Wednesday, March 3, 2021

Samsung asks federal court in Texas to throw out Ericsson's FRAND claims: no subject-matter jurisdiction over foreign patents

After a post on a Texas-size patent damages verdict in the Western District, we're now hopping over to the traditional patent (troll) litigation hotspot, the Eastern District of Texas.

In Judge Rodney Gilstrap's court, Ericsson brought a FRAND action against Samsung in mid-December, not even knowing that the Korean electronics giant had pre-empted it by filing suit in China, and the Swedish former handset maker amended its Texas case in early January, right after the expiration of the previous cross-license agreement, by throwing in eight standard-essential patent (SEP) infringement claims. Yesterday (Tuesday, March 2) Samsung had to respond to Ericsson's complaint. It decided

  • to move for the outright dismissal of Ericsson's FRAND claims, at least with respect to foreign patents, and

  • to respond (i.e., dispute and deny) Ericsson's infringement claims.

The answer and counterclaims to the infringement part, which I uploaded to Scribd, do not contain any surprise or reveal any particularly interesting information. If anything from that document is worth quoting here, it's the following passage:

"In the last two years, SEA [Samsung Electronics America] has provided thousands of 5G base stations to U.S. carriers including Verizon, Sprint/T-Mobile, and AT&T [...]"

That competitive situation between Samsung and Ericsson presumably complicates the patent licensing dispute. Ericsson would like to tax its competition. It asserts patents against everyone, but in the base station market, there's a strategic aspect to it. It's also possible that Samsung's increasing success in the base station market makes some decision makers on Ericsson's side even more determined to maximize the license fees it can siphon off.

Let's now look at Samsung's above-mentioned motion to dismiss Ericsson's FRAND claims, as this is related to the wider issue of extraterritoriality in patent litigation, a high-priority topic for this blog. Last week, Samsung filed the opening brief in its Federal Circuit appeal of Ericsson's anti-antisuit injunction from Texas, and earlier this week, six law professors explained that the Chinese approach to antisuit injunctions is actually pretty consistent and--as far as I can see--perfectly compatible with U.S. antisuit injunction case law (Gallo and Unterweser). Samsung's motion to dismiss is not based on the fact that Ericsson brought those claims in contravention of the Wuhan antisuit injunction, but on the lack of subject-matter jurisdiction even under Judge Gilstrap's own case law (this post continues below the document):

21-03-02 Samsung Motion to ... by Florian Mueller

In the introductory part, Samsung explains from its perspectives why pre-litigation renewal negotiations failed:

"With the expiration of the cross license looming, the parties entered into a confidential NDA to negotiate a new cross license, including for 5G cellular technology that is currently being introduced into the marketplace. Ericsson made a proposal with emphasis on its unilateral 4G and 5G rates for its SEPs and accorded minimal weight to any cross license for Samsung's patents."

Now, the key thing here is that whatever licensing offers the parties made each other during those negotiations were of a global scope. According to Samsung's motion, there never were "any offers directed specifically to U.S. patents." And that's why Samsung argues a U.S. district court doesn't have jurisdiction--at least not with respect to the majority of foreign patents the parties hold.

Ericsson's objective in Texas is, as Samsung describes it, "to eliminate any obligations [Ericsson] owes to Samsung as a third-party beneficiary to Ericsson's ETSI contract, and thus leave Ericsson unfettered ability to seek worldwide injunctions on SEPs and damages not limited by FRAND." At the moment, of course, Ericsson's access to injunctive relief is not unfettered at all, but that's because of the Wuhan antisuit injunction. If Ericsson managed to neutralize the Chinese antisuit injunction, and simultaneously obtained the declaratory judgment it's seeking in Texas, it could do what Samsung says and extort even supra-FRAND royalties (through the pursuit and actual or threatened enforcement of injunctive relief).

A recent filing indicated that injunctions are so far being sought only over non-SEPs, while all SEP claims are apparently merely damages claims. However, in the U.S., Germany, and other jurisdictions, Ericsson could always amend its prayers for relief and throw in an injunction request.

Samsung points not only to Federal Circuit case law (Voda v. Cordis), according to which U.S. courts shouldn't adjudicate claims over foreign patents, but also to Judge Gilstrap's own Optis v. Huawei decision in July 2018:

"[A]ny portion of [a FRAND claim] that seeks a declaration that Plaintiffs have complied with their obligations under foreign laws or as they relate to foreign patents, or that [the defendant] may not raise a FRAND defense in a foreign jurisdiction, are dismissed."

In Optis v. Huawei, the absence of licensing offers for U.S.-only patents also made it impossible for the district court to "determine whether [the plaintiff] complied with its FRAND obligations as to their U.S. SEPs and [the defendant}."

Samsung's legal argument involves questions of diversity and supplemental jurisdiction. In connection with diversity jurisdiction, Samsung argues--and substantiates by means of a sworn declaration attached to its motion--that any of its SEPs are assigned to Samsung Electronics in Korea, and never to a U.S. subsidiary.

I'll go into more detail on the jurisdictional questions when Ericsson has filed its opposition brief. For now it is quite conceivable that Ericsson's original December case may go away soon, or be narrowed substantially, while its early-January infringement claims will continue to be litigated.

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