On February 15, a Texas federal jury found that Ericsson did not breach its obligation to offer HTC licenses to its standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. The verdict ended a nearly two-year dispute as to whether FRAND obligations preclude a licensing offer based on end products rather than components. Ericsson succeeded in convincing the jury that its FRAND commitment does not require it to base royalty rates for its SEPs on the value of smartphone chips rather than the phones themselves. The jury verdict suggests that other SEP holders may be able to successfully argue that basing royalty rates on end products rather than components does not violate their FRAND obligations.

Ericsson holds patents that the parties agreed are essential to the 2G, 3G, 4G and WLAN wireless communication standards, and made a commitment to several standard setting organizations to license those SEPs on FRAND terms. HTC makes smartphones that implement Ericsson’s SEPs and brought suit against Ericsson in April 2017, alleging that Ericsson overcharges for its SEPs.

Continue Reading Federal Jury Finds that Ericsson’s Licensing Offer to HTC is FRAND

The US District Court for the Eastern District of Texas ruled that for the purposes of honoring a fair, reasonable and non-discriminatory (FRAND) commitment, a pool member is not required to base royalties for its standard essential patents (SEPs) on the value of components. HTC America Inc. et al. v. Ericsson Inc., Case No. 6:18-cv-00243-JRG (E.D. Tex. Jan. 7, 2019) (Gilstrap, J). According to the court, Ericsson’s commitment to the European Telecommunications Standards Institute (ETSI) does not specify whether it must use the value of components or end-user devices to calculate royalty rates. Thus, there is no ETSI prescribed methodology for calculating the license fee under the FRAND commitment.

Ericsson holds patents that are essential to the 2G, 3G, 4G and WLAN wireless communication standards and made a commitment to ETSI to license those SEPs on FRAND terms. HTC makes smartphones that implement Ericsson’s SEPs and alleged that Ericsson is overcharging for SEP licenses. According to HTC, Ericsson’s FRAND commitment to ETSI requires it to base its royalties on the value of the “smallest salable patent-practicing unit (SSPPU) in the phones.” In October 2018, Ericsson moved for a ruling that its FRAND commitment does not require this method of calculation and allows Ericsson to base its royalties on the value of end-user devices, i.e., smartphones.

Continue Reading District Court: IPR Policy Does Not Automatically Require License Fees Based on Components

In a December 7 speech before the Berkeley-Stanford Advanced Patent Law Institute, the US Department of Justice Antitrust Division (DOJ) Assistant Attorney General Makan Delrahim (AAG Delrahim) announced that the DOJ will withdraw its assent to the 2013 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments (the Policy Statement) and elaborated upon the DOJ’s enforcement approach to standard setting organizations (SSOs).

WHAT HAPPENED:

  • AAG Delrahim voiced support for the right of patent holders to seek injunctions against misuses of their technologies. According to AAG Delrahim, the appropriate test for injunctive relief in patent cases is the one articulated by the US Supreme Court in eBay v. MercExchange. Under the eBay standard, to obtain an injunction, a patent holder must demonstrate that:
    • It has suffered an irreparable injury;
    • Remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
    • Considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
    • The public interest would not be disserved by a permanent injunction.
  • AAG Delrahim expressed concern that the Policy Statement, which in his view suggests that injunctions may not serve the public interest, may bias courts applying the eBay test against issuing injunctions. Because AAG Delrahim’s stance is that injunctions frequently do serve the public interest, he is worried that the Policy Statement will cause confusion. Based on this worry and AAG Delrahim’s disagreement with the Policy Statement’s position, the DOJ will withdraw its assent to the Policy Statement.
  • AAG Delrahim also elaborated upon his concerns with SSOs. He explained that an SSO can act anti-competitively in carrying out two tasks. First, an SSO can act anti-competitively while carrying out the standard setting process (g., by refusing to license a new and innovative technology by a maverick firm that the members of the SSO view as threatening). Second, an SSO can act anti-competitively in adopting and implementing patent policies (e.g., by adopting licensing terms that favor implementers over patent holders).

WHAT THIS MEANS:

  • Though the DOJ is withdrawing its assent to the Policy Statement, it will attempt to replace it with a new one. AAG Delrahim said that the DOJ will engage the Patent Office to initiate this process. The DOJ is likely to push for language more favorable to standard essential patent holders seeking injunctions.
  • The withdrawal of the Policy Statement may affect patent cases not only before federal district courts, but also before the International Trade Commission (ITC). The Policy Statement was designed to inform the ITC, as well as federal courts, on the appropriateness of issuing an exclusion order in patent cases.
  • Delrahim announced two policies the DOJ will adopt with respect to SSOs. First, the DOJ will investigate and bring enforcement actions against standard setting practices that are anticompetitive. Second, the DOJ will embrace a policy of encouraging competition between SSOs. As part of the policy, the DOJ may, for example, scrutinize competitors for coordinating a group boycott of an SSO with a patent policy that is unfavorable to their interests.
  • The speech was consistent with AAG Delrahim’s previously voiced support of standard essential patent holders and concerns about SSOs. While under AAG Delrahim’s leadership, the DOJ’s enforcement posture will likely align with his views.

Recently, a federal district court in California granted partial summary judgment for the US Federal Trade Commission (FTC) in an important intellectual property and antitrust case involving standard essential patents (SEP). The court’s decision requires an SEP holder to license its SEPs for cellular communication standards to all applicants willing to pay a fair, reasonable and non-discriminatory (FRAND) rate, regardless of whether the applicant supplies components or end-devices. The decision represents a significant victory for the FTC in enforcing its views of an SEP holder’s commitments to license patents on FRAND terms.

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In testimony before the Senate Subcommittee on Antitrust, Assistant Attorney General Makan Delrahim from the US Department of Justice (DOJ) and Chairman Joseph Simons from the US Federal Trade Commission (FTC) staked out differing interpretations of when antitrust considerations are relevant in standard setting agreements restricted by fair, reasonable and non-discriminatory (FRAND) rates, a rare divergence of opinion between the two antitrust enforcement agencies.

WHAT HAPPENED:

  • Since AAG Delrahim took over as head of the DOJ Antitrust Division in September 2017 he has consistently hinted at a differing interpretation of antitrust law as it relates to standard essential patents and FRAND rates in the context of antitrust. 
  • Standard essential patents (SEPs) are patents that have been incorporated into a standard by a standard setting organization and industry participants to facilitate interchangeability between products. Often, to be included in a standard, patent holders agree to license a patent essential to that standard at a FRAND rate. 
  • With the proliferation of standards, more scrutiny has been devoted to SEPs and FRAND rates, and some companies have brought antitrust suits relating to “patent hold-up” or the refusal to license a patent on FRAND terms (typically seeking higher royalties or fees on patents for widely adopted standards). 
  • In testimony on October 3, 2018, AAG Delrahim indicated his view was that a patent holder’s unilateral decision not to license a patent—even if that patent is part of a standard—is not conduct intended to be reached by the antitrust laws. AAG Delrahim indicated such a dispute would more appropriately be handled by contract law. 
  • This position differs from that of the FTC, where Chairman Simons has indicated that antitrust law can be relevant in patent hold-up cases.
    •  The FTC demonstrated its view in a recent complaint filed against Qualcomm, Inc. The complaint summarizes the patent hold-up concern:

Once a standard incorporating proprietary technology is adopted, the potential exists for opportunistic patent holders to insist on patent licensing terms that capture not just the value of the underlying technology, but also the value of standardization itself. To address this “hold-up” risk, [standard setting organizations] often require patent holders to disclose their patents and commit to license standard-essential patents (“SEPs”) on fair, reasonable, and non-discriminatory (“FRAND”) terms. Absent such requirements, a patent holder might be able to parlay the standardization of its technology into a monopoly in standard-compliant products.

WHAT THIS MEANS:

  • Going forward, US antitrust enforcement with respect to SEP issues may be limited to the FTC. AAG Delrahim’s speeches indicate that it will be the rare case that the Antitrust Division pursues such cases in the future.
  • This divergence between the two US agencies responsible for enforcing antitrust laws will create confusion for SEP holders and their licensees with respect to the risks of US government intervention. Companies dealing with SEPs and FRAND rates will want to be cognizant of which agency is reviewing, as approaches may be different.
  • While there may be divergence in the US government agencies that enforce the US antitrust laws, the Antitrust Division’s new policy has no impact on the body of case law developed by US courts over the years with respect to SEPs and antitrust liability. Private parties seeking to enforce their rights with respect to SEPs and antitrust law in US courts should not be impacted by the Antitrust Division’s change in policy.

WHAT HAPPENED

On July 18, 2018, US Food and Drug Administration (FDA) Commissioner Scott Gottlieb delivered a speech at The Brookings Institution in Washington, DC, discussing how to bolster competition from biosimilars while maintaining innovation.

The Commissioner noted the absence of true competition among biologics from biosimilar products in the United States, similarly to what the country experienced 30 years ago with respect to generics. The Commissioner said that this situation is caused, in part, by what he views as anticompetitive practices implemented by branded manufacturers, such as:

  • Rebating schemes in which drug manufacturers bundle discounts to health insurers and employers across different pharmaceutical products;
  • Multi-year contracts granting important rebates to payors, often entered into right before the entry of a biosimilar on the market;
  • Volume-based rebates;
  • Tying rebates, i.e., when rebates are offered if a product is bought together with a biologic;
  • Patent thickets, i.e., when branded manufacturers’ own dense portfolios of overlapping intellectual property rights cover biologics; and
  • Bundling biologics with other products, i.e., when a product is sold together with a biologic.

Continue Reading THE LATEST: FTC to Look Closely at Competition between Biologics and Biosimilars and Patent Protection Strategies of Branded Manufacturers

The Federal Circuit held Walker Process Claims without a “substantial” patent issue can be heard outside the Federal Circuit based on the US Supreme Court decision in Gunn v. Minton.

WHAT HAPPENED:

  • The tug-of-war between antitrust and intellectual property continued Friday, February 9, with the Federal Circuit transferring a Walker Process claim to the Fifth Circuit for lack of jurisdiction. Xitronix Corp. v. KLA-Tencor Corp., Case No. 2016-2746 (Fed. Cir., Feb. 9, 2018) (Moore, J.).
  • In Walker Process, the Supreme Court held that a patent holder may be subject to antitrust liability in a situation where the patent was obtained by knowing and willful fraud on the patent office and all the other necessary elements for a Sherman Act charge are present.
  • Here, Xitronix brought a Walker Process claim alleging KLA fraudulently obtained a patent. Though both parties asserted the Federal Circuit had jurisdiction over the claim, the Federal Circuit disagreed.
  • The Federal Circuit specifically asked for supplemental briefing after oral argument relating to Gunn v. Minton, 568 U.S. 251 (2013), to determine whether jurisdiction in the Federal Circuit was proper. In Gunn, the Court held that though the Federal Circuit has exclusive jurisdiction over patent issues, the law doesn’t bar other courts from hearing malpractice claims relating to pursuing patents.
  • Citing Gunn v. Minton, the Federal Circuit held that though this case would potentially involve “analysis of the [patent] claims and specifications and may require application of patent claim construction principles,” the federal question jurisdictional statute required more than “mere resolution of a patent issue.”

Thus, finding no “substantial” issue of patent law, the Federal Circuit transferred the claim to the Fifth Circuit to determine whether the patent was procured through fraud in order to illegally create or preserve a monopoly.

WHAT THIS MEANS:

  • Going forward, Walker Process claims will not be heard in the Federal Circuit merely because they require some consideration of a patent issue.
  • Gunn v. Minton continues to narrow the jurisdiction of the Federal Circuit. Tangential resolution of a patent dispute is not necessarily enough to invoke Federal Circuit jurisdiction.

WHAT HAPPENED:

  • Wading into the merging streams of antitrust and patents, the US Court of Appeals for the Ninth Circuit upheld dismissal of an antitrust suit where a jury verdict in a parallel case found no patent infringement. Cascades Computer Innovation, LLC v. RPX Corp. and Samsung Electronics Co. Ltd., Case No. 16-15782 (9th Cir., December 11, 2017).
  • Cascades Computer Innovation is a non-practicing entity that owns a series of 38 patents (collectively known as the Elbrus portfolio) allegedly used to optimize Android devices. Cascades intended to license these patents for use by companies including Motorola, HTC, Samsung, LG Electronics, Dell and RPX (a defensive patent aggregator that purchases patents on behalf of subscriber organizations using membership fees). An agreement couldn’t be reached. Cascades alleged this lack of agreement was due to a conspiracy between the defendants, using RPX, to not seek licenses for use of these patents—an agreement in violation of antitrust law.
  • Cascades filed two related lawsuits against Samsung, Motorola, HTC and others in separate district courts with separate causes of action. In Illinois, Cascades’ claim rested on patent infringement. Although the entire Elbrus portfolio was referenced in the complaint, the court determined only one patent, referred to by the court as “the ‘750 patent,” was truly at issue. Cascades asserted that merely installing the Android mobile device operating system resulted in an infringement of this patent. In California, Cascades relied on antitrust law arguing the agreement between defendants not to purchase licenses amounted to a violation. Again, the ‘750 patent was primarily at issue. Thus, Cascades simultaneously argued that a group of companies infringed on their patent and also that those companies illegally conspired to refuse to obtain licenses for use of that patent.
  • A jury in Illinois determined there was no patent infringement, which undercut Cascades’ argument in California. Without any infringement, the court in California noted “[o]nly those who possess antitrust standing by virtue of having suffered antitrust injury may bring a private action for damages for violation of the antitrust laws” before ruling for the defendants on a motion for judgment on the pleadings. The California court reasoned that in order to show antitrust injury, there must be harm to competition, not any particular competitor. The court reasoned that a “failure to license a non-infringed patent typically cannot serve as the basis for a cognizable antitrust injury.” Because Cascades’ entire theory of injury was based upon ongoing infringement of the ‘750 patent, and not on any potential, unalleged future infringement, there was no antitrust injury in the case.
  • On appeal, the 9th Circuit determined the district court “properly recognized the preclusive effect of [the Illinois decision] and correctly reasoned that because the defendants did not infringe the ‘750 patent, Cascades’ failure to license the patent was not a cognizable antitrust injury.” In a footnote, the panel explained, “[h]ere, the defendants were not infringing the valid patent; therefore, they were not using the invention. Thus, the failure to license had no effect on price or quantity of any consumer goods.”
  • In sum, the district court held and the 9th Circuit affirmed that without any infringement there can be no antitrust injury, and thus no antitrust claim.

WHAT THIS MEANS:

  • While seeking an antitrust remedy where no patent infringement is found represents a relatively novel tactic, alleging an injury without an infringement doesn’t appear to be a winning strategy in private causes of action.

WHAT HAPPENED

  • On Friday, October 13, acting FTC chairman Maureen Ohlhausen delivered a speech at the Hillsdale College Free Market Forum titled, “Markets, Government, and the Common Good,” highlighting her view on the intersection between IP and antitrust domestically and abroad.
  • Chairman Ohlhausen’s position, that IP rights must be vigorously protected, is in line with her long-held belief that some enforcement of antitrust laws, especially abroad, has been overzealous when it comes to intellectual property.
  • In 2012, Ohlhausen objected to the FTC’s decision to require Robert Bosch GmbH to refrain from pursuing injunctions on certain SEPs (standard essential patents), and she wrote a dissenting opinion on the commission’s consent agreement with Google Inc. and Motorola Mobility Inc. requiring Google to withdraw claims for injunctive relief on SEPs.
  • In Friday’s speech, she argued that though “foreign [governments] take or allow the taking of American proprietary technologies without due payment,” the US should continue to protect patent rights and avoid punishing a company for “a unilateral refusal to assist its competitors.”
  • Ohlhausen also addressed what she termed the current “age of IP skepticism” as it relates to patent-assertion entities (PAEs).
  • She concluded that while some minor changes may be appropriate to promote innovation in the face of “Litigation PAEs” employing nuisance litigation techniques, these changes should be “narrowly tailored to address observed behavior.”
  • She voiced support for case management practices that could mitigate litigation cost asymmetries between PAE plaintiffs and defendants, increased transparency, and rules encouraging courts to stay litigation by PAEs when parallel proceedings are already underway, but eschewed more drastic measures such as the creation of “new, specialized guidelines to address particular types of IP disputes,” which, she argued, are unsupported by the available evidence.
  • In her view, “the key to addressing the US patent system lies in incremental adjustment where necessary based on a firm empirical foundation.”

WHAT THIS MEANS

  • Ohlhausen’s concern that certain antitrust enforcement “inappropriately morphs antitrust law into a tool for price regulation” is a notable policy direction that could make the FTC less inclined to pursue cases involving alleged violations of SEPs.
  • Under her direction, any changes forthcoming at the FTC are likely to be minor adjustments reflecting the belief that protecting patent rights is “fundamental to advanc[ing] innovation.”

WHAT HAPPENED

  • On February 14, 2017, Integra agreed to purchase Johnson & Johnson’s Codman neurosurgery business (excluding Codman’s neurovascular and drug deliver businesses) for $1.045 billion.
  • Seven months later, on September 25, 2017, the Federal Trade Commission (FTC) agreed to clear the transaction subject to the parties divesting five neurosurgical tools and associated assets including the relevant intellectual property (IP), manufacturing technology and know-how, and research & development (R&D) information related to the five tools. Additionally the buyer of the divested assets can freely negotiate to hire any employees that worked on sales, marketing, manufacturing, or R&D for the divestiture products. The parties must also supply Natus Medical Incorporated (Natus) with cranial access kits often sold with the divestiture assets until Natus can start sourcing them independently.
  • The FTC required that the parties divest the following medical devices:
    • Intracranial pressure monitoring systems, which measure pressure inside the skull. The FTC determined that Integra (68 percent) and Codman (26 percent) combined market share in the United States would be 94 percent and that only fringe competitors with limited presence would have remained.
    • Cerebrospinal fluid collections systems, which drain excess cerebrospinal fluid and monitor pressures within the fluid. The FTC found that Integra (57 percent) and Codman (14 percent) would combine for 71 percent market share in the United States and would have reduced the number of significant competitors from three to two.
    • Non-antimicrobial external ventricular drainage catheters, which funnel excess cerebrospinal fluid form the brain to cerebrospinal fluid collection systems to relieve intracranial pressure. Here, the FTC said Integra (29 percent) and Codman (17 percent) are the number two and three competitors accounting for 46 percent of the market in the United States and would have reduced the number of significant competitors from three to two.
    • Fixed pressure valve shunts, which are used to treat excessive accumulation of cerebrospinal fluid. The FTC found that Integra (23 percent) and Codman (15 percent) were the number two and three competitors would control 38 percent of the US market and, again, that the number of competitors would have been reduced from three to two.
    • Dural grafts, which are used to repair or replace the membrane that surrounds the brain and spinal cord and keep cerebrospinal fluid in place. The FTC determined that the merger would have reduced the number of significant competitors from four to three with Integra (66 percent) and Codman (nine percent) combining for 75 percent market share.
  • Under the terms of the settlement, the parties must divest within 10 days of closing to Natus, which is a global health care company with an existing neurology business including systems that are complementary to the divestiture assets.

Continue Reading THE LATEST: Integra Forced to Divest Neurosurgical Tools to Gain FTC Clearance