Tuesday, September 3, 2013

Philips writes to ITC to defend MPEG LA AVC/H.264 reciprocal-licensing obligation

The grant-back (reciprocal licensing) obligation that licensees of MPEG LA's AVC/H.264 video codec patent pool must respect already came up in connection with Microsoft's enforcement of Google's (Motorola's) FRAND licensing obligations. Google tried to weasel out of that obligation, and Microsoft elected not to sue Google (the parent company) so as not to delay the proceedings against Motorola Mobility (the wholly-owned subsidiary), especially since the court-determined FRAND royalty rate was pretty close to the per-patent equivalent of the MPEG LA pool rate anyway. A Microsoft v. Motorola breach-of-FRAND-pledge jury trial is being held in Seattle as we speak, and the jury will probably try to render a verdict before the weekend.

It's interesting that Philips, a company known especially in European Union politics as a vocal supporter of strong intellectual property protection and known around the world as a top-notch licensor of standard-essential patents (SEPs), is also concerned about certain companies' attempts to shirk their back-licensing obligations and their related requests for injunctive relief, including but not limited to ITC exclusion orders (U.S. import bans). Philips submitted a public interest statement to the ITC in the investigation of an LSI/Agere complaint against Funai and Realtek. That ITC investigation previously drew a lot of attention in standardization circles when a senior district judge in the Northern District of California granted a Realtek motion for a preliminary injunction barring LSI/Agere from enforcing an ITC import ban should it win one at all. Based on the Administrative Law Judge's initial determination, there's no finding of a violation, but such preliminary rulings can be reversed as a result of a Commission review, which is why the parties to the dispute and third-party stakeholders must comment on public interest considerations now.

Given Philips's pro-IP, pro-enforcement tradition, I thought that it was going to make an argument in favor of SEP-based exclusion orders, only to find out that the Dutch electronics giant focused almost exclusively on the MPEG LA grant-back issue. Here's the filing (this post continues below the document):

13-08-30 Philips Submission to ITC on Public Interest Re. Patent Pools by Florian Mueller

The H.264 declared-essential patent Philips exclusively focuses on (apart from a footnote relating to a WiFi patent) was asserted only against Funai, not Realtek. No infringement was identified, but in case this changes during the review, Philips urges the ITC to "deny any relief for the '663 Patent as contrary to the public interest, or in the alternative, direct the ALJ to reopen the factual record to address [the] important patent pool licensing issues [Philips raises in its submission]".

There are certain differences between the Microsoft-Google disagreement on the grant-back obligation and the LSI-Funai dispute, even though both have their basis in the same grant-back clause in the MPEG LA AVC/H.264 patent pool license agreement.

One difference is not central to Philips's argument: LSI allegedly "was a licensor of the H.264 pool" until its "voluntary withdrawal in 2007". Motorola was involved in negotiations on the formation of the pool, but never actually became a licensor. Philips emphasizes that its submission "focuses on LSI's obligations as a pool licensee", which is also Google's status, but not without raising "the additional issue of whether LSI has complied with its more general FRAND obligation by attempting to license [Funai] on discriminatory terms compared to similarly-situated patent pool licenses". Philips, for example, is still licensed to LSI's H.264 patents because it was granted a license (by LSI, through the pool) before LSI's 2007 withdrawal from the pool. This question of discrimination is a very interesting one, but Philips doesn't elaborate on it. We may see it come up in some other context at some point (I'm not aware of anything in the pipeline, but this looks like the kind of issue that might resurface).

Another difference is that Google came up with theories that didn't really convince me as to why the patents held and enforced by its Motorola Mobility subsidiary somehow wouldn't fall within the scope of the grant-back clause. That is not an issue in the LSI case, at least not one that Philips mentions.

The bottommost sentence on page 2 of Philips's submission makes an important public-interest argument specific to the grant-back obligation:

"By ensuring that no licensee can take advantage of the pool license while asserting its own essential patents against other licensees, these commitments protect the incentives of licensors and licensees to join the H.264 pool, and in turn encourage the adoption of the H.264 standard."

I concur with Philips on this one. Hold-up through the pursuit of sales and import bans is totally unacceptable when a reciprocal-licensing obligation exists. The ITC should not allow anyone to perform an end-run around a grant-back obligation. The ITC has set a rather low bar (not infinitely low, but very low) for referring patents to arbitration. It would be inconsistent to make it easy to shirk a reciprocal-licensing obligation by handing someone an import ban over a patent that is reasonably likely to be subject to a grant-back clause.

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