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June/July 2024: Transactions

FRAND Litigation in an Evolving Technological and Global Political Environment

Katherine Cappaert, Christopher A Suarez, and Joseph Francis Ecker

Summary

  • Rapid technological evolution and globalization heighten the need for fair, reasonable, and nondiscriminatory (FRAND) licensing of standard essential patents (SEPs).
  • Industries primed for FRAND disputes include Wi-Fi 6 and 5G wireless technology, IoT devices, connected vehicles and medical devices, and bioinformatics.
  • Developments in the EU and China in global rate setting, essentiality and optionality determinations, and antisuit injunctions require careful consideration when resolving U.S. FRAND disputes.
FRAND Litigation in an Evolving Technological and Global Political Environment
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In the late 1830s, Samuel Morse began filing some of the first patents on the electromagnetic telegraph machine. By the 1840s, a telegraph system was installed alongside a railroad between Washington, D.C., and Baltimore, delivering the first Morse code message. In 1858, the first transatlantic telegraph wire was completed and connected Queen Victoria in the United Kingdom to President Buchanan in the United States. By the 1860s, the telegraph had become a staple for delivering news, and in 1861, the first transcontinental telegraph wire was completed between San Francisco and the East Coast. Then in 1865, the International Telegraph Union—the predecessor to the current International Telecommunication Union—was formed to develop standards for international telegraphic communications.

In the span of 30 years, a once novel technology backed by robust patent portfolios entered the mainstream, requiring international standards to better facilitate interconnectivity in the then modern world. The same is true of the innovations of today. Technology continues to evolve at lightspeed, by both implementers and standard contributors. From the telegraph came the wired telephone. From wireless telephony came cellular telephony and Wi-Fi technology. Implementers require increased accessibility to the standards that make their inventions work, and standard contributors require a licensing base to incentivize contributions to standard-setting organizations (SSOs).

Critical to this process is the licensing of patents essential to those standards (SEPs) under fair, reasonable, and nondiscriminatory (FRAND) terms, in accordance with contractual provisions with SSOs to negotiate under FRAND conditions. The emergence of 5G, Wi-Fi 6, Internet of Things (IoT) devices, connected vehicles, and even developments in the life sciences have primed these sectors for an increase in FRAND litigation and licensing given the increased importance of interconnectivity and processing of vast volumes of data at blazing speeds.

Given the global nature in which technology is developed and businesses operate, the policies surrounding SEPs and FRAND from governments abroad have taken center stage in recent years. Developments in the European Union and China can directly affect licensing rates, whether a patent is essential, the importance of optional features, litigation and manufacturing strategies, and much more for U.S. patents and sales of products in the United States.

This article will focus on the emerging technologies likely to be involved in FRAND litigation and licensing in the coming years, as well as highlight major policy shifts abroad that may affect resolution of FRAND disputes in the United States.

Industries Primed for FRAND Disputes

Devices Utilizing Wi-Fi 6 or 5G Wireless Technology

In the coming years, Wi-Fi 6 or 5G wireless devices, including internet access points and routers, cellular phones and tablets, and numerous other devices, may serve as an important battleground in wireless technology FRAND disputes. Wi-Fi 6 devices are quickly entering into the market, and many contain backward compatibility with prior Wi-Fi standards, such as Wi-Fi 5, just as 5G devices were backward compatible with 4G. On top of this, a number of core features of Wi-Fi 6 overlap with other litigated standards such as LTE and 5G. These overlapping features may include orthogonal frequency-division multiple access (OFDMA); multi-user, multiple input, multiple output (MU-MIMO); and beamforming (BF). Thus, some of the same patents developed for Wi-Fi 5, LTE, and 5G may again play a role in the Wi-Fi 6 battles of tomorrow, though specific implementations and volume of use of these features will still play a role in rate setting. Important battles have emerged—and will continue to emerge—over the rates for 5G and Wi-Fi 6 patents, as will battles over FRAND policies and limits on licensing rates.

IoT Devices

The presence of IoT devices in our everyday lives also continues to grow exponentially. At any given time, dozens of connected devices, like doorbells, thermostats, refrigerators, exercise equipment, lighting, watches, locks, and so much more, may be interacting with us and our environment. It is projected that the number of IoT devices worldwide will double from 15 billion to nearly 30 billion by 2030. All of these devices require the chipsets and standards protocols to communicate and perform their proper functions.

Although new IoT devices may be equipped with the latest Wi-Fi and cellular technologies like 5G or Wi-Fi 6, previous standards like 3G and 4G, LTE, and Wi-Fi 4 and Wi-Fi 5, and even other standards like Bluetooth, Zigee, or Z-Wave, may suffice depending on the amount of data being processed. This may spark a renewed focus on FRAND litigation for these standards, which may result in lower licensing rates for implementers given how long the standards have been available. This may particularly be attractive for small and medium-sized enterprises looking to enter the market and who otherwise might be blindsided by the world of SEP licensing and FRAND litigation.

Connected Vehicles

Closely related to IoT is the emergence of connected vehicles and the requirement for vehicle-to-everything (V2X) technology. The connected vehicle market is expected to balloon to nearly 650 million vehicles by 2030. V2X technology may include everything from 5G cellular, Wi-Fi, LTE, Bluetooth 4.X and 5.X, LiDAR, and other standards to connect sensors for communications with other vehicles, payments systems, infrastructure like road signs and traffic lights, and even pedestrians. Other standards for electric vehicle charging are also increasing in popularity, including standards for DC and AC charging like the combined charging system (CCS) standard and for charger interface components.

SEPs for earlier 3G and 4G cellular standards have previously been licensed directly to original equipment manufacturers (OEMs) for connected vehicles through SEP licensing pools such as Avanci. The increased prevalence of standards technology in connected vehicles will remain a hotbed for FRAND disputes, through patent licensing pools or otherwise.

Life Sciences

In the age of personalized medicine, the next frontier for SEP disputes may lie in the life sciences sector. The most natural fit for SEPs is in connected medical devices that rely on Wi-Fi, Bluetooth, and cellular technologies to deliver real-time data to care providers and patients. It is expected that over a billion connected medical devices will be on the market globally by 2025 and include everything from connected heart rate and metabolite monitors to drug delivery and implanted devices.

Other areas to watch are in the bioinformatics, genomics, and gene editing arenas. Interoperability standards backed by patent protection will dominate the medical field to handle the vast amounts of data generated by connected medical devices and through managing personal genomic information. For example, the MPEG-G standard represents one of the first international standards for compression and processing of genomic data. Similarly, the DICOM standard for processing and communicating medical imaging data has widely been adopted. Standards for brain-computer interfaces have also been proposed by IEEE working groups. Though they face more complex regulatory hurdles, gene editing tools such as CRISPR may also evolve into formalized standards and are already being explored for standardization though organizations such as the NIST Genome Editing Program.

As technology and our understanding of personalized, precision medicine evolves, so too will SEPs and the need for FRAND dispute resolution.

Global FRAND Policy Landscape

Given divergent policies in foreign jurisdictions that continue to develop at a rapid pace, SEP contributors and implementers must consider the global FRAND/SEP landscape when operating within the United States and considering global objectives. Recent developments in the European Union and China in global individual and aggregate rate setting, essentiality determinations, optionality determinations, and antisuit injunctions require careful consideration when resolving FRAND disputes in the United States. The risk of differing and adverse determinations, and the time with which they are made, requires an understanding of how different courts and jurisdictions around the world might handle FRAND disputes.

European Union

In February 2024, the European Parliament largely approved a proposed regulation unveiled by the European Commission in April 2023 to revamp the framework for licensing SEPs under FRAND terms in the European Union that could have global impact. The proposal calls for the creation of a “competence centre” at the European Union Intellectual Property Office (EUIPO) tasked with managing all aspects of SEP licensing negotiations. The proposal requires SSOs to promptly report newly developed standards and for a patent holder to register its SEPs and engage in mandatory, nonbinding mediation to determine FRAND rates prior to enforcing its SEPs in European national courts or the Unified Patent Court. The EUIPO would also administer essentiality tests to determine whether patents do indeed cover standardized technologies and require registration of prior essentiality tests conducted by third parties, though essentiality tests will largely be directed by SEP owners.

A mediation led by a “conciliator” would last for nine months and result in the determination of individual FRAND rates, as well as aggregate royalty percentages for all contributors to a particular standard. If the parties do not accept the proposed FRAND determinations, the conciliator would draft public and confidential versions of a report to be published for the parties’ use or other stakeholders. The proposal also indicates that smaller and medium-sized entities should be granted more favorable rates over large entities, standing in stark contrast to the UK High Court of Justice’s opinion finding such conduct to be non-RAND just one month earlier in InterDigital v. Lenovo. It should be noted that the proposed regulation permits exemptions from the proposed procedure for identified use cases for certain standards, but previously developed standards may be included if there are inefficiencies in licensing those SEPs. It also remains to be seen what role the newly formed Unified Patent Court, which had its first FRAND cases filed by Panasonic in July 2023, will play in FRAND disputes if the proposed regulation takes effect, or if injunction-friendly German courts will remain a preferred venue for SEP holders. The draft proposal will next face negotiations and a vote by European Union member states.

As for its effect on United States SEPs, technology, and FRAND disputes, determinations made by the EUIPO may play some role in the way SEPs are litigated. For example, nonbinding published determinations on global aggregate rates for SEPs for a standard may be used as evidence in domestic litigation in the United States. Determinations on essentiality of European family patents will also play a role, though it remains to be seen how patents for optional features of a patent will factor in, or how different claims in U.S. patents might be treated. A nine-month mandatory mediation period may also alter when and where litigation is first brought, or how published determinations by the EUIPO are used abroad when not accepted by the parties.

China

In December 2023, the Chongqing First Intermediate People’s Court released its highly anticipated decision in OPPO v. Nokia, which set global FRAND rates for 4G and 5G mobile phone SEPs for the first time from a Chinese court. The decision included varying rates for three different zones: developed countries, including the United States, are in Zone 1; China is in Zone 2; and all other countries are in Zone 3. For 4G SEPs, the court set a $0.477 per unit royalty for Zones 2 and 3 and a $0.777 per unit royalty for Zone 1. For 5G SEPs, the court set a $0.707 per unit royalty for Zones 2 and 3 and a $1.151 per unit royalty for Zone 1. The court also set a global aggregate rate of 4.341%–5.273% for 5G SEPs in the mobile phone industry and an intergenerational proportional value for 5G, 4G, 3G, and 2G (50%, 40%, 5%, and 5%, respectively) in 5G mobile phone devices.

In recent years, Chinese courts have also issued antisuit injunctions against foreign parallel proceedings in cases such as Xiaomi v. InterDigital and Huawei v. Conversant, which in some cases triggered anti-antisuit injunctions by corresponding foreign courts.

Earlier in June 2023, the State Administration for Market Regulation (SAMR) of China also issued a revised antitrust rule aimed at regulating FRAND licensing of SEPs. Article 19 of the regulation states that failure to “timely and sufficiently” disclose patents to SSOs in accordance with the organization’s regulations (revised to omit “deliberately”) may be considered an anticompetitive practice. Article 19 also prohibits licensing SEPs at an “unfairly high price” and requires an SEP patentee to negotiate in good faith prior to seeking an injunction.

An increased focus on global rate setting, antisuit injunctions, and anticompetitive practices signals a greater role by the Chinese government and courts on the global SEP stage. Whether it will affect determination of FRAND rates on U.S. patents and U.S. products remains to be seen, but these determinations may play a role in domestic litigation in the United States. At a minimum, the OPPO decision illustrates that Chinese litigation will be relevant to the conversations over SEP rates, and certainly that there will be ongoing conversations regarding the appropriate SEP rates to apply to sales of standardized products around the world.

United States

For its part, the United States has largely remained neutral from a policy standpoint, and very few decisions from U.S. courts have resulted in setting FRAND terms—though many look to the long-standing decisions in Microsoft v. Motorola, In re Innovatio, and Ericsson v. D-Link for guidance. U.S. courts also typically issue jury determinations for damages for past infringing conduct, as opposed to court-determined damages, so most damages awards for SEPs in the United States are not based on a legal analysis from a judge.

From a policy standpoint, the U.S. Department of Justice (DOJ) formally stated that it does not support any particular set of SEP policies when it withdrew an earlier 2019 statement from the prior administration and instead announced that it will review conduct by SEP holders and implementers on a case-by-case basis. In fact, the DOJ declined to intervene in a 2023 u-blox v. InterDigital action despite intervening in an earlier 2019 dispute. That case was also dismissed with prejudice, citing to recent Ninth Circuit precedent noting that “anticompetitive harm identified must be to competition itself, not merely competitors.”

The International Trade Administration (ITA), National Institute of Standards and Technology (NIST), and U.S. Patent and Trademark Office (USPTO) also recently announced a joint collaboration to “strengthen U.S. engagement in standards for critical and emerging technologies.” The initiative began with a public listening session for stakeholders at the intersection of standards and intellectual property to respond to a set of 12 questions focused on U.S. firm participation in SSOs and the ability of industries in the United States to adopt standards to grow and compete. The questions specifically addressed the impact of foreign and domestic FRAND policies, what role the U.S. Department of Commerce might play, if any, in helping resolve FRAND licensing disputes, and the effect on small and medium-sized enterprises.

With regard to noteworthy cases, a jury awarded $142 million in an April 2024 damages retrial in a case brought by G+ Communications related to two 5G patents. Before the first trial in January, the district judge interpreted French law to determine that FRAND obligations were irrevocable but can be suspended if a party negotiates in bad faith, and either party who fails to negotiate in good faith may be liable for litigation costs and fees. An action brought by Sisvel in the District of Delaware against HTC also proceeded to trial and resulted in a $9 million jury verdict for willful infringement of cellular patents. Earlier in the case, summary judgment was granted in favor of Sisvel on the defendants’ affirmative defenses that involved FRAND issues because the defendants had not satisfied their burden on essentiality and could not argue that the patents were SEPs. Despite this, the defendants were still permitted to present evidence of FRAND terms as a basis for damages. In another recent case, a jury awarded over $37 million to a patent infringement plaintiff in a case involving Wi-Fi 6 SEPs. Though these cases’ effects on FRAND policy in the United States may be minimal, they serve as a reminder of the role of U.S. juries, who can render significant damages awards in FRAND cases that go to verdict.

Finally, the role of antisuit injunctions against foreign parallel litigation may also play a factor in U.S. litigation. Though the standard for an antisuit injunction varies across circuits, the Ninth Circuit’s Microsoft v. Motorola decision granting an antisuit injunction against SEP litigation in Germany serves as a benchmark. However, a recent denial of an antisuit injunction in Ericsson v. Lenovo underscores the importance of evaluating the facts on a case-by-case basis, and to understanding that U.S. litigants may not be able to avoid foreign courts.

Thus far, U.S. policy tends to leave determination of FRAND rates in the hands of SEP contributors and implementers, and if needed a court or jury, but a shift in policy may be on the horizon given the landscape of SEP/FRAND dispute resolution and policy across the globe. Policies like those in the European Union and China might impose pressure on rate setting that changes the landscape of litigation and negotiation for global licenses. Questions about the role that injunctions might play in future SEP disputes remains a looming issue as well.

©2024. Published in Landslide, Vol. 16, No. 4, June/July 2024, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

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