Wednesday, June 22, 2022

In Ericsson 5G case, ITC staff says pursuit of import ban over standard-essential patents may give rise to 'unclean hands' defense, but Apple failed to plead equitable estoppel, waiver, patent misuse

Here's some Ericsson v. Apple news again (the previous development there was that Ericsson filed infringement actions against Apple in the UK).

Ever since the 2013 Presidential veto in a Samsung-Apple case, the question of whether it is appropriate for standard-essential patent (SEP) holders to ask the United States International Trade Commission (USITC, or just ITC) for a limited exclusion order (import ban) has been hotly debated. The 2013 veto didn't discourage SEP holders from trying their luck. Samsung itself had to fear a SEP-based U.S. import ban not long after that episode, owing to an ITC complaint by InterDigital.

From the perspective of patent holders, U.S. district courts are great for damages claims (especially the Western District of Texas), but it takes many years before (if ever) someone gets paid. The ITC is the only U.S. forum in which a patent holder can quickly obtain decisive leverage over an infringer. Other than that, patent holders have to--as they're already doing--go abroad, with even relatively small American non-practicing entities such as Longhorn IP filing infringement lawsuits in foreign venues, with Munich being the most popular hotspot.

Only Congress could categorically rule out ITC import bans over SEPs, but the Biden Administration's recent decision not to adopt any position on SEP enforcement suggests that it's up to the judges to continue to shape U.S. SEP-related law.

Earlier this month, the Federal Circuit held a Thales v. Philips hearing. It's possible that the patent-specialized appeals court will find a basis--such as absence of irreparable harm--to throw out that appeal (of a denial of a preliminary injunction) without having to reach the question of whether SEP holders should have access to the ITC and its Section 337 Unfair Import Investigations. The circuit judges did, however, voice some concerns over whether an import ban would be appropriate against a willing licensee--which inevitably leads to the question of what constitutes willingness. Parties to ITC SEP cases may ultimately draw inspiration from German case law. No other jurisdiction has a similarly rich and elaborate--and still rapidly-evolving--body of case law in place when it comes to the minimum requirements a SEP implementer has to meet in order to have any chance of prevailing on a FRAND defense. Not only are various Munich, Mannheim, and Dusseldorf decisions instructive but so are, additionally, many of the arguments raised by SEP holders and implementers in open court.

In its response to Ericsson's 2022 SEP complaint with the ITC, Apple raised various affirmative defenses based on SEP-specific arguments and theories. Two weeks ago, Ericsson brought a motion to strike Apple's Ninth (unclean hands), Twelfth (unenforceability based on equitable estoppel and waiver), and Thirteenth (patent misuse) Affirmative Defenses, which are related to SEP enforcement through injunctive relief, and Apple's Sixteenth Affirmative Defense (non-joinder of co-owners), which is also SEP-related but not specific to injunctive relief: it's about Apple arguing that other participants in the standard-setting process should have been named as co-inventors.

In the same investigation (337-TA-1299), the Office of Unfair Import Investigations (OUII, commonly referred to as "ITC staff") recently concurred with Ericsson on some claim construction proposals. Note that Administrative Law Judge David P. Shaw has allowed amendments in that regard, so the claim construction battle isn't over yet. Now, with respect to those of Apple's affirmative defenses that Ericsson wanted to be stricken at this early stage of proceeding, the ITC staff largely--but not completely--agrees with Ericsson. The Staff does agree with Ericsson that Apple has failed to plead equitable estoppel, waiver, and patent misuse, and points to earlier ITC decisions. Furthermore, the Staff notes that the issues Apple raises about the alleged right of some other people (employees of other companies, such as Qualcomm, Samsung, and Philips) to be named as co--inventors don't raise a standing issue for the ITC's purposes, much less so because the ITC--unlike the patent office or a district court--can't add any additional inventors' names to the list by way of amending the patent.

However, the Staff believes Apple's "unclean hands" defense is not ripe for dismissal. So let's look at what Apple's defense says (according to the Staff's submission):

"On information and belief, Ericsson’s claims as they relate to the Asserted Patents are barred in whole or in part by reason of equitable doctrine of unclean hands. Ericsson comes to the Investigation with unclean hands because it has engaged in a continuing anticompetitive scheme, evidenced by Ericsson improperly seeking to invoke the Commission’s authority to exclude the allegedly infringing Apple products from the United States."

In connection with some other defenses, Apple specifically claims it made multiple proposals to Ericsson for having a rate set by a third party, which is similar to what Thales says in the Philips case I mentioned further above. But let's be clear and realistic: there must be more requirements than just a willingness to participate in a rate-setting process. As Judge Gilstrap (Eastern District of Texas) noted last month, even if his court declared a rate to be FRAND, Apple would still be free not to take a license. So a per se rule, an unqualified safe harbor, would clearly go too far. It would enable and encourage unfettered and endless hold-out.

The ITC staff says that the following factual allegations laid out by Apple--whether true or not, as we're just looking at the pleadings--are sufficient:

  • Apple says Ericsson has shown "utter disregard of its commitments to license on terms that are fair, reasonable, and non-discriminatory ('FRAND')—and not to use as weapons to seek injunctive relief—its patents declared essential to cellular standards ('SEPs') promulgated by the European Telecommunications Standards Institute ('ETSI')."

  • Apple accuses Ericsson of seeking to "gain negotiation leverage and extract from Apple exorbitant, supra-FRAND licensing terms."

  • Just like Thales, Apple says "the [ITC's] exclusionary remedies are not appropriate for this dispute, and the award of an exclusion order here would be inconsistent with the statutory public interest factors."

Apart from asserting factual deficiencies, Ericsson also belives Apple's unclean hands defense is legally groundless. Here, the Staff says that the filing of an ITC complaint wouldn't constitute unclean hands all by itself, but "as part of an anticompetitive effort to extract super-FRAND royalty rates" it might be improper.

What I find a bit weak about the Staff's position is that it cites a couple of district court decisions, one of which (from the Eastern District of Texas) is unpublished and the other (Broadcom v. Qualcomm) is part of a dispute in which the Third Circuit also took some SEP-related positions that have not really gotten traction in any other circuit.

It's not like the Staff and Apple have really strong case law--especially appellate case law--to show. They just argue that the allegation of someone trying to leverage an ITC import ban in order to extract supra-FRAND royalties meets the pleading standard for an unclean hands defense.

That position is inconsistent with the above-mentioned Samsung-Apple case, in which that question was addressed as part of the public-interest analysis.

I think the ITC staff proposes a bar that is too low. An unclean hands defense requires a more substantive basis in my view than just having two parties who disagree on what is FRAND, with one bringing an ITC complaint over SEPs.

ALJ Shaw may or may not agree with the Staff on the unclean hands defense. We'll have the answer soon.

Also, in the specific case here, the question may be addressed by the United States District Court for the Eastern District of Texas--which has a FRAND trial scheduled for December, though I'm not sure Apple still wants to keep that schedule--before the ITC would decide its Ericsson-Apple SEP case. And at some point, Ericsson may simply obtain and enforce injunctions in other jurisdictions anyway.

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