Tuesday, August 23, 2022

In Ericsson's ITC cases, judges allow Apple to broaden scope of 'patent misuse' defense when standard-essential patents are involved: problematic precedent

The ITC has been grappling for a long time with how to adjudicate FRAND arguments in disputes involving standard-essential patents (SEP). Initially, the U.S. trade agency with quasi-judicial powers was practically unreceptive to FRAND defenses, but then came the Obama Administration's 2013 veto--on public-interest grounds--of an import ban Samsung had won against Apple.

I don't have good news for those who want the ITC to be able to carry out its duties in an efficient and predictable manner. While the Ericsson-Apple dispute is still at an early stage (none of the cases has gone to trial, called "evidentiary hearing" at the ITC), a couple of Administrative Law Judges (ALJs) have handed down decisions that will embolden deep-pocketed, sophisticated defendants like Apple to shoehorn FRAND and other SEP-specific arguments into various affirmative defenses as opposed to limiting those arguments to their public-interest argument.

Fortunately for complainants, it's not as prejudicial in the ITC as in federal court when a motion to dismiss or a motion to strike is denied. There won't be a jury. But allowing defendants to waste trial time--and thereby to force a complainant to do so as well--on defenses that could easily be disposed of at an early stage is undesirable for the agency and for SEP holders dealing with unwilling licensees.

Just a few days ago, IPWatchdog published an interesting article that was inspired by Ericsson's ongoing enforcement of a preliminary 5G SEP injunction against Apple in Latin America: From SEPs to Discovery, Colombia is Getting More Patent Friendly. I'm sure that the vast majority of Washington policy makers don't want the Republic of Colombia to beat the District of Columbia when it comes to SEP enforcement. And, again, it's not like something immensely terrible had already happened at the ITC, but there is reason for concern that affirmative defenses like "patent misuse" and "unclean hands" may be used for exactly the kind of FRAND argument that should be relegated to the public-interest analysis. The Commission, the agency's top-level decision-making body, may have to do something about this worrying trend.

The current situation in the Ericsson v. Apple cases is that

  • Apple will be allowed to argue at the February 2023 trial in the SEP case that Ericsson "has engaged in a continuing anticompetitive scheme" (which is simply an allegation of FRAND abuse styled as an unclean hands defense) and that Ericsson's allegedly non-FRAND royalty demands constitute patent misuse, and

  • in a non-SEP case Apple will be allowed to claim that Ericsson is engaging in patent misuse by seeking a U.S. import ban over non-SEPS in order to extract supra-FRAND royalties from Apple on its SEPs.

The SEP case was recently reassigned to ALJ Bryan F. Moore, who yesterday ruled on Ericsson's motion to strike various affirmative defenses. The Office of Unfair Import Investigations (OUII, or commonly referred to as "the ITC staff") largely supported that Ericsson motion, though even the staff didn't recommend throwing out Apple's unclean hands defense. Here's the order (I'll comment further below):


ALJ Moore concurred with both Ericsson and the ITC staff on Apple's equitable estoppel and waiver defense as well as on a theory according to which Ericsson had failed to obtain the conssent and/or participation of unnamed co-inventors. He disagreed with Ericsson--but not with the staff--on the unclean hands defense. On patent misuse, the ALJ rejected both Ericsson's and the staff's arguments, and kept Apple's defense alive.

Toward the bottom of page 6 of the order (and continuing on the following page), ALJ Moore acknowledges the following:

"I agree that consideration of FRAND-related argument should be limited to the public interest phase of the investigation, and that these arguments are not cognizable equitable defenses to allegations of patent infringement."

But in the end he does not limit FRAND-related argument to the public-interest part. Instead, his order opens the floodgates to FRAND arguments under the unclean hands and patent misuse labels. Those affirmative defenses are supposed to apply to egregious types of conduct that patent holders would otherwise get away with. I just find it inconsistent to say that FRAND is for the public-interest phase only and then to allow FRAND arguments under different labels. It effectively means Apple gets multiple bites at the apple, though realistically those equitable defenses won't succeed anyway.

On top of that, ALJ Cameron Elliot allowed in one of the two non-SEP cases that Apple can make a SEP-related argument in a non-SEP case only because Ericsson is simultaneously asserting SEPs and non-SEPs, which is pretty common.

If the ITC continues on that path, one can only encourage SEP holders to primarily bet on foreign venues such as Munich and Mannheim, Barcelona (an up-and-coming patent enforcement forum), or Bogotá.