Thursday, December 1, 2022

MPEG LA seeks dismissal of ETRI, SK Telecom complaint threatening 'the utility, benefit, and public trust underlying [patent] pool licenses': Supreme Court of the State of New York

If litigants try a long shot, it may every once in a while contribute to the evolution of the caselaw. At times, the term "long shot" is a euphemism, especially when a complaint goes against a crystal clear contract. Deutsche Telekom's "antitrust" action against patent licensing firm IPCom was thrown out by the Mannheim Regional Court six months ago as I had predicted. At least Deutsche Telekom didn't deny that the contract said what it said (they waived their right to bring antitrust claims over how other implementers would be treated later): Deutsche Telekom "only" argued that an unambiguous written commitment, made when no injunction was in force or imminent, should be held unenforceable anyway.

Worse than that, the Electronics and Telecommunications Research Institute (ETRI) and SK Telecom brought a suit in September that comes down to claiming that the relevant contract--an agreement among patent pool contributors--doesn't say what it says. The two are suing MPEG LA--a patent pool administrator in good standing that has been around for more than a quarter century (Wikipedia article)--in the Supreme Court of the State of New York (County of New York, case no. 653232/2022, Electronics and Telecommunications Research Institute (ETRI) and SK Telecom Co., Ltd. v. MPEG LA, LLC (PDF)). ETRI and SK Telecom accuse MPEG LA of "falsely claiming to license to others hundreds of valuable patents owned by ETRI and [SK Telecom] when MPEG LA has no right or authority to do so"--but as I'll show further below, that's preposterous. If they won against all odds and common sense, a large number of MPEG LA licensees--from numerous small companies to the likes of Xiaomi--would subsequently face duplicative royalty demands and potentially infringement litigation over patents they are lawfully using (and paying for) under an existing pool license.

It's an attack on a bedrock principle of the patent pool system: that licensees can rely on being licensed to all patents that are essential to the relevant standard and belong to any of the licensors of a pool from which they take a license. I don't understand why two companies who contribute to various pools (with SK Telecom presumably also having taken many pool licenses) decided to bring that complaint, apart from being virtually certain to waste money on legal fees. They are making themselves ridiculous because of the absurdity of their theory and at the same time untrusthworthy:

  • How can other pool managers trust ETRI and SK Telecom that they won't challenge unambiguous clauses in other patent pool agreements?

  • How can licensees trust that if they license ETRI and SK Telecom patents from a pool, they won't later be sued over those patents (unless they pay again, and possibly a lot more than they paid the first time)?

Case overview

Patent licensing is a complex business, so there could be a legitimate question of contract interpretation here, right? One does have to read the Agreement Among Licensors Regarding the HEVC Standard that ETRI and SK Telecom attached to their complaint as Exhibit 3 (PDF). Then it's pretty clear that the issue the complaint attempts to make up simply doesn't exist.

ETRI and SK Telecom left the MPEG LA HEVC pool about three years ago (and instead joined Access Advance's HEVC Advance Pool, as did some other Korean companies, most notably Samsung). The complaint says: "For ETRI, termination became effective on January 2, 2020. For [SK Telecom], termination became effective on January 27, 2020."

What does such termination mean for licensees? One distinction is really key:

  • timely licensees (those who signed up before termination taking effect)


  • tardy licensees (those who signed up after termination became effective)

"Timely licensees" and "tardy licensees" is just how I call them here.

The problem is that ETRI and SK Telecom emphasize another distinction, which one can make for academic purposes but which ultimately changes nothing about the contractual situation:

  • pre-termination patents (HEVC-essential patents of which ETRI and SK Telecom became owners before termination taking effect)


  • post-termination patents (HEVC-essential patents of which ETRI and SK Telecom became owners after termination became effective)

A two-by-two matrix shows what the dispute is about, i.e., whether a given MPEG LA licensee is licensed to certain ETRI and SK Telecom patents:

Timely LicenseesTardy Licensees
Pre-Termination Patentslicensed
not licensed
Post-Termination PatentsMPEG LA says: licensed
ETRI/SK say: not licensed
not licensed

In other words, tardy licensees get no benefit with respect to any of ETRI's and SK Telecom's patents; timely licensees remain licensed under pre-termination patents; and the question is now whether a timely licensee remains licensed to ETRI's and SK Telecom's HEVC portfolios including post-termination patents.

On November 7, MPEG LA brought a motion to dismiss (PDF). Contract interpretation is a matter of law, and if the contract is clear, the case must go away, based on documentary evidence alone.

The first contract clause to look at here is § 2.3 of the Agreement Among Licensors:

"Non-Exclusive Licenses or Sublicenses. Each [Licensor] shall hereby grant to [MPEG LA and any successor] a worldwide, nonexclusive, non-transferable license or sbulicense under all HEVC Essential Patents, which the [Licensor] and its Affiliates presently or in the future [emphasis added] has the right to license or sublicense (without payment to any third party which is not an Affiliate), with a right of [MPEG LA] to grant sublicenses which are identical in form to the sublicense in Attachment 1 hereto [i.e., the pool license agreement]. ..."

What does the termination clause (§ 7.2) say?

"Voluntary Termination. At any time after January 1, 2020 each [Licensor] shall have the right, effective upon thirty (30 days' written notice [...], to terminate with respect to itself all but not less than all of the following: (1) this Agreement [Among Licensors]; (2) the right of [MPEG LA] to grant additional sublicenses [i.e., pool licenses] (excluding renewals of sublicenses existing at such time) under its license or sublicense granted by such terminating [Licensor] pursuant to Section 2.3 herein; and (3) the Licensing Administrator Agreement entered into pursuant to Section 2.2 herein. [...] For the avoidance of doubt, such termination shall not affect the grant of the license, including renewals, or sublicenses contemplated pursuant to Section 2.3."

MPEG LA's motion to dismiss notes that ETRI and SK Telecom's complaint doesn't even quote the key passages, such as the "For the avoidance of doubt" part ("shall not affect the grant of the license, including renewals. Instead, the complaint makes it sound like "additional sublicenses"--which just means that MPEG LA can't give subsequent licensees any license to patents owned by licensors who have left--also included cases in which a timely licensee becomes licensed to post-termination patents.

Xiaomi is a great example here. Their license agreement with MPEG LA was announced (PDF) on January 9, 2020. Let's assume that the announcement wasn't delayed too much after the signing of the agreement, then they presumably became an MPEG LA HEVC licensee after ETRI's effective termination date, but undoubtedly prior to SK Telecom's. If Xiaomi or MPEG LA claimed that Xiaomi was licensed by MPEG LA to SK Telecom's HEVC patents, that would presumably be wrong, and I could see a case for declaratory judgment. But Xiaomi clearly got a license to all of SK Telecom's HEVC patents, including the ones SK Telecom obtained after termination ("in the future" as Section 2.3 as said). If SK Telecom was granted an HEVC-essential patent in, say, February 2020, Xiaomi is licensed, and the "For the avoidance of doubt" part applies--including that Xiaomi can perpetually renew its MPEG LA license agreement without losing those benefits.

Policy considerations

Implementers understandably expect legal certainty--peace of mind--with respect to the standard-essential patent (SEP) portfolios of the licensors they see on the list when they take a license. Why take a pool license at all if you may still face royalty demands and infringement litigation over patents from a party with which you thought you already had a deal in place?

Pools provide transactional efficiencies, but they can only do so with reasonable legal certainty.

ETRI and SK Telecom have a problem: anyone who negotiates an HEVC Advance license (a pool they joined because they thought they'd get a better deal than from MPEG LA) but already has a (timely) MPEG LA license will argue that certain parts of the Advance pool must not be paid for again. Access Advance--through its licensors that were asserting patents against Vestel--lost a case in Dusseldorf about a year ago because of the duplicative-royalties issues.

They're now trying a Hail Mary in a New York state court.

Another South Korean company, Samsung, also filed a lawsuit against MPEG LA there: a complaint (PDF) over royalty redistribution. Various cases by MPEG LA licensors against Samsung are pending in Dusseldorf. I don't want to disgree into the Samsung situation here. The cases aren't identical, but the root cause is the same and the issues are at least adjacent--and the complaints similarly meritless, though ETRI and SK Telecom's complaint has set a new absurdity record.

What Samsung has in common with ETRI and SK Telecom is the root cause of their grievances: they thought it was a smart move to join the Access Advance pool and leave the MPEG M;LA pool, and it's not going well. There are potential signs of piecemeal resolution by licensees such as Xiaomi, taking bilateral licenses rather than a pool license.

Those companies wish they could have left MPEG LA without existing licensees retaining any kind of license. But that's not what the contract says, nor would it be good policy. MPEG LA notes that what is at stake here is "'the utility, benefit, and public trust underlying [patent] pool licenses'."

The issues even go slightly beyond patent pools. Capture clauses in bilateral license agreements frequently include patents to be granted or acquired after certain key dates. Many bilateral license agreements resulting from individual negotiations as opposed to a standard agreement being signed by many parties. That is an important difference, but it is always unacceptable when licensors try to get out of their commitments in hopes of being able to charge more.

Federal courts deal with patent license agreements all the time because of license-based defenses to patent infringement complaints. State courts do have jurisdiction over contract law, including patent-related agreements, but don't see the practical implications in infringement cases. I suspect that ETRI and SK Telecom just hope that a state court can be fooled by them, but the contract language appears too clear--and the Supreme Court of the State of New York (County of New York) does adjudicate interesting commercial disputes on a daily basis. So my prediction is that the complaint will be dismissed.