Following the prior notice of decision (see our Apr. 27, 2015 post), the Public Version is now available of Administrative Law Judge (ALJ) Essex’s Initial Determination On Remand that Nokia mobile phones infringe InterDigital’s patents related to the 3rd Generation Partnership Project (3GPP) standard and that are subject to commitments the patent owner made to the European Telecommunications Standards Institute (ETSI). Among other things, Judge Essex found that “there is no evidence of patent hold-up, that there is evidence of reverse hold-up, and that public interest does not preclude issuance of an exclusion order.”
Summary
This is an important decision concerning litigating standard essential patents (SEPs) in the U.S. International Trade Commission (ITC or the Commission) as well as litigating SEPs in general. We provide a summary of the decision below, but highly recommend reading the decision itself to understand its full import.
On the standard essential patent (SEP) issues, ALJ Essex found that the accused infringers had not shown that the patents were essential to the standard or otherwise triggered the patent owner’s commitment to the standard setting organization (SSO). The accused infringers had jeopardized this assertion that the patents were essential to the standard by consistently arguing in the proceedings that the patents were not infringed. The patent owner’s statements to the SSO did not show that the patents actually were essential, because they were conditional commitments if the patents were essential. Further, the patents could be infringed even if they were not essential to the standard, so the finding of infringement itself did not establish that the patents were essential to the standard.
ALJ Essex found that the particular agreement that the patent owner made with the SSO was controlling on whether that commitment had been breached. In this case, ETSI specifically considered and rejected having limits on exclusionary relief and deleted its prior requirement that parties mediate differences, deferring instead to resolution in the courts under the relevant national laws if parties cannot agree on licensing terms.
He also found that general public policy concerns about potential abuse of SEPs, such as patent holdup, would not override the actual SSO agreement at issue or the need for actual evidence that the patent owner was abusing its SEPs in this particular case. Further, the accused infringes had the burden of proof on all facts supporting its SEP arguments. In that regard, the accused infringers’ witnesses provided no opinion as to what would be appropriate fair, reasonable and nondiscriminatory (FRAND) licensing terms, a range of reasonable FRAND terms or whether the patent owner had not offered FRAND terms in this case. Further, there was no evidence presented that patent holdup had occurred in any case notwithstanding the intense scrutiny given to the issue in recent years by several government agencies, law professors, economist and other professionals, leading ALJ Essex to conclude: “Perhaps now we can relax our guard a little.” Further, the threat or even entry of an exclusion order did not per se violate the SSO agreement and would not necessarily result in non-FRAND terms even if the royalty rate negotiated after an exclusion order is entered may be higher than were no exclusion order entered.
ALJ Essex found that the accused infringers had not committed patent holdout during the time period that the initial determination in this case had determined that the patents were not infringed. But that changed when the non-infringement finding and supporting claim construction were reversed by the Federal Circuit on appeal. After that time, the accused infringers should have known they infringed and sought a license. There was no showing that the patent owner’s license offers, which were not accepted, were not FRAND. Further, the accused infringer’s delay in obtaining a license benefitted it based on the passage of time removing past infringement from the six-year damages limitation as well as putting a downward pressure on the royalty rate that the patent owner could expect in a negotiated license.
In sum, he found no evidence or other reason raised that would preclude entering an exclusion order in this case.
Background
The Commission instituted this investigation in September 2007. In 2009, the Commission affirmed Chief Administrative Law Judge (ALJ) Luckern’s determination that the two related patents-in-suit were not infringed: U.S. Patent No. 7,190,966 (the ‘966 Patent) and U.S. Patent No. 7,286,847 (the ‘847 Patent). In 2012, the U.S. Court of Appeals for the Federal Circuit (the Federal Circuit) reversed the ITC’s construction of certain claim terms as well as its finding of no infringement and the investigation was returned to the ITC. In March 2014, the Commission issued a revised remand opinion and order that remanded certain issues to the ALJ, including the following:
1. … [M]ake findings and issue a remand initial determination (“RID”) concerning: …
b. whether the 3GPP standard supports a finding that the pilot signal … satisfies the claim limitation “synchronize to the pilot signal” as recited in the asserted claim of the ‘847 patent …
3. The investigation is further remanded for the assigned administrative law judge to:
a. take evidence concerning the public interest factors as enumerated in sections 337(d) and (f);
b. take briefing on whether the issue of the standard-essential nature of the patents-in-suit is contested;
c. take evidence concerning and/or briefing or whether there is patent hold-up or reverse hold-up in this investigation …
On remand, the investigation was assigned to ALJ Essex who held an evidentiary hearing in January 2015.
The accused products are Nokia mobile phones that operate on Wideband Code Division Multiple Access (WCDMA) networks and comply with the 3GPP WCDMA standard. Those patents were subject to declarations filed with the European Telecommunications Standards Institute (ETSI), based in France. During the course of the investigation, Nokia’s mobile phone business was sold to Microsoft Mobile Oy (MMO), which also is a respondent in this investigation.
ETSI IPR Policy. The relevant declarations submitted under ETSI’s intellectual property rights (IPR) policy and the IPR policy itself include the following provisions considered in the investigation (with bold emphasis provided by ALJ Essex in his written opinion):
IPR INFORMATION STATEMENT
In accordance with Clause 4.1 of the ETSI IPR Policy the Declarant and/or its AFFILIATES hereby informs ETSI that it is the Declarant’s and/or its AFFILIATES’ present belief that the IPR(s) disclosed in the attached IPR Information Statement Annex may be or may become ESSENTIAL in relation to at least the ETSI Work Item(s), STANDARD(S) and/or TECHNICAL SPECIFICATION(S) identified in the attached IPR Information Statement Annex.
The Declarant and/or its AFFILIATES (check one box only):
__ are the proprietor of the IPR(s) disclosed in the attached IPR Information Statement Annex.
__ are not the proprietor of the IPR(s) disclosed in the attached IPR Information Statement Annex.
IPR LICENSING DECLARATION
In accordance with Clause 6.1 of the ETSI IPR Policy the Declarant and/or its AFFILIATES hereby irrevocably declares the following (check one box only, and subordinate box, where applicable):
To the extent that the IPR(s) disclosed in the attached IPR Information Statement Annex are or become, and remain ESSENTIAL in respect of the ETSI Work Item, STANDARD and/or TECHNICAL SPECIFICATION identified in the attached IPR Information Statement Annex, the Declarant and/or its AFFILIATES are prepared to grant irrevocable licenses under this/these IPR(s) on terms and conditions which are in accordance with Clause 6.1 of the ETSI IPR Policy. This irrevocable undertaking is made subject to the condition that those who seek licenses agree to reciprocate (check box if applicable).
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[ESSENTIAL IPR]
In simpler terms, an “essential IPR” is an IPR which has been included within a standard and where it would be impossible to implement the standard without making use of this IPR. The only way to avoid the violation of this IPR in respect of the implementation of the standard is therefore to request a license from the owner.
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4.3 Dispute Resolution
ETSI Members should attempt to resolve any dispute related to the application of the IPR Policy bilaterally in a friendly manner.
Should this fail, the Members concerned are invited to inform the ETSI GA in case a friendly mediation can be offered by other ETSI Members and/or the ETSI Secretariat.
However, it should be noted that once an IPR (patent) has been granted, in the absence of an agreement between the parties involved, the national courts of law have the sole authority to resolve IPR disputes.
ALJ Essex also found that ETSI use to have or considered, but later rejected, provisions barring exclusionary relief and requiring mandatory mediation to determine FRAND in lieu of court litigation:
Under the ETSI agreement, there is no duty not to seek an exclusion order. ETSI had mandatory mediation to determine FRAND rate in 1993, and removed if from their policy. They considered barring parties from injunctive relief, but did not do so. … [The accused infringer’s witness] Mr. Buttrick also testified that ETSI had, prior to 1994, a provision in its rules that eliminated the possibility of exclusion orders or injunctions.
Decision
Infringement. ALJ Essex first defined the limited scope of what was at issue in this remand proceeding, which included being bound by claim constructions already determined in this investigation notwithstanding claim constructions from other litigations. He ultimately found that the Nokia mobile phones infringed both patents-in-suit, including reading patent claim limitations on a specific portion of the 3GPP Standard. As is common, this portion of the public decision is fairly redacted given confidential technical disclosures.
The remaining portion of the decision focuses on several aspects of the public interest, including issues concerning any standard setting obligations.
Effect Upon Public Health and Welfare. ALJ Essex found that the accused infringers MMO/Nokia did not address the statutory public interest factors, but instead “argue a new public interest for this case” based on patent owner InterDigital’s “possible duty to grant licenses on Fair Reasonable and Non-Discriminatory terms (FRAND), Standard Essential Patents (‘SEPs’) and the possibility of holdup.” But he found that, even though “many professors and several government agencies” noted the possibility of holdup with SEPs, there was “no evidence” of holdup in this case. Further, there was no evidence that the particular Nokia smartphones at issue “provide any public health and safety benefit other smart phones cannot” and evidence suggested “there will not be a shortage of smart phones … if an exclusion order should issue.”
Impact on Competitive Conditions. The accused infringers argued that the patent owner could engage in holdup if an exclusion order was granted. But ALJ Essex found that threat of an exclusion order might yield a higher license rate, but such a license is not necessarily “unfair unreasonable or discriminatory”:
While the threat of the exclusion order may motivate respondents to take a license at a higher rate than if they were successful in limiting the lawful remedies available to their adversary, there has been no proof that such a license would be unfair unreasonable or discriminatory.
Impact on U.S. Consumers. ALJ Essex found that any exclusion order would not have a substantial impact on U.S. consumers. This section is fairly redacted, but includes a finding that other companies provided smart phones, including those with a WPOS feature found in Nokia phones (believe this stands for wireless point of sale feature). He also indicated that the duration of an exclusion order would be relatively short given the August 2015 date for the final determination in this investigation and expiration of the patents given their June 1996 priority dates (we assume the patents expire June 2016 based on the filing date, but without researching if terminal disclaimers or term extensions shorten or lengthen the usual 20-year term from priority date).
Whether The SEP Nature Of Patents Is Contested. ALJ Essex found that the accused infringer’s argument about FRAND obligations arising from the patents being essential to practice the standard was undermined by their arguments “throughout the proceeding” that the patents were not infringed, stating:
[Accused infringer] MMO has contested the nature of the patents throughout the proceeding, presenting evidence at hearing and briefing in both their post-hearing brief and post hearing reply brief that they do not infringe [patent owner InterDigital’s] patents. Nokia Corp has also argued that the products in the case do not infringe the patents. By arguing that the products do not practice the patents, the respondents are arguing that the patents are not Standard Essential Patents. This complicates this analysis, because if the patents in question are not SEPs, then [InterDigital] has no duty to offer a license under FRAND terms.
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[The accused infringers] in this case have vigorously asserted that the patents in issue are not essential, but rather are not infringed. By so claiming, they risk losing the benefit of any defense they may have under the ETSI agreement regarding FRAND rights that protect the interests of third parties. If the patents are valid and infringed, but not SEPs, then respondents would have no rights regarding licensing under the ETSI agreement, the duty to license under FRAND terms is only triggered if the IPRs are or become and remain essential to the standard (there are other requirements as well, such as the [accused infringers] must be willing to license its portfolio to complainants). The duty to license on FRAND terms, if there is one, is a springing duty.
ALJ Essex found that the declarations submitted to ETSI themselves “do[] not prove that patents so declared before ETSI are actually SEPs,” noting that many cases have found declared patents not infringed and that the declaration itself uses conditional language: “To the extent that the IPR(s) … are or become, and remain ESSENTIAL …” (emphasis in original).
Further, quoting favorably the ITC Staff position, ALJ Essex found that the fact that the patents are infringed does not per se establish that the patents are essential to the standard:
The Staff is of the view, however, that each of the asserted claims is infringed by Respondents’ accused products. Thus, in this case the operation of Respondents’ accused products sheds no light on whether the asserted claims of the patents-in-suit are necessarily essential to practicing the relevant standards. There may be circumstances in which a product may practice the 3G standard without infringing the asserted claims, or there may not. In this investigation, the only evidence regarding the standard-essential nature of the asserted claims is [patent owner] InterDigital’s declaration to ETSI that the patents-in-suit may be essential to practicing the WCDMA standard. While this is not a statement that the patents are actually essential, it is evidence that the patent holder believed that the patents could be standard-essential. [emphasis in original]
Accordingly, the declaration was not proof of essentiality and “there is no evidence that they have been tested or judged to be standard essential in the case.”
Importantly, ALJ Essex ruled that establishing essentiality was the accused infringers’ burden of proof, which they failed to carry, citing ITC evidentiary rules:
19 CFR S 210.37 Evidence.
(a) Burden of proof. The proponent of any factual proposition shall be required to sustain the burden of proof with respect thereto.
ALJ Essex ruled that the public interest inquiry does not change that burden, stating “[t]he public policy issue must not be used in place of the law, nor should a party be allowed to shift the burden of persuasion in the name of public policy.” Citing the Federal Circuit’s Ericsson v. D-Link decision (see our Dec. 5, 2014 post), he ruled that “[t]he ETSI agreement is vital, because any rights flow from the agreement” and found that “[t]here is nothing in the ETSI agreement that would shift the burden of proof in a hearing at the ITC.” Allegations of FRAND commitment does not supersede the particular agreement at issue:
[W]e must look at the patentee’s actual FRAND commitment. We need not be stampeded into abandoning the rule of law, or burden of proof simply because the respondants shout “FRAND”.
No Evidence InterDigital Acted In Bad Faith. ALJ Essex found there was no evidence that patent owner InterDigital acted in bad faith in its license negotiations. He noted his prior decision in the 337-TA-868 investigation (see our July 2, 2014 post) that found the ETSI agreement did not rise to the level of a binding contract under applicable French law given many terms and factors left open for negotiation “before the FRAND obligation is triggered.” But he further considers the issue on a contractual basis given that trend by other courts, such as the Federal Circuit in Ericsson v. D-Link. He observed that ETSI does not set a criteria for determining FRAND, but relies on the relevant national law to determine this if the parties do not reach an agreement (citing ETSI 4.3 Dispute Resolution given in the background above). ALJ Essex further observed that whether an offer is within a reasonable FRAND range is not known until a FRAND rate is agreed between the parties or determined by a court:
When the parties sign the letters agreeing to license their IPR at ETSI, they not only do not know what a FRAND rate is, they cannot know. Absence agreement, there is no such rate, nor can it exist absent an agreement until a court determines the rate for the parties. To prove a violation of FRAND, as it is defined in ETSI, there must be voluntary agreement or a trial in a district court, and only after the court determines a rate, could we look retrospectively at the negotiations and determine if the offers were within the FRAND range (FRAND contracts provide for a range of acceptable results. While some offers could be clearly outside the range, there is no mechanism for finding the range prior to litigation). Even then, there would be difficulty in determining if a party was acting in bad faith, because reasonable minds do differ on what may constitute a FRAND rate.
ALJ Essex noted that court rulings are giving some guidance on this, citing Judge Robart’s decision in Microsoft v. Motorola (see our May 1, 2013 post), which required SEP license offers to be “in good faith” and “found that initial offers do not have to be on RAND terms so long as a RAND license eventually issues.” He found that, in this case, there has been no court determination whether InterDigital’s offers were FRAND and the parties had not agreed whether they were within a FRAND range. But, even assuming they were not, “the offers demonstrate [patent owner InterDigital] was trying to reach a licensing agreement.”
No Evidence of Hold-Up By The Patent Owner. ALJ Essex found that there was no evidence that the patent owner InterDigital was guilty of patent holdup. He ruled that, under the Federal Circuit’s Ericsson v. D-Link decision, the accused infringer has the burden of proof to show a violation of the FRAND duty based on evidence of actual patent hold-up. The accused infringer’s witnesses did not identify what they would consider to have been FRAND in this case and testified that a FRAND license agreement could come in many different forms:
[Accused infringer’s witness Mr. Buttrick] stated there was no preference for any particular licensing model, that the agreement was written to allow a diverse range of licensing regimes, including both monetary and nonmonetary remuneration, licenses that included both standard essential and non-standard essential patents, that the nature and coverage of the license was completely up to the parties.
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[Accused infringer’s witness Dr. Shampine] testified that he did not reach the conclusion that [patent owner InterDigital] had violated a FRAND commitment in this case; that he had concerns that there is holdup, and that if an exclusion order were granted that holdup was a grave concern. He goes on to admit he did not attempt to determine the value of the patents … and stated he did not attempt to assign a specific FRAND rate to them. … He goes on to state that just because rates would be higher in a system where exclusion orders are more likely than where they are less likely, that as a mathematical statement it does not mean such rates are above a FRAND rate.
Further, the accused infringer’s witnesses could not identify circumstances of a non-FRAND agreement being entered on a FRAND-obligated patent:
[Accused infringer’s witness Dr. Shampine] was not aware of any lawsuit, bankruptcy hearing or complaint to a standard-setting organization where a party alleged that they were forced to sign a non-FRAND agreement and needed to obtain relief from the agreement on the basis it violated the SSO agreement. He also was not aware of any company making a complaint to ETSI that an IPR owner was not negotiating in good faith. The ALJ asked Dr. Shampine if he could cite even one solid example of a holdup resulting in a non-FRAND contract. Dr. Shampine replied, “We do not have a solid example of that occurring yet.”
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… [Dr. Shampine] was unaware of a single case where an ITC exclusion order resulted in a license that was not on FRAND terms.
ALJ Essex gave no weight to the testimony of another accused infringer economic witness regarding holdup because the witness did not consider whether the patent owner’s offers were unfair or unreasonable or the industry practice in licensing patents:
Mr. John C. Jarosz, another MMO economic witness … stated he was offering no opinion that [patent owner InterDigital’s] offers to [accused infringers] Nokia and MMO were unfair or unreasonable, but that he did consider information in assessing the holdup and reverse holdup hypotheses. His analysis only considered the offers between the parties, and he did not consider the industries licensing practices in forming his opinion. Mr. Jarosz’s opinion then is entitled to little weight. If he has no reference point as to what the FRAND rate is, nor any reference for how the licensing industry conducts negotiations and reaches FRAND contracts, he cannot reasonably assess the current negotiations. While Mr. Jarosz was spirited in his belief in holdup, he conceded he was not aware of instances where holdup was actually found to have occurred.
ALJ Essex also ruled that patent owner InterDigital filing this ITC case did not itself violate any FRAND obligations, stating:
[T]he evidence presented does not support the [accused infringer’s] position that InterDigital has violated a FRAND obligation by filing this complaint at the ITC. The negotiation has continued in good faith, and there are many more issues than the rate of payment to be made …. The obligation that InterDigital has taken has been fulfilled, and the ETSI agreement anticipates that the parties if necessary will fall back on the national law involved.
He indicated that filing an ITC case prior to offering a license may be bad faith; specifically, in considering hold-out (discussed below), he referenced the Realtek v. LSI decision as an example of “failure to meaningfully negotiate” where “[patent owner] LSI made no offer for a license prior to filing a complaint at the ITC.” (see our Jan. 9, 2014 post where Judge Whyte explains the difference between the threat of an injunction that is inherent in all license negotiations and the patent owner’s filing a complaint in the ITC before negotiations that makes exclusionary relief a more credible threat in that instance).
Evidence of Hold-Out By Accused Infringers. ALJ Essex defined “Reverse hold-up” as “describ[ing] a situation in which a manufacturer that is using standard-essential patented technology refuses to enter a license agreement with the patent owner or otherwise to pay compensation,” and further explained that “[w]here a respondent uses the technology covered by a patent, and refused to take a license to the technology or refused to negotiate in a meaningful way there is reverse holdup.” ALJ Essex found that whether there was improper patent hold-out by the accused infringers was a complex issue that changed over time. The initial determination in this case was that the patents were not infringed, which was upheld by the Commission. There could be no hold-out during this time period because there was a favorable decision that the patents were not SEPS or infringed. During this time, the accused infringers “had every reason to be difficult negotiators,” there is no showing this was in bad faith and “[t]he exercise of legal rights by a party cannot amount to ‘holdout’.”
But this changed after the Federal Circuit reversed the Commission’s claim construction and finding of no infringement; from that date the accused infringers “should have been aware that the patents were valid, and infringed” and “should have realized they may have to take a license or face an exclusion order.” Further, there was no evidence that patent owner InterDigital’s offer were not FRAND compliant. The accused infringer’s witnesses did not even state what they would consider to be FRAND in this case and no one offered evidence of what a FRAND range would be for these patents.
ALJ Essex also found evidence of holdout based on “the clear gain that occurs daily for [the accused infringer] given the six-year statutory limit on past damages for patent infringement”, stating that “[e]ach day that the respondents use the patents without taking a license, IDC loses money that it will not be able to recover.” Further, the delay in taking a license puts “unfair downward pressure on the payments that [patent owner] InterDigital could expect to realize from any license agreement resulting in a lower than FRAND rate.”
ALJ Essex ultimately found that the accused infringers were the type “unwilling licensee” that the U.S. Trade Representative indicated could be subject to an exclusion order when it disapproved an exclusion order in the Samsung-Apple investigation (see our Aug. 3, 2013 post):
In failing to negotiate in a meaningful way, and refusing to take a license, [accused infringer] MMO is currently an unwilling licensee that “is unable or refuses to take a FRAND license.” [citing U.S.T.R. letter at 2. n.3, which states: “An exclusion order may still be an appropriate remedy in some circumstances, such as where the putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder’s commitment to license on FRAND terms.”]
Public Interest and FRAND Evidence. ALJ Essex found that the ETSI agreement did not preclude patent owner InterDigital from seeking an exclusion order. Indeed, ETSI had required mandatory mediation, but removed that from its policy in 1993, and considered but declined to adopt a policy that would bar parties from seeking an injunction. Although the accused infringers provided testimony that ETSI had some concerns about the availability of injunctive relief, that did not find its way into the ultimate written ETSI agreement. Only the ultimate ETSI contractual terms matter, not articulated concerns that were not adopted: “Prohibiting exclusion orders or injunctions were specifically considered by the SSO, and rejected in the final agreement.”
ALJ Essex rejected the accused infringer’s attempt to impose on the ETSI agreement further “robust protections against hold-up” as a matter of public interest, stating:
While the contract may not protect [the accused infringer] as it wishes it would, it is to the contract we must look to determine the rights that flow from it. If the SSO negotiators want to agree to provide greater protection from exclusion orders or injunctions, it is within their power to do so. ETSI did this until 1994 and IEEE has done so more recently.
He also cited the U.S. Department of Justice (DOJ) business review letter of the recently revised IEEE IPR Policy that supports limiting the government role and giving SSOs flexibility in making different IPR Policy choices, because “having the variety of choices could be beneficial to the process.” (see our Feb. 5, 2015 post on the DOJ business review letter). He also refused to let a public policy “disfavoring exclusionary relief” to “trump both the SSO contract, and the ordinary course of law.” The accused infringer’s had relied on a policy statement by the U.S. Federal Trade Commission (FTC) as well as DOJ/U.S. Patent & Trademark Office (PTO), which ALJ Essex previously had considered in the 337-TA-868 investigation and he quotes his prior response. That prior response indicated that there was no evidence of bad faith, that evidence showed that the “hypothetical risk of holdup” is “not a threat in this case, or in this industry,” and that one standard setting organization (SSO) in the industry, TIA, had told the FTC that “TIA has never received any complaints regarding such ‘patent hold-up’ and does not agree that ‘patent holdup’ is plaguing the information and telecommunications technology standard development process.” (see our July 2, 2014 post for the 337-TA-868 decision). He also found that other FTC, DOJ/PTO statements brought to his attention were not based on evidence or differed from the facts of this case and gave them little weight.
ALJ Essex also found that, based on the significant scrutiny of SEP owner activity given over the past few years by government agencies, professors, economists and others, the likelihood of a patent holder stepping out of line and wandering into patent holdup is even less likely now based on the “observer effect”:
After watching for a holdup since 2011, we may be able to consider whether the fact none has occurred allows us to discount the risk today. With the FTC and DOJ/USPTO having weighed in on the risk of exclusion orders at the ITC, there have been many professors, economists and other professionals that have written on the topic. The ALJ believes that these professionals, all voicing concern, may lessen the need for concern. In science the term observer effect refers to changes that the act of observation will make on a phenomenon being observed. This is often the result of instruments that, by necessity, alter the state of what they measure in some manner. A commonplace example is checking the pressure in an automobile tire; this is difficult to do without letting out some of the air, thus changing the pressure. This effect can be observed in many domains of physics. The ALJ notes that this effect is also present in human events; few crimes occur in a police station, because the observers would likely change the outcome. In the current state of IP law as it relates to SSOs and IPRs, an owner of a SEP has a long list of government agencies, law professors and companies watching what the company does, and attempting to change the law as to potential outcomes. [Accused infringer] MMO has stated they are afraid that if [patent owner InterDigital] obtained an exclusion order, then they would use it to gain undue leverage and obtain compensation above the FRAND rate. This is unlikely because too many hostile eyes are watching. The fact that the FTC has been watching since at least 2011, and not found such a violation, makes it unlikely it would happen here for the first time.
ALJ Essex also found that the accused infringer’s interest could still be protected even if an exclusion order were entered, given “the availability of a remedy in District Court should [the patent owner] refuse to grant a license under FRAND terms.” Further, because the patent owner has acted in good faith to date, there appears “minimal risk” that the patent owner would violate its obligations after an exclusion order is entered and, even if that did occur, the accused infringers would have remedy. This also is shown by the ITC’s track record: ”
Of all the settlements and licenses that were taken under the ‘threat’ of an exclusion order, not one respondent has gone on to file in a district court that the agreement was outside the range of FRAND. The ITC has not seen such a case, the experts presented at the hearing have not seen such a case, and the respondents did not cite an example of such a case. With that in mind, perhaps now we can relax our guard a little.
Further, not only had TIA indicated there was no hold-up problem in the telecommunications industry, but industry participants made similar statements to the FTC. ALJ Essex quoted extensively from comments that Microsoft Corporation provided to the FTC in 2011, which he summarized as indicating that “[Microsoft] too did not see the risk of hold-up, nor the need to deny any particular relief when there was a FRAND or RAND commitment.”
In sum, ALJ Essex found that there was no evidence patent owner InterDigital abused the SEP patents at issue in this case or evidence of the concerns raised by the various government agencies. Further, the SSO at issue here, ETSI, was “aware of the possibility of exclusionary relief … and chose to allow such relief under its SSO agreement.” Thus there was no evidence or reason why an exclusion order should not be issued in this case.
