judgment decision in Seattle also precluded Motorola from enforcing a SEP-based ITC import ban against Microsoft never had to be addressed. For diplomatic reasons ("comity of nations") it's actually harder for a court to bar enforcement of a foreign injunction, but there are also some interinstitutional considerations involved when district courts interfere, even if only indirectly by binding a party to a dispute, with an ITC investigation.
Considering the backing Judge Robart received from the Ninth Circuit in Microsoft v. Motorola, LSI and Agere face a reasonably steep challenge in persuading the same appeals court to reverse Judge Whyte's anti-enforcement injunction. Assuming that this preliminary injunction is upheld (or maybe never challenged, though this is less likely), patent holders facing similar requests in the future will definitely point to differences between their FRAND-related conduct and that of LSI/Agere. They will make prohibitive offers, which at least constitute offers in a formal sense, and they will make them with respect to the versions of the standard over which they seek -- and not too long before they seek -- an ITC import ban. The conduct of LSI/Agere described by Judge Whyte appears particularly outrageous and unsophisticated. But that doesn't mean this outlier will have been the last case in which a United States district court with a FRAND contract (and rate-setting) case before it precludes a patent holder from enforcing potential or actual ITC remedies. Companies that make blatantly unreasonable initial royalty demands may also lose a partial summary judgment decision over a breach-of-contract issue. Other judges may determine in other cases (with their unique circumstances) that they don't need a jury to make this kind of decision, or they may grant an expedited jury trial. If a district court arrives at a breach-of-contract finding before an ITC import ban enters into force, it can order a preliminary injunction of the kind Judge Whyte handed down yesterday. Some courts will do this, while others may decline to engage in a race with the ITC, as the United States District Court for the District of Delaware told Huawei and ZTE in a dispute with SEP-holding non-practicing entity InterDigital.
The ITC can't set FRAND rates and resolve contract disputes; it can merely grant or deny exclusion orders (and related cease-and-desist and bonding orders), and in that process it can adjudicate SEP-related defenses. Cases over FRAND-pledged SEPs really belong in the district courts except under the most egregious of circumstances (I could think of someone's refusal to pay a court-determined, non-appealable FRAND rate, or the importation of infringing goods from unidentifiable sources, which can only be stopped through seizure by customs officers), and Judge Whyte's ruling represents a major breakthrough in that regard.
Implications for the ITC investigation of Samsung's complaint against Apple
In mid-March the ITC postponed its final decision on Samsung's complaint against Apple once again, and the ruling date is now May 31 ( next week's Friday). When the extension was announced, the ITC also asked the parties and third-party stakeholders for input on various SEP-related questions. There were very strong indications that one Samsung SEP was found valid and infringed by Apple, and the ITC now has to think about remedies in light of FRAND. It came close to having to make similar decisions in other cases, but those were dismissed on their non-FRAND-specific merits, or settled. In the Samsung-Apple case the ITC will have to take a position on FRAND, and the breadth of its questions show that it's really trying to look at this hard from all angles. For institutional reasons the ITC probably won't want to deprive itself of jurisdiction over SEP infringement claims, but with more rulings of the kind Judge Whyte issued yesterday, that's what may inevitably happen over time.
Should the ITC grant Samsung an import ban, Apple could try to obtain a preliminary injunction against its enforcement. ITC import bans don't take effect for 60 days due to the Presidential Review period. Judge Lucy Koh is based in San Jose just like Judge Whyte. In December she declined to rule on Apple's FRAND defenses in the first federal Apple v. Samsung two-way lawsuit because she didn't see a need, given that Samsung had lost on the non-SEP-specific merits. She also denied Apple judgment as a matter of law on FRAND antitrust counter-counterclaims, but those aren't necessary to resolve the issue of injunctive relief. Should Samsung win an ITC import ban, then Apple's claim that it needed a ruling on its FRAND defenses for reasons transcending the California litigation would suddenly make a whole lot of sense. At the summer trial the court in California saw all the evidence and heard plenty of testimony concerning Samsung's original 2.4% royalty demand. There's enough in the record in the Northern District of California to determine quickly that Samsung isn't entitled to injunctive relief in any form, including that of an ITC exclusion and cease-and-desist order. Judge Koh has previously shown flexibility when new circumstances or new information warranted new decisions or modifications of previous plans.
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