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August 17, 2012 2:15 pm

Apple v Samsung patent showdown could affect future FRAND-licensing – commentary

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This article is provided to FT.com readers by PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world. www.parr-global.com

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Apple’s [AAPL] and Samsung’s patent litigation in the United States is expected to impact how standards-essential patents (SEPs) are licensed in the future, legal experts say.

In recent weeks, Apple and Samsung have wrestled in court hearings in their legal dispute over patents at the United States District Court for the Northern District of California. Samsung is claiming that Apple is infringing at least two Samsung’s SEPs which the Korean telecommunications giant has committed in writing to the European Telecommunications Standards Institute to license on fair, reasonable, and non-discriminatory (FRAND) terms.

Legal experts told PaRR they expect the court judgments in patent disputes to provide guidance for determining whether license terms are FRAND, and whether a SEP holder is precluded from seeking injunctions preventing licensees from using its patents. One of the experts also thought the development could encourage efficient procedures for solving FRAND disputes.

Law professor and FRAND expert Jorge Contreras at Washington University thought the issue of how FRAND constrains SEP licensors is “one that needs to be decided by a judicial body.” The courts are better placed to provide ”the definitive and comprehensive determination” than regulatory authorities, he added.

A decision by the US court in the Apple v Samsung case and decisions in other cases such as Samsung v Apple in Australia, and Microsoft v Motorola in the US are also expected to provide precedents potentially affecting SEP licensing going forward. Decisions on at least some of these cases are likely by the end of the year.

Given that the FRAND disputes are being tried in several jurisdictions, one case does not act as a binding precedent for another. However, Raymond Millien, a US-based attorney specializing in FRAND matters, observed that most standards are global. Their international nature warrants uniform interpretation of the obligation to license SEPs related to those standards on FRAND across different jurisdictions.

Millien added that in the light of an increasingly harmonized interpretation of when the FRAND obligation applies, court decisions in the on-going patent cases could indeed shed light on FRAND negotiations in the future.

Is there room for injunctions?

The courts are not expected to provide an exact formula for determining whether a particular patent offer is compliant with a FRAND obligation. However, Contreras expected at least clearer guidance on ”what the proper boundaries of the FRAND commitment were.”

In normal patent licensing negotiations, a patent holder has the ability to put additional pressure on the potential licensee by threatening the latter with a lawsuit seeking not only damages, but also an injunction and an import ban preventing the defendant from distributing products utilising the patent.

What makes a SEP unique is the obligation on their owner to license the patent on FRAND terms. The FRAND obligation places both contractual and antitrust-related limits on the ability of the patent holder to exercise its patent power in licensing negotiations, but the actual scope of those constraints is unclear. Consequently, SEP holders’ ability to invoke injunctions is less straightforward.

The ambiguity of the meaning of FRAND and the limits placed on the patent holder by the FRAND obligation could have been among reasons why in May courts across the board took different positions on whether an injunction is available as remedy for infringing a SEP.

The Mannenheim court in Germany granted an injunction in Motorola v Microsoft in which it considered Microsoft [MSFT] to have infringed an SEP owned by Motorola Mobility [MMI]; England’s High Court in IPCom v Nokia refused to grant an injunction, expressing doubts as to whether an injunction should even be an available remedy in cases concerning SEPs; the United States District Court for the Western District of Washington issued an anti-suit injunction in Microsoft v Motorola preventing Motorola from enforcing the FRAND injunction it had received in Germany.

Contreras would welcome a clarification from the courts on ”whether injunctive relief is at all appropriate”. Remedies are determined by applicable law, but a clear decision in one jurisdiction can help influence the outcome in another.

In addition to potentially creating useful precedents, the on-going court cases could impact FRAND licensing via more indirect means. Given the general reluctance of courts to set royalty rates, the cost and difficulty in litigation over FRAND can prompt the creation of more efficient mediation or arbitration services specialising in determining FRAND terms.

According to Millien, alternative dispute resolution means would be a positive development, but would likely require the involvement of the standards-setting organisations (SSOs) in order to be adopted cross-border.

The workshop on IP policies to be held by the International Telecommunications Union in October will likely establish whether SSOs are willing to assume this role.

If the court decisions show that in practice it is difficult to apply FRAND as a concept - now that its limits are tested in several court proceedings – the standards-setting industry will likely start looking for alternatives or complements to FRAND. One such alternative that has received cautious support over the years is the so called ex ante licensing, whereby licensing terms are agreed on in advance of a standard being adopted thus eliminating uncertainty over licensing terms.

As previously reported by PaRR, the EU Competition Commissioner Joaquin Almunía has expressed his reluctance to push for a wider adoption of an ex ante licensing model. Ex ante licensing has been reportedly critisised as potentially raising price fixing concerns and slowing down the development of standards. A recent empirical study prepared for the FTC by Professor Contreras however concluded that some of the general criticisms of the effectiveness of ex ante licensing are unwarranted.

If the courts fail to provide the guidance, the industry’s eyes will be on the competition authorities to remedy the lack of certainty. The on-going European Commission’s antitrust investigations into alleged FRAND abuses by Google [GOOG] and Samsung are also expected to clarify the impact on the future FRAND licensing.

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