The U.S. Court of Appeals sounded poised Monday to defer to a Chinese injunction that Samsung Electronics Co., Ltd. says will force it to “cry uncle” in its high-stakes patent licensing dispute with Huawei Technologies Co. Ltd.
“Samsung can’t afford to have its plants shut down in China,” Quinn Emanuel Urquhart & Sullivan partner Charles Verhoeven told the court in the Monday hearing. Such a shutdown would force Samsung to accept unfair terms for Huawei patents that are essential to practicing 3G and 4G connectivity standards.
Verhoeven pleaded with the court to leave in place an anti-suit injunction entered by Judge William Orrick III. That order would leave the Chinese injunction in place, but block Huawei from enforcing it until Orrick determines whether each side has met its contractual commitment to license on fair, reasonable and non-discriminatory terms, or FRAND.
“If they enforce the injunction then we’ll have to agree to their terms,” Verhoeven said. “That’s called patent holdup.”
But the Federal Circuit sounded skeptical during the 40-minute hearing. Judge Kathleen O’Malley suggested that Samsung bore much of the blame for resisting negotiations with Huawei for seven years.
“What is it that gives the district court the right to decide the question before the Chinese courts do?” O’Malley asked. “When the same questions are presented to both, why doesn’t the Chinese court have the authority?”
Sidley Austin partner Constantine Trela Jr. faced less hostile questioning. “The Chinese court issued the injunctions there because it found that Huawei had complied with FRAND and Samsung had not,” he told the court. “That decision is entitled to respect from the U.S. courts.”
Huawei Technologies v. Samung Electronics appears to be one of the first opportunities for the Federal Circuit to weigh in on anti-suit injunctions, which have become increasingly popular as technology companies litigate FRAND disputes.
Huawei brought its suits against Samsung in San Francisco and China on essentially the same day in 2016, alleging that Samsung has not honored its commitment to standard-setting bodies such as the European Telecommunications Standards Institute. Samsung argues in its briefs that it has made significant concessions, at first demanding payment from Huawei, later offering a royalty free global-cross license, and finally offering to pay Huawei a net royalty fee. Huawei, meanwhile, has clung to its demand for 1.5 percent of each unit sold throughout the negotiations, Samsung alleges.
The Chinese litigation moved quickly. Following the injunction, Huawei’s IP chief Jianxin Ding said a public forum that Huawei didn’t want to kick Samsung out of China, but would use the threat as “a bargaining chip.”
In the Federal Circuit suit, Orrick ruled that “the bulk” of precedent supported Samsung’s argument that injunctions are inconsistent with the FRAND commitment. “The appropriate remedy for Huawei’s breach of contract claim may very well be the injunctive relief issued by the Shenzhen court,” he wrote earlier this year. “But I must have the opportunity to adjudicate that claim without Samsung facing the threat of the Shenzhen court injunctions.”
On Monday, it didn’t sound as if that logic would sway O’Malley. She demanded that Verhoeven tell her where Orrick explicitly found a public policy against injunctions in SEP cases.
“I can go back and—” Verhoeven started.
“Go back and look, because I looked it up three times,” O’ Malley told him, “and the [NInth Circuit] Court of Appeals did not rely on that public policy either.”
Chief Judge Sharon Prost and Judge Todd Hughes also wondered how much there is for Orrick to decide, because neither is willing to let him to set a FRAND rate for its portfolio.
“At a certain point this all just ends up to being delaying,” Hughes said. “The district court, it’s going to take another year and half to decide those breach of contract claims. One or both of you are going to appeal from that, and all the time, you’re going to be selling your phones, you’re going to be manufacturing their phones, and they’re not going to be getting their patent licenses paid.”
The Shenzhen courts may not have the last word even in China. Samsung is appealing its decisions to the Guangdong High People’s Court. The Federal Circuit asked for a formal status report on the Chinese appeals before Monday’s hearings and then had more questions during arguments. A ruling from the Chinese appellate court could come within the next couple of months, Trela said.