On June 22 Judge Richard Posner, sitting in designation, dismissed a patent infringement case between Motorola and Apple which included 15 Apple patents and 6 Motorola patents. Judge Posner explained that even if infringement could be proven, neither party offered sufficient evidence to prove and entitlement to injunctive relief, and neither party had offered credible evidence to permit a calculation of damages. This opinion has been interpreted by many to be the first shot across the bow in the long-standing need for patent reform. Judge Posner’s opinion applied to both SEPs and non-SEPs alike. Posner also dismissed the idea that a patentee of a small portion of an overall product would be entitled to an injunction on the grounds that it is losing market share or suffering irreparable harm. Both parties appealed to the Court of Appeals for the Federal Circuit, where the case is currently pending. Apple has already filed its opening brief, in which it argues that Judge Posner erroneously concluded that Apple could not establish damages for Motorola’s infringement, and that Apple has demonstrated irreparable harm because Apple has a policy against licensing patents to competitors and continues to lose market share to an infringing competitor. Motorola’s brief is due in March.
On December 5 the briefs for six amici curiae (friends of the court) were released: the Federal Trade Commission (FTC), the Institute of Electrical and Electronics Engineers (IEEE), the American Antitrust Institute, the Intellectual Property Law Association of Chicago, and two by non-party high tech firms. Summaries of these briefs follow below:
- Federal Trade Commission – The FTC’s brief discusses only the question of standard essential patents (SEPs) and “seeks to ensure that any ruling in this case takes into account the competition policy issues associated with injunctions as a remedy for infringement” of SEPs. The FTC addresses the question of hold-up and the use of injunctions as “undue leverage in negotiations” and suggests that the threat of hold-up is an important consideration when evaluating the appropriateness of an injunction. The FTC agrees with Judge Posner that a FRAND commitment means that a patentee “explicitly acknowledge[s] that a royalty is adequate compensation” and should not be able to pursue an injunction. The FTC does carve out room for an exception based on the “unwilling licensee” but states that in this case “the district court apparently determined that Apple is not an unwilling licensee that waived its right to a FRAND license.” The FTC’s brief did not address the question of Apple’s injunction, or the broader question of the availability of injunctions for patentees who did not commit their patents to a FRAND license as part of participation in a standard setting organization.
- IEEE – IEEE’s brief provides a background on the organization’s standards setting policies, the rationale for these policies, and the challenges the organization faces as it invites competitors in an industry to collaborate on creating standards. IEEE then explains that the FRAND commitment is a vital element of the organization’s success, and states that the organization considers alternative proposals when selecting a standard in order to best ensure the widespread adoption of the standard and the prevention of hold-up. IEEE does not discuss the dispute between Apple and Motorola specifically. IEEE then goes on to explain that the inclusion of a patented technology in a standard enhances the value of this patented technology, and that standard setting bodies rely heavily on assurances from patentees that they will license on FRAND terms. IEEE also asserts that the implementers of standards have a right to enforce these patent commitments. IEEE does acknowledge that the term “reasonable” is “inherently vague…Sometimes this vagueness (and the consequent inability of parties to agree on a negotiated, “reasonable” license) will lead to expensive litigation whose cost and risk can impede the adoption of a socially valuable standard.”
- American Antitrust Institute – AAI’s brief reiterates the concern for anticompetitive hold-up following a SEP holder’s seeking of an injunction, and argues that allowing a SEP holder to “effectively repudiate its ex ante FRAND commitment by seeking injunctive relief” may encourage monopolization and attempted monopolization in violation of Section 2 of the Sherman Act. The AAI supports a strong presumption under eBay against the granting of an injunction in FRAND cases. AAI’s brief does not address the application of eBay to Posner’s rationale dismissing Apple’s suit for injunction.
- Chicago IPLA – Unlike the previous briefs, the IPLA’s brief does not discuss the question of SEPs, but rather the trend in patent cases for “ever more exactness in damages presentations.” The IPLA argues that this is a problematic development, as “high patent case costs turn some deserving potential litigants away from enforcement of their rights.” The IPLA feels that Judge Posner’s decision threatens to further exacerbate this problem. The brief provides four examples of damage theories that are losing favor: 1) “the entire market value rule, with evidence demonstrating that patented inventions embodied in complex products are valuable, important and essential to the products;” 2) “theories that rely on rules, principles, baselines or apportionments developed from experience, such as the Goldscheider rule;” 3) presentations that do not delve into the depths and the details of markets; and 4) the fact that the pool of licenses which patent attorneys may use for comparisons is shrinking.
- Market Participants #1 (Verizon, AAAA, Ford) – The first market participant brief echoes much of the arguments presented by the FTC and AAI. It states that the patent system must employ remedies that “replicate the reward the patentee would have earned absent infringement” and argues that making injunctive relief available for FRAND-encumbered patents would allow the patentee to “capture more than the economic value of their patents.” This brief also contends that the appropriate base for a FRAND royalty is the value of the patent at the time of design, and not the value after it has been adopted in a standard. As a second matter, this brief argues that an injunction is inappropriate when the patent in question “covers only a minor component in a multi-component device.” The brief echoes the language of the CAFC in its ruling in Apple v. Samsung in which the court reasoned “where the accused product includes many features of which only one (or a small minority) infringe,” the patentee must establish that there is “a sufficiently strong causal nexus [between] the alleged harm [and] the alleged infringement” to obtain injunctive relief. This brief warns of competitors being able to leverage minor patents to force exorbitant royalties through the threat of injunctive relief.
- Market Participants #2 (Cisco, Symantec, HP, etc.) – The second market participant brief argues that the Georgia-Pacific factors for determining reasonable royalty damages lead to “unreliable, uncertain, and speculative outcomes.” The brief requests the complete abolishment of the “entire market value rule” and the adoption of a valuation method that looks at the value of the patented invention at the time of design. The brief also suggests that when possible, courts should be encouraged to adopt an incremental value approach to damages if the infringing party can show the value of the next-best alternative.