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Apple and Qualcomm Proceeding

By Nicole Daniel

In January 2017 Apple filed suit against Qualcomm over its allegedly abusive licensing practices regarding wireless patents.

Apple filed patent, antitrust and breach of contract claims against Qualcomm; this could result in damages of billions of dollars. Apple’s suit comes after recent legal challenges against Qualcomm filed by the U.S. Federal Trade Commission in federal court and a class action by smartphone buyers. Furthermore, Korean authorities levied their own $854 million penalty and China’s National Development and Reform Commission extracted a penalty amounting to nearly $1 billion in 2015. Also in 2015 the European Commission sent statements of objections to Qualcomm.

Apple alleges that Qualcomm abused its monopoly in baseband processors that power both the iPad and the iPhone and broke its promise to license its standard essential patents at FRAND, i.e. fair, reasonable and non-discriminatory, rates. Qualcomm breached its FRAND obligations by selling chipsets powering smartphones and tablets and separately licensing standard-essential patents. Apple further alleges that Qualcomm refused to sell chipsets to customers unless they first licensed their standard-essential patents. This allegation is central to the Federal Trade Commission’s case too as well as Apple’s allegation that Qualcomm does not licence its standard-essential patents to competing chipset manufacturers. Tying the chipsets and licenses to cellular technology illegally strengthened Qualcomm’s monopoly and eliminated competition. Another allegation by Apple is that Qualcomm threatened customers who purchased chipsets from competitors with less favorable license and royaltyi terms.

Not only did Qualcomm charge inflated royalties for its patents but it also engaged in allegedly intimidating business practices. For example, Qualcomm allegedly tried to force Apple to lie to the South Korean antitrust enforcer in exchange for $1 billion which Qualcomm was obliged to pay anyway. Apple further states that because it provided evidence in antitrust investigations against Qualcomm in the U.S. and Korea, Qualcomm, as retribution, withheld $1 billion that it owed to Apple. Apple now wants damages for having been overcharged billions of dollars, enjoin Qualcomm from engaging in further violations of the law and declaratory relief holding that Apple does not infringe on a number of patents owned by Qualcomm. Apple also asks the court to determine the proper FRAND rates.

Qualcomm countered by calling Apple’s allegations “baseless” and accusing its opponent of encouraging the regulatory “attacks” on Qualcomm. Also the antitrust claims are driven by commercial disputes and Qualcomm will continue to defend its business model.

Furthermore, Qualcomm learned in January 2017 that an Apple subsidiary filed two complaints against Qualcomm in the Chinese intellectual property court. The first complaint regards inter alia violations of Chinese anti-monopoly law by offering excessive royalty terms on patents and chipsets whereas the second complaint regards a refusal to provide to Apple a royalty offer for cellular standard essential patents consistent with FRAND terms.

In April 2017 Qualcomm filed an answer and counterclaims in California federal court. In its filing Qualcomm detailed the value of the technologies it has invented and alleged that Apple failed to engage in good faith negotiations for licensing 3G and 4G essential patents on FRAND terms. The filing further outlines that Apple allegedly breached and mischaracterized both agreements and negotiations. Apple further encouraged regulatory attacks in various jurisdictions and did not utilize the full performance of Qualcomm’s modern chips in the iPhone 7. Apple allegedly also misrepresented the disparity in performance between iPhones using competitor-supplied modems and Qualcomm modems. Qualcomm was even threatened by Apple to prevent it from making any public comparisons about the superior performance of iPhones powered by Qualcomm.

Also in April 2017 Apple published a written statement stating that it has chosen to withhold patent royalties owed to Qualcomm by its contract manufacturers because over the course of the last five years Qualcomm has refused to negotiate fair terms.

It remains to be seen how the proceedings in this case continue.

Samsung alleges that Huawei used FRAND promises to monopolize smartphone technology

By Nicole Daniel

In an ongoing dispute, Samsung accused Huawei of breaching its patent licensing commitments in order to gain control over the market for commonly used cellular technologies.

In May 2016 Huawei sued Samsung in the U.S. and in China for infringing 11 standard essential patents for smartphones. The technology covered by these patents is allegedly used in almost all of Samsung’s cell phones. Huawei seeks damages in the U.S. proceeding; however merely seeks injunctions in the Chinese proceeding. In this regard, it must be noted that Chinese courts are becoming increasingly involved in patent disputes between big technology companies.

In July 2016 Samsung in turn sued Huawei in China for infringing six of its patents. In August 2016 Samsung responded to the U.S. lawsuit and filed antitrust counterclaims. Samsung accuses Huawei of breaching its promise to license the patents on FRAND terms thereby getting an unlawful monopoly over 3G and 4G wireless device technology. Furthermore, Samsung accused Huawei of patent infringement for 11 smartphone patents that may already be or may become essential to cellular technologies. Samsung also argued that two of Huawei’s patent infringement claims should be dismissed, since the underlying intellectual property are unpatentable math formulas.

Samsung further argued that Huawei merely sued for injunctions in China to gain leverage in licensing negotiations in other areas of the world.

Samsung is seeking damages as well as injunctions to block the injunctions sought by Huawei.

At a court hearing on 13 September 2016 in San Francisco, District Judge William Orrick said that he was not inclined to break up the patent and antitrust dispute between the companies to allow Huawei to seek a court-ordered global FRAND license rate for its patent portfolios prior to litigation over the alleged patent infringement and Samsung’s antitrust counterclaims. However, Judge Orrick allowed Huawei to argue for bifurcation by filing a five-page brief within the next week.

Judge Orrick then set a case schedule for a trial starting in two years on 17 September 2018. He also urged the opponents to settle the dispute sooner than that, noting that their plan to delay mediated settlement talks until deeper into the litigation proceedings was counterproductive. Furthermore, filing numerous lawsuits against each other to resolve their differences “is not the wisest way of dealing with the problem” that the companies have with each other.

Microsoft and Google make up

By Nicole Daniel

On 22 April 2016, Microsoft and Google announced that following their patent settlement, they have decided to end their long-running feud.

Microsoft’s spokesperson said that Microsoft will withdraw its regulatory complaints against Google. This step reflects its changing legal priorities. Google’s spokesperson said that the two companies came to an understanding that they wanted to compete on the merits of their products as opposed to legal proceedings.

In fall 2015, the two companies have since entered into a settlement agreement thereby dropping a number of patent lawsuits in the US and Germany.

Complaints to be dropped by Microsoft include a complaint filed in 2011 at the European Commission and complaints filed in Latin America.

This announcement is a further sign that the so-called worldwide smartphone wars are indeed winding down.

Antitrust Suit against Black & Decker and others revived by Fourth Circuit

By Nicole Daniel

On 15 September 2015 the Fourth Circuit revived an antitrust suit against Black & Decker Corp and others which accuses them of conspiring to boycott SawStop LLC’s table saw safety technology. However, the court upheld the dismissal of claims that the defendants manipulated the standard setting process to exclude SawStop LLC’s new technology.

In February 2014, SawStop launched its suit against Black & Decker Corp and other major toolmakers, claiming that the defendant manufacturers had colluded and thereby violated federal antitrust law.  SawStop claimed that the defendants,  through their industry organization Power Tool Institute Inc., refused to license a new safety technology created by SawStop. When a SawStop new technology blade detects contact between itself and a person the blade almost immediately retracts.

In its suit SawStop also accused the defendant companies of conspiring to change the standards of Underwriters Laboratories Inc., a company responsible for safety certification, to prevent a technology similar to SawStops’ from being installed as industry standard. Allegedly, to limit their product liability claims exposure, the defendant manufacturers planned to [have Underwriter’s Laboratories] implement an inferior safety standard; i.e. they wanted to implement a new standard through Underwriter’s Laboratories

In June 2014 the district court dismissed the entire case. The Fourth Circuit, however, in a split three-judge panel, found that even though SawStop did not have enough evidence to show that the defendant manufacturers’ participation in the process for setting safety standards for table saws went beyond cooperation that was ordinarily involved in such process, it did have enough evidence to go ahead with the alleged group boycott claim.

Judge G. Steven Agee for the majority wrote that the district court essentially committed two errors. The first error was to confuse standards for motion-to-dismiss and summary judgment. The second error was that a standard much closer to probability was applied even though the standard should have been closer to plausibility.

According to majority in the Fourth Circuit decision the district court applied the Supreme Court’s Iqbal and Twombly rulings, which to move ahead with an antitrust proceeding, require from the plaintiff to allege something that goes beyond parallel conduct, too stringent; especially given that the case in question was merely in the early stages.

Even though SawStop did not have enough details to plausibly allege that the defendants conspired to manipulate safety standards, SawStop put forward enough details to go ahead with the group boycott claim.

Therefore the Fourth Circuit revived the group boycott claim.

The Fourth Circuit further remanded the dispute over whether the plaintiff was harmed by the alleged anticompetitive behavior, or whether it was even necessary to show such harm since the alleged plot amounts to a per se antitrust violation. This issue was remanded since it had not been briefed sufficiently before the district court.

Importantly it was emphasized by the Fourth Circuit that its decision is not to be regarded as a “license for unlimited discovery” thereby noting that the district courts had power to restrict discovery.

Samsung Antitrust Complaint against Panasonic dismissed with Leave to Amend

By Nicole Daniel

On 30 September 2015, US District Court Judge Jeffrey White granted a partial dismissal of  Samsung’s third amended antitrust complaint against Panasonic Corporation, its affiliate Panasonic Corporation of North America and SD-3C LLC.

The dismissal concerned the market being described too broadly by Samsung. However, Samsung was given leave to amend its complaint.

In 1999 Panasonic and its partners developed SD cards as a modified format of the then-available flash memory cards. These are used in digital cameras and mobile phones. They also created SD-3C to license these SD cards to manufacturers. A standard license was created in 2003. In 2005 and 2006 two new forms of SD cards (the high capacity SD card and the microSD card) were developed, which were not covered by the 2003 license. Accordingly the SD Group met in the fall of 2006 to adopt an amended and restated license agreement.

Samsung started to manufacture the two new SD flash memory formats in 2006, and even though it refused to sign the 2006 license Samsung made the requested royalty payments to the defendants.

In June 2010 Samsung then filed suit alleging that the defendants conspired in order to monopolize the market for SD flash memory cards. Samsung also alleged that the licenses were anti-competitive agreements in restraint of trade.

The District Court granted two previous motions to dismiss in August 2011 and January 2012, since Samsung’s claims were time-barred. These statute of limitations determinations were reversed and remanded by the Ninth Circuit in April 2014. The panel held that the four-year statute of limitations had not expired at the time Samsung filed its complaint in June 2010 since it was alleged that the new licensing agreement between Panasonic and its coconspirators was adopted in the fall of 2006.

Accordingly Samsung filed a Third Amended Complaint, followed by a motion to dismiss by the defendants in February 2015.

In his opinion Judge White stated that the alleged market, i.e. flash memory cards, was too broad as it did not distinguish between reduced-size and full-size memory flash memory cards. Samsung was given leave to amend its complaint to address the deficiencies described by Judge White. However, Judge White held that Samsung offered plausible allegations that the defendants agreed to refrain from competing and instead opted to create a new technology standard in which the defendants could share control.

Google and Microsoft agree to end Patent Battle

By Nicole Daniel

On 30 September 2015 it was announced that the five-year patent battle between Google and Microsoft has come to a close. The companies decided to end all patent infringement litigation against each other and drop around 20 lawsuits in the United Stated and Germany. No financial terms of the deal were disclosed; instead the companies pledged that they will work together on certain patent matters to strengthen the defense of intellectual property.

Since 2010 Google and Microsoft were clashing over a number of issues involving a variety of technologies including smartphones, WiFi, patents and royalties related to technology in the Xbox game console.

The most famous and bitter feud concerned litigation involving Motorola Mobility, which Google owned from 2012 until January 2014, when was sold to Lenovo Group Ltd, while Google kept many of its patents.. In 2010 Microsoft claimed that Android infringed some of its patents and demanded royalties from smartphone makers (Samsung, Motorola Mobility) for Android licensing agreements.

This is a further sign that the so-called worldwide smartphone wars are winding down. In 2014 Samsung and Apple agreed to drop all litigation against each other outside of the United States.

Court of Justice of the EU clarifies when an action for infringement by SEP owner may amount to an abuse

By Gabriele Accardo

On July 16, 2015, the Court of Justice of the European Union (“CJEU”) handed down its preliminary ruling following a reference by the Landgericht Düsseldorf (“Düsseldorf Regional Court”) in the context of the dispute between Huawei Technologies (“Huawei”) and ZTE Corp. (“ZTE”) on 4G/Long-Term-Evolution (“LTE”) technologies (see Newsletter 6/2014 p. 16 and Newsletter 2/2013, p. 9, for additional background).

 

Facts of the case

The issues at stake in the main case concerned the conditions of the “compulsory license defense” in standard-essential patents (“SEPs”) disputes, or, conversely, on the availability of remedies to the SEPs’ holder who has pledged to license them on Fair, Reasonable and Non-Discriminatory (“FRAND”) terms.

Huawei is the proprietor of, inter alia, a European patent concerning method and apparatus of establishing a synchronization signal in a communication system. The European Telecommunications Standards Institute (“ETSI”), which granted SEP status, as the patent is essential to the LTE standard.

Huawei and ZTE engaged in discussions concerning the alleged infringement of the SEP and the possibility of concluding a licence on FRAND terms in relation to the products that ZTE put on the market and that operate on the basis of the LTE standard, thus using the SEP held by Huawei.

Huawei requested an amount which it considered to be a reasonable royalty, whereas ZTE sought a cross-licensing agreement instead.

Ultimately, no offer relating to a licensing agreement was finalized, whilst ZTE continued to sell its products without paying a royalty to Huawei or rendering an account to Huawei for past use.

Huawei brought an action for infringement against ZTE before the referring court, seeking an injunction prohibiting the infringement, the rendering of accounts, the recall of products and an award of damages.

 

Conflicting precedents

The Düsseldorf Regional Court considered that a preliminary ruling was needed in the circumstances because there are conflicting precedents on the issue at stake, notably the German Supreme Court decision in the Orange-Book-Standard case (see Newsletter 3/2009, p. 4 for more background) and the case brought by the European Commission against Samsung (The case was recently closed with a commitment decision. See Newsletter 2/2014, p. 14 and Newsletter 6/2012, p. 11 for more background).

In the Orange-Book-Standard case, the German Supreme Court held that a defendant in a patent infringement case may successfully raise an antitrust defense against the issue of an injunction provided that (1) it has made an unconditional offer to conclude a licensing agreement under terms that cannot be rejected by the patent holder without abusing its dominant position, and (2) to the extent that the defendant uses the teaching of the patent before the applicant accepts the unconditional offer, it is compliant with the obligations that will be incumbent on it, for use of the patent, under the future licensing agreement, namely to account for acts of use and to pay the sums resulting therefrom.

Thus, in principle, under the Orange Book case law, the Düsseldorf Regional Court considered that it ought to uphold Huawei’s action for a prohibitory injunction insofar as ZTE’s offers to conclude an agreement could not be regarded as “unconditional” (the offer related only to the products giving rise to the infringement, whereas ZTE did not pay Huawei any royalty).

However, the CJEU noted that in the Samsung case the Commission basically held that, in principle, the abusive nature of a refusal to license a SEP may successfully be raised as a defense where the defendant is “willing to negotiate” a license on FRAND terms. In other words, the referring court wondered whether the bringing of an action for a prohibitory injunction may be deemed as unlawful under Art. 102 of the Treaty on the Functioning of the European Union (“TFEU”), where that action relates to an SEP, the proprietor of that SEP has indicated to a standardization body that it is prepared to grant licenses on FRAND terms and the infringer is itself willing to negotiate such a licence, thus being apparently irrelevant that the parties in question cannot agree on the content of certain clauses in the licensing agreement or, in particular, on the amount of the royalty to be paid.

 

Answer by the CJEU

In essence, the CJEU had to clarify whether, and in what circumstances, a SEP holder abuses its dominant position by requesting injunctive relief against an alleged infringer of its SEP.

As a threshold matter, the CJEU considered that the particular circumstances of the SEP case in the main proceedings distinguished that case from all other cases where a company seeks to exercise its right to defend its intellectual property, as set out in previous EU case-law. Unlike that case law, the case at issue relates to the exercise of an exclusive right linked to a SEP established by a standardization body that has granted such SEP status only in return for the proprietor’s irrevocable undertaking that it is prepared to grant licenses on FRAND terms.

Unlike all other patents, patents that have obtained SEP status allow their proprietors to actually control the market, by preventing products manufactured by competitors from appearing or remaining on the market, if an SEP holder should threat them by seeking an injunction.

Yet, the CJEU made it clear that under Article 102 TFEU, the proprietor of the SEP is obliged only to grant a licence on FRAND terms, and that the proprietor’s irrevocable undertaking to grant licences on FRAND terms does not, in principle, negate the substance of the rights guaranteed to that proprietor by Article 17(2) and Article 47 of the Charter of Fundamental Rights of the European Union, including the right of access to a tribunal.

However, according to the CJEU, such “irrevocable undertaking” nonetheless justifies the imposition on that proprietor of an obligation to comply with specific requirements before bringing an action against an alleged infringer for a prohibitory injunction or for the recall of products. Specifically, the SEP owner would not abuse its dominant position, as long as:

  • First, before bringing such an action, the SEP holder alerts the infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed;
  • Second, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, the SEP holder has presented to the alleged infringer a specific, written offer for a license on FRAND terms, specifying, in particular, the amount of the royalty and the way in which that amount is calculated.

In turn, the alleged infringer must respond to that offer in a diligent and serious manner.

Accordingly, if the alleged infringer does not accept the SEP holder’s offer, it must promptly present the latter with a reasonable counter-offer that corresponds to FRAND terms, and has to provide a bank guarantee for the payment of royalties or deposit a provisional sum in respect of its past and future use of the patent, if that counter-offer is rejected. Where no agreement is reached on the details of the FRAND terms following the counter-offer by the alleged infringer, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party, by decision without delay.

Conversely, if the conduct of the infringer is purely tactical and/or dilatory and/or not serious, an application for corrective measures or for an injunction does not constitute an abuse of a dominant position.

The CJEU thus clarified that the alleged infringer may rely—as a defense—on the abusive nature of an action for a prohibitory injunction or for the recall of products, only if it has submitted a counter-offer.

Also, the alleged infringer cannot be held liable if, during negotiations, it reserves the right to challenge the validity and/or essential nature and/or use of that patent.

Finally, the CJEU held that the SEP holder does not abuse a dominant position in taking legal action to secure the rendering of accounts in order to determine what use the infringer has made of the teaching of an SEP with a view to obtaining a FRAND royalty under that patent, and in bringing a claim for damages in respect of past use of the patent, for the sole purpose of obtaining compensation for previous infringements of its patent.