Voluntary industry standards on technical specifications play an important role in the economy by ensuring interoperability among complementary products and interchangeability between competing products. Once such a standard is established it may be prohibitively difficult to switch to an alternative technology. As a result, the owner of patented technology incorporated into a standard may engage in "patent hold-up" by asserting the patent to exclude a competitor or obtain a higher price for using the technology than would have been possible before the standard was set. Standard-setting organizations (SSOs) rely on voluntary licensing commitments, which often take the form of an agreement to license on fair, reasonable, and non-discriminatory (F/RAND) or reasonable and non-discriminatory (RAND) terms, to mitigate the possibility of patent hold-up.
By statute, an injunction is available in the United States as a remedy for patent infringement. In eBay v. MercExchange,1 the Supreme Court held that a court evaluating a request for an injunction in a patent case must consider, among other factors, whether monetary damages are adequate and whether an injunction would be in the public interest. European courts also grant injunctions to prohibit patent infringement. Recently, two courts in the United States have held that an injunction was not available to an owner of a standard-essential patent (SEP) where the patent owner had previously committed to license the patent on F/RAND terms. The Antitrust Division of the Department of Justice recently issued a policy statement to the same effect, and the Federal Trade Commission (FTC) has issued two decisions stating that merely seeking an injunction in these circumstances can constitute a violation of Section 5 of the FTC Act. Similarly, the European Commission competition authority (EC) last year initiated investigations of Samsung and Motorola for such conduct.
These developments raise concerns that the statutory right to an injunction may now, in many circumstances, be unavailable to the owner of an SEP, and that a patent owner may be subject to antitrust scrutiny, or even liability, for invoking that right.
The United States
The Courts. In Microsoft v. Motorola,2 the U.S. Court of Appeals for the Ninth Circuit affirmed a decision holding that Motorola’s RAND commitments created a contract enforceable by Microsoft as a third-party beneficiary. "Implicit" in Motorola’s promise to the SSOs, the court found, was a guarantee that Motorola would "not take steps to keep would-be users from using the patented material, such as seeking an injunction" anywhere in the world. The Ninth Circuit upheld a preliminary injunction prohibiting Motorola from enforcing an injunction it had previously obtained against Microsoft in Germany.
Subsequently, the district court held that Motorola was not entitled to a permanent injunction against infringement of any of its SEPs worldwide. Because of its F/RAND commitment, the district court determined, a license for Motorola’s SEPs "will become a reality," so Motorola could not establish the necessary irreparable harm or lack of an adequate remedy at law.
Judge Richard Posner also concluded that injunctive relief was not available for infringement of a RAND-encumbered SEP in Apple v. Motorola.3 He reasoned that by committing to license its SEPs on F/RAND terms "Motorola implicitly acknowledged that a royalty is adequate compensation for a license to use" those patents.
In Apple v. Motorola Mobility,4 however, the Western District of Wisconsin held that Motorola did not breach its F/RAND commitments by seeking injunctive relief, because no language in the SSO agreements prohibited Motorola from doing so. The court found that a contract purportedly depriving a patent owner of that right must do so clearly, given that patent owners have a statutory right to seek an injunction.
The FTC and Justice Department. In two recent decisions, the FTC held that seeking to enjoin infringement of an SEP subject to a F/RAND commitment may constitute an unfair method of competition and/or an unfair act or practice in violation of Section 5 of the FTC Act. These decisions follow a June 2012 FTC statement asserting that, in light of the potential for "patent hold-up," an International Court of Justice (ITC) exclusion order should not be available for infringement of a F/RAND encumbered SEP.
In its December 2012 decision in In the Matter of Robert Bosch GmbH,5 the commission considered the merger of Bosch and its competitor SPX Service Solutions (SPX). The FTC alleged that SPX’s injunction demands in infringement actions based on SEPs subject to a F/RAND commitment constituted an unfair method of competition. The parties entered into a consent order in which Bosch agreed to deliver, to each of the defendants in the SPX patent litigation or any other potential licensee that requested one, a "written, unconditional, unilateral, irrevocable offer" for a "royalty-free, fully paid-up, irrevocable, perpetual, non-exclusive license" to the SPX SEPs.
Two weeks later, the FTC issued a decision in In the Matter of Google.6 It alleged that Google and Motorola Mobility breached Motorola’s F/RAND commitments by "seeking to enjoin and exclude willing licensees" of F/RAND-encumbered SEPs to enhance their bargaining leverage, and in doing so violated the "unfair method of competition" and "unfair acts or practices" provisions of Section 5. In a consent order, Google agreed not to seek injunctive relief (including an ITC exclusion order) unless it previously had offered a license on what Google considered to be F/RAND terms. If the initial offer were rejected, Google would be required to participate in a proceeding to determine an appropriate royalty and then to offer a license on the terms determined by the arbitrator or court. Google also agreed to refrain from assigning any SEP to a third party unless the third party agreed to take on Google’s F/RAND commitments and obligations under the consent order.
On Jan. 10, 2013, the Justice Department and the U.S. Patent and Trademark Office jointly issued a policy statement in which they agreed with the FTC that an injunction based on a F/RAND-encumbered patent could harm competition and consumers. However, these agencies did not portray such conduct as an antitrust violation, but instead suggested that consideration of the eBay factors should generally preclude an injunction or exclusion order, because (1) by voluntarily making a F/RAND commitment, the patent holder implicitly acknowledges that money damages is the appropriate remedy for infringement, and (2) a court should conclude that such an order or injunction is not in the public interest.
The Courts. Courts in Europe have taken differing positions on the availability of injunctive relief for infringement of F/RAND-encumbered SEPs. German courts have not interpreted the F/RAND commitment to create a contract enforceable by third parties or to foreclose injunctive relief, and at least one German court has held that only an "obvious" antitrust violation could provide a basis for denying an injunction.
In contrast, in IPCom v. Nokia, the U.K. High Court held that it would be "extraordinary" to grant "any injunction at all" for infringement of an SEP subject to a F/RAND commitment.7 In a March 2012 decision, a district court in The Hague, applying French contract and Dutch antitrust law, dismissed claims for injunctive relief for infringement of F/RAND-encumbered SEPs. It stated that such claims constituted "an abuse of authority and breach of pre-contractual good faith" because they "put improper pressure on Apple to…agree with license terms and conditions that are not FRAND."8 The Dutch court refrained from deciding whether Samsung’s claims were an "abuse of a dominant position" in violation of Dutch law.
The European Commission (EC). In January 2012, the EC opened a formal investigation against Samsung to assess whether Samsung had "used certain of its standard-essential patent rights to distort competition in European mobile device markets," "abusively and in contravention of a commitment" to an SSO, by seeking injunctive relief in member courts for infringement of its SEPs. In December 2012, the EC preliminarily concluded that Samsung had abused a dominant position. If the EC issues a final decision against Samsung, it may impose a fine of up to 10 percent of Samsung’s annual worldwide turnover. In April 2012, the EC opened a similar investigation against Motorola.
Availability of an Injunction. The developments described above indicate that obtaining an injunction to prohibit infringement of an SEP subject to a F/RAND commitment may be unlikely. An injunction is more likely if the accused infringer is not subject to the jurisdiction of a U.S. court, uses the patented technology outside the scope of the F/RAND commitment, refuses to accept a license, or is unwilling to pay the royalty determined by arbitration or a court. Injunctive relief likely remains available in Germany, although enforcement of such an injunction may itself be enjoined in the United States, at least in the Ninth Circuit.
Process for Determining a F/RAND Royalty. The FTC set out a plausible process in Google that includes negotiations, an initial offer by the patentee, a response by the potential licensee, strict deadlines, and the use of a court or arbitration to determine the F/RAND royalty rate where the parties cannot agree.
Several courts and agencies have opined, albeit in dicta, regarding the appropriate standard. Judge Posner noted that a court should determine "what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the functions performed by the patent."9 Similarly, the EC has suggested that a court should "compare the licensing fees charged…in a competitive environment before the industry has been locked into the standard" with those charged after lock-in.10 Alternatively, the court may consider the objective centrality and essentiality to the standard at issue of the relevant patent portfolio, or the royalty rates charged for the same patents in other comparable standards.
Defenses to Section 5 or Other Competition Claims. The owner of an SEP will want to consider whether asserting a claim for an injunctive relief is worth the risk of antitrust scrutiny. However:
First, a "stand-alone" Section 5 claim may not be available where the FTC has not defined the principles that might limit what constitutes a violation. Uncertainty remains as how to determine when a licensee is unwilling to enter a license, whether the patent owner must have market power, whether the patent owner waived the right to seek an injunction, and what constitutes a F/RAND royalty. In response to its request for comments on the Google consent order, the FTC received a number of requests to set clearer standards in this area.
Second, liability may be prohibited by the Noerr doctrine, which is based on the First Amendment right to petition the government. Under Noerr, the federal antitrust laws cannot regulate private individuals from seeking anticompetitive action from the government, even if the individual intends to restrain trade as a result of the government action. In Apple v. Motorola Mobility,11 the court applied Noerr in dismissing federal and state unfair competition claims.
Stephen J. Elliott is a special counsel in the intellectual property litigation group at Sullivan & Cromwell. He is a contributing author to "Pharmaceutical and Biotech Patent Law" (PLI 2008) and the "Patent Litigation Strategies Handbook" (ABA 2012 Supp.). He can be reached at email@example.com.
1. 547 U.S. 388, 391 (2006).
2. 696 F.3d 872 (9th Cir. 2012).
3. 869 F.Supp.2d 901 (N.D. Ill. 2012).
4. No. 11-CV-179 (W.D. Wisc. Nov. 8, 2012).
5. FTC Docket No. C-4377.
6. FTC Docket No. 121-0120.
7. Case No: A3/2011/2018, Court of Appeal (Civil Div.) (2012).
8. Judgment in Samsung Electronics v. Apple, Docket No. 400367/HA ZA 11-2212 (Dist. Ct. The Hague March 14, 2012), ¶4.31.
9. 869 F.Supp.2d at 913. The district court in Motorola v. Microsoft held a one-week trial to determine an appropriate F/RAND royalty for Motorola’s H.264 SEPs in November 2012. No decision has yet been issued.
10. EC Guidelines on Horizontal Cooperation Agreements (2011), ¶ 289.
11. 2012 WL 3289835, at *12-14 (W.D. Wis. Aug. 10, 2012); Eastern Railroad Presidents Conf. v. Noerr Motor Freight, 365 U.S. 127 (1961).