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A CRITIQUE OF THE DECISION IN UNWIRED PLANET V. HUAWEI (UK HIGH COURT - 2017)

On April 5, 2017, the UK High Court of Justice (Patents), Mr. Justice Colin Birss issued a detailed opinion [Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017] in a matter involving SEPs and FRAND.  The Unwired Planet v. Huawei (hereafter "Unwired") decision is extremely contentious and this posts covers only the issues that I believe need further consideration.

Disclaimer: I advise several clients in matters involving SEPs and FRAND.  These are my views only. Long post follows.

Background:  Unwired Planet (Unwired) have a worldwide patent portfolio which they bought from Telefonaktiebolaget LM Ericsson.  The portfolio includes patents which are declared essential to various telecommunications standards (2G / GSM, 3G  / UMTS or WCDMA, and 4G  / LTE).

Unwired’s business is licensing those patents to companies who make and sell telecommunications equipment such as mobile phones and infrastructure.  Shortly after the purchase from Ericsson LM, in March 2014, Unwired sued Huawei, Samsung and Google for infringement of six UK patents from their portfolio. Notably, this came quickly after the settlement of the litigation between Ericsson LM and Samsung.  It is not clear whether Unwired’s portfolio included some / any of the patents that were involved in the litigation with Samsung.

Unwired, claimed that five of its patents were SEPs.  And accordingly, Unwired contended their patents were infringed. The judge conducted separate trials on technical and non-technical / competition law and other issues.  The patents are: Trial A - patent EP (UK) 2 229 744 ;  Trial B - Divisionals EP (UK) 2 119 287 and EP (UK) 2 485 514;  Trial C - EP (UK) 1 230 818;  Trial D - EP (UK) 1 105 991; and  Trial E - EP (UK) 0 989 712 (this was a non-SEP).  Soon after trial started (April 2014), Unwired made an open offer to the Defendants to license its entire global portfolio (SEPs and non-SEPs).  As expected, the Defendants denied infringement / essentiality and contended the patents were invalid, and counterclaimed for revocation.

The Defendants stated that no licence was needed and contended that Unwired’s offer was not FRAND.  Huawei and Samsung raised additional defences and counterclaims based on breaches of competition law.  This involved both arguments about Art 101 of the Treaty on the Functioning of the European Union (TFEU) relating to the Master Sale Agreement (MSA) whereby Unwired acquired patents from Ericsson, and arguments about Art 102 TFEU concerning abuse of dominant position.

The allegation that the offer was not FRAND was pleaded as a breach of competition law.  These allegations were the subject of counterclaims against other companies in what was then the Unwired Planet group (the ninth and tenth defendants) as well as against Ericsson, who were joined as the eleventh party to the proceedings.

After the April 2014 offer, Unwired made another offer in July 2014.  That offer related only to Unwired’s SEPs.   The Defendants also stated this offer to be not FRAND.

Rates offered by Unwired in July 2014:

Rates | Percentage applied on Average selling price or revenue for infrastructure
4G / LTE patents | 0.2%
All other standards    including GSM / WCDMA / UMTS etc. | 0.1%
Offer capped at a $ or £ figure, if the royalty expressed as a share of ASP would be a higher sum.
The judge notes (in Para 6) that “the terms 2G, 3G and 4G are used to refer to different standards and sometimes GSM, UMTS (or WCDMA) and LTE respectively.  They are not the same but the distinction rarely matters.”

However, I disagree – the distinction is important as SEPs may be relevant to 2G and not to 3G or may be important for 2G / 3G / 4G.  It is hard to specify the value of each SEP to a standard but not impossible.  In Microsoft v. Motorola, or In Re: Innovatio, J. Robart and J. Holderman respectively, did exactly that - determine the value of the patents vis-a-vis the standards.

In para 7, the judge notes that in June 2015, Unwired made separate offers in terms of a global portfolio and a (higher) per patent rate for UK.  Huawei counter offered – its proposal was for a per-patent licence limited to the UK SEPs in suit.  The rates for all SEPs together were 0.034% for LTE, 0.015% for UMTS and zero for GSM.

Before trial started, Google settled as regards the SEPs.

By April 2016 three technical trials had been completed and the parties agreed to postpone any further technical trials indefinitely.  By that stage, Unwired had won two and lost one of the technical trials.  Two of Unwired Planet’s patents had been found to contain claims which were valid and were essential to the relevant standards while the other two patents were held invalid.

In 2016, Samsung settled with Unwired and Ericsson.  As a result of the settlement, proceedings against Samsung ended and, with the court’s leave, Samsung’s competition law counterclaim was discontinued.  Similarly, Huawei, discontinued significant parts of its counterclaim, including all their counterclaims against Ericsson and Unwired.

Because of the settlement by Huawei and Samsung, certain terms that Huawei and Samsung contended to be anti-competitive, were removed from the MSA.  One of these was a term that had a floor (lowest possible rate that could be offered) on the royalty rate which Unwired could offer.

On August 1, 2016 both sides made new offers:

Global Rates offered by Unwired in August 2016:

Rates | Percentage applied on Average selling price or revenue for infrastructure
4G / LTE patents | 0.13%
All other standards    including GSM / WCDMA / UMTS etc. | 0.065%
 

UK Only Rates offered by Unwired in August 2016:

Rates | Percentage applied on Average selling price or revenue for infrastructure
4G / LTE patents | Infrastructure: 0.42% | Mobile devices: 0.55%
All other standards    including GSM / WCDMA / UMTS etc. | Infrastructure 0.21%  | Mobile devices 0.28%.
 
Huawei rates offered in August 2016:  On a per-patent basis

Rates | Percentage applied on Average selling price or revenue for infrastructure
For 4G / LTE patents | Infrastructure:0.036% |Mobile devices: 0.040%
For UMTS patents | Infrastructure:0.015% |Mobile devices: 0.015%
For GSM patents | Infrastructure: 0 |Mobile devices: 0
 
However, in October 2016 Huawei made a new licensing proposal:  They amended their per-patent licensing offer to a license under the whole of Unwired’s UK SEP portfolio.  The UK portfolio rates were:

Huawei’s October 2016 offer: on whole of Unwired’s UK patent portfolio

Rates | Percentage applied on Average selling price or revenue for infrastructure
For 4G / LTE patents | Infrastructure:0.061% |Mobile devices: 0.059%
For UMTS patents | Infrastructure:0.046% |Mobile devices: 0.046%
For GSM single mode patents | Infrastructure: 0.045%|Mobile devices: 0.045%
 
The judge termed the August 2016 Unwired proposals and October 2016 Huawei proposals as “hard-edged non-discrimination proposals”.

Despite the efforts put by the judge to identify all areas at dispute in the settlement agreement, Huawei discussed only terms of a UK  portfolio license with Unwired and not terms of a global license.

Issues

  1. Huawei wanted a UK SEP portfolio license, but Unwired wanted a global portfolio license. This was a fundamental point of disagreement between the parties.
  2. Unwired wanted the court to declare Huawei as an unwilling licensee as they had won two of the technical trials on validity and essentiality, and Huawei had rejected both their offers. Also, Unwired preferred a global license as global licensees are FRAND with Unwired willing to abide by the courts decision on rates.  Hence court should grant an injunction.  Unwired further contented that if the court determined that Unwired is not entitled to a global license, then Unwired have offered a UK portfolio licence and will accept such a licence at a rate and on terms set by the court.
  3. Huawei, contended that Unwired’s 2014 offers were not FRAND., and that Unwired’s   commencement of this action was an abuse of their dominant position and contrary to the CJEU’s judgment in Huawei v ZTE (Case C-170/13).  Huawei, submitted that they had a complete defence to any claim for an injunction.  Per Huawei, a global licence would not be FRAND, and only a UK portfolio licence would be FRAND.  Huawei also agreed to accept any rate for the UK portfolio that the court would determine.
Decision

I focus on the aspect of global portfolio licensing, valuations of patents, and am extracting the only those conclusions from the decision that have a bearing on these issues.

(a) What licence scope is FRAND – UK or worldwide?

572.           I conclude that a worldwide licence would not be contrary to competition law.  Willing and reasonable parties would agree on a worldwide licence.   It is the FRAND licence for a portfolio like Unwired Planet’s and an implementer like Huawei.  Therefore, Unwired Planet are entitled to insist on it.  It follows that an insistence by Huawei on a licence with a UK only scope is not FRAND.

(c) Bundling / tying in SEPs and non-SEPS

  1. I have dealt with the law on bundling in the section above on the scope of the licence.  The outstanding issue relates to Unwired Planet’s 2014 offer which was for a licence under its whole portfolio, SEPs and non-SEPs.  Huawei say that to bundle the SEPs with non-SEPs was unlawful bundling or tying.  Huawei say the bundling of SEPs and non-SEPs poses two threats.  One is that one cannot tell in such a licence whether the SEP owner is complying with a FRAND commitment.  The other is that the practice can eliminate competition on the merits between non-SEP technologies.  I accept the second point, which is much stronger than the first.  I do not need to decide if the first point on its own is enough.  Licences can be drafted that way (cf Lenovo) but they do not have to be.
  2. In this context Unwired Planet also made the same points about a lack of detailed economic evidence as were made for multi-jurisdictional bundling but as before, that submission does not go far enough to mean that the issue does not need to be addressed.  In the context of SEPs and non-SEPs it does not need detailed economic analysis to infer that Huawei’s second point is a likely consequence of that bundling.
  3. Having heard the evidence in this case I am in no doubt that a patentee subject to a FRAND undertaking cannot insist on a licence which bundles SEPs and non-SEPs together.  But it does not follow from this that it is contrary to competition law to make a first offer which puts SEPs and non-SEPs together.  There is clear evidence that in some cases the parties agree to a licence which includes both SEPs and non-SEPs together.  The mere fact a licence includes both does not take it out of FRAND nor does it indicate that a patentee has used the market power given by the SEPs to secure a licence under the non-SEPs.  Everything will depend on the circumstances.
  4. Unwired Planet’s main submission is that in making the 2014 offer they made it clear that they were willing to discuss alternatives such as separating SEPs from non-SEPs.  The 2014 document is a series of what look like Powerpoint slides.  Page 2 has the rates on it and as footnote 1 states:
“This is an indivisible worldwide arrangement.  The royalty rates sought reflect a blend of the strength, technical diversity and size of the portfolio across the world.  It is not an offer for individual country or technology licenses.  However, Unwired Planet is willing to discuss any such arrangement upon request.”

  1. A discussion focussed on SEPs as opposed to non-SEPs is exactly the kind of thing a reasonable recipient of this offer would understand the offeror was willing to contemplate as a result of this text.  I reject Huawei’s case that Unwired Planet behaved in a manner contrary to Art 102 by making the April 2014 offer on the basis of SEPs and non-SEPs together. 

  2. Huawei immediately asked Unwired Planet to separate out the SEPs from the non-SEPs and Unwired Planet did so by July 2015. Those are not the actions of a party trying to use its market power given by patents essential to a standard to tie in a further licence under its non-SEP portfolio.  If Unwired Planet had insisted on putting the two together after that then the conclusion might well have been different.

  3. I reject the SEP/non-SEP bundling argument.

The judgment does not discuss the SSPPU approach on a principle level, which therefore remains an open question.

Digress:  Last year, the DIPP had issued a call for response to its questionnaire on SEPs and FRAND and had asked several important questions relating to SEPs, FRAND, jurisidiction of courts, competition authorities, etc.  Although the DIPP has not made public the responses even after an year, I am providing my own submissions made to the DIPP in my individual capacity.  [Download my submissions from here].  In these submissions, I had highlighted the various problems that occur in the domain.  Most of the issues highlighted here in the critique are covered in detail in my submissions to the DIPP.

Analysis of the judgment 

Portfolio based licensing is not compatible with a FRAND approach: I believe that the Unwired decision is flawed as it ignores the fundamental issue about portfolio licensing.  It is misplaced because it legitimizes portfolio based licensing.  In my view, this is a no-no.  A patent is a jurisdictional right, and differently judged.  For example, the US does not have Sections 3(k), 3(m), etc. but India has these sections.  Both US and India do not have the same set of claims at the time of the grant for the same application / claims.  It is possible that the US claim may be essential and not India or vice versa.

Taking a portfolio based approach to licensing, equates apples to oranges and the result is severely distorted.  A patent portfolio also includes patent applications and as such it is not even clear whether the patent will be issued or not.  This also distorts the result.  Finally, the patent owner for business reasons, or cost constraints may exclude a jurisdiction altogether for patent filing.

It does not stand to reason that the patent owner be rewarded in the jurisdiction where it does not have patents.  Another interesting question here is : On what basis can an entity sue another in a jurisdiction where it has limited set of patents.  The answer is a patent portfolio and a clear example is the Ericsson matters at the Delhi High Court.

Another issue is the value of the portfolio may be in patents that are older.  What happens to the value of the portfolio when the older patents expire?  Why should a patent owner get the same royalty for expired patents?  How is the value of the portfolio constant when uneven variables at both ends are at play.  See my post here on these issues.

The judgement legitimizes extracting royalty for patents have expired.  GSM patents have expired and as such no royalty is payable for them.  Taking a portfolio approach, legitimizes this illegal gain to the patent owner.

The judgement cites that Huawei is a sophisticated organization and well versed in technology and patenting. This is no reason to reject their claim re bundling.

A SEP Owner Is Not Entitled to A Higher Legal Pedestal:  The Unwired decision does exactly that - it gives the patent owner a higher legal pedestal than it is entitled to.  For example, the traditional burden of proof of validity and infringement is shifted to the defendant as being one of invalidity and non-infringement.  In Unwired, even though the judge decides that certain patents are not applicable, even then it holds that a portfolio wide rate is applicable.  Shouldn't the portfolio value be reduced appropriately - i.e. in Unwired two patents were found to be invalid / not infringed - not essential. Shouldn't this reflect on the value of the portfolio?

The five litigated patents are linked and readers can see their respective claims: I find it incredulous that despite having two of them knocked out, the judge still accepted the patent owner's assertions.  Further, the claims are system claims (distributed infringement scenario), i.e. are performed at the backend / base - station.  It is apparent that the role a handset / mobile device plays in each is different, and most of the actions are taken at the system end.  Hence, to club patents together as a portfolio does not make sense.

A Blind eye is turned towards privateering:  In this case, it was clear that Ericsson had sold part of its portfolio to Unwired.  Unwired surprisingly holds a simple formulaic approach at one end only: if one has a portfolio of 100 patents for which rate is x, and sells 25, then acquirer can claim only 25%x.   The equation is left unbalanced - how about reduction of the rates for the remaining 75% - they still remain x.

FRAND royalties.  It is extremely interesting to note that the judge holds that initial offers made by Unwired were not FRAND: “None of Unwired Planet’s offers (April 2014, June 2014, June 2015 or August 2016) were FRAND”.   Contrast this with comments that damages for past infringements “would be at the same rate as the appropriate FRAND rate.” 

Methodology of determining FRAND royalties“A FRAND rate can be determined by using comparable licences if they are available.”

  • Incorrect focus on Ericsson & Unwired Planet's license:  The judge focuses on Ericsson’s and Unwired Planet’s license agreements as comparators. This is not a true arms length license - Ericsson stood to gain from the licenses that Unwired Planet entered into even after it had sold part of its portfolio.  This severley limits the scope of comparable licenses.  Ericsson's licenses are known to be at the other end of the spectrum and limiting comparable licenses limits the scope to the far end.
  • It is incorrectly assumed that all SEPs are valuable, although the judgment leaves open the possibility to prove that some “keystone” patents are more valuable than others.  As discussed earlier, the nature of claim scope determines the key patents.   Hence to assign all SEPs as equal over simplifies the approach to the advantage of the patent owner.
  • It is not necessary to find all patents valid and infringed before setting a rate, although it is wise to allow adjustment of the royalty if a relatively substantial number of SEPs is found invalid or not infringed.  This ignores several studies cited that the more than 80% of patents claimed as essential end up either being invalid, not essential or both. At least some attempt should have been made to know the value of the patent to standard and other patents.  For example, there is variation in value of the five patents asserted in Unwired.   In this case, two patents were found to be invalid and not infringed.  Despite this - the judge plods on to hold portfolio based licensing as being FRAND.
The decision is very similar to the one issued in the Intex (Civil Suit) matter by the Delhi High Court.  However, that decision has since been stayed by a division bench of the Court.  Only time will tell what happens to the appeals filed by Huawei in UK.  In any case, the UK decision and its appeals are bound to be cited before the Delhi High Court in various courts.

QUALCOMM UNDER FIRE: KOREA FTC, US FTC, CLASS ACTION SUITS, AND APPLE


This (long) post is about Qualcomm.  Qualcomm has a business model that is based on IP, whether it is IP creation (SEP or manufacturing related) or IP licensing.  It has been the historical practice in the technology industry that licensing was, and per Qualcomm and related parties, still is, done on end value of device.

Qualcomm, Ericsson, and Nokia are three top players in the SEP licensing domain and unsurprisingly hold similar views as their business model is SEP licensing.  For example, all three gave similar statements to the effect that they will not contribute to the IPR, under the new IEEE policy post February 2015, when smallest component value was inserted into the IEEE rules.

This issue of where to license in the value chain, as our readers know is a hot button.  In India, Ericsson is conducting multiple litigations on this very issue.  Additionally, Qualcomm and Ericsson have a licensing / revenue sharing arrangement in place where Qualcomm gets money from manufacturers in China for IPR and Qualcomm pays Ericsson (and several others) as per their share. See my post on this arrangement here.  In short, Qualcomm is deeply involved in the Indian market.   It sponsors several events in India and even some competition law programs at some law schools.

Recent events in the past weeks are set to unravel Qualcomm’s (and related parties) positioning in the industry.  First the Korean anti-trust authority issued a huge fine against Qualcomm, then the US FTC filed an action against Qualcomm, quickly followed by a class action law suit on grounds similar to the US FTC action.  This was followed by a complaint by Apple against Qualcomm.  All are covered in reverse chronological order of occurrence in this post.

Qualcomm has consistently maintained that “intellectual-property-rights policies of the cellular standards organizations do not require licensing at the component level.” To this end, it has engaged in several opinion building efforts across the globe at various institutions.  In India, it has sponsored programs in intellectual property and competition law at the National Law University, Delhi and the Jindal Global Law School.

Given these matters, it is highly unlikely that these public opinion building efforts will yield the desired fruit. Rather, the Competition Commission of India and even Europe and Taiwan may take suo moto notice of complaints against Qualcomm.  This is because of the explicit provisions under respective competition acts – acts that arise outside the jurisdiction but have an appreciable adverse impact on the relevant market in the jurisdiction.

To summarize the post, several actions by the anti-trust authorities indicate that Qualcomm has charged royalty on end product values, which includes duties, taxes, etc. – i.e. things that have no relationship with the invention.  It has continued to charge for patents that have expired, etc.  For example, the CDMA technology is of 1995 vintage.  All patents related to CDMA have expired in 2015. However, Qualcomm continues to charge for them.

I must mention here that the similar position is in GSM area- GSM V2.0 standards came out in 1995 – i.e. all patents relevant to GSM expired in 2015, the technology having passed on to the public domain.  Patents for GPRS and EDGE (GPRS is an improvement to GSM, and EDGE is an improvement to GPRS) expire in 2017 and 2018 respectively.  But Ericsson and others continue to demand royalty for GSM patents. In all the matters in Delhi High Court related to Ericsson, royalty has been charged and paid / deposited in court, for GSM.

Part I: Apple complaint against Qualcomm

On 19th January, Apple sued Qualcomm in federal district in Southern California, claiming that Qualcomm uses its dominant position to collect “tributes” on every iPhone improvement and that it withheld nearly $1 Billion owed to Apple because it cooperated with antitrust investigators in South Korea.

Apple fired the salvo quickly after the FTC filed its own action claiming Apple has been overcharged by billions due to Qualcomm’s refusal to follow its commitments of licensing SEPs on FRAND terms.

Apple states “For years, Qualcomm has abused its business relationship with Apple and blocked competitors from selling chipsets.” …..“Qualcomm’s recent effort to cover its tracks – by punishing Apple for providing truthful testimony at the request of government regulators – underscores the lengths to which Qualcomm will go to protect its extortion scheme.”

Apple has 35 claims against Qualcomm, including breach of contract, bad faith, patent non-infringement, recovery of patent royalties, monopolization and unfair business.  Apple seeks damages for missed payments and an injunction compelling Qualcomm to license its patents on fair terms and to stop engaging in anticompetitive conduct.

Apple complaint can be downloaded from here.

Qualcomm issued its views (click here), and states “While we are still in the process of reviewing the complaint in detail, it is quite clear that Apple’s claims are baseless. Apple has intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program. Apple has been actively encouraging regulatory attacks on Qualcomm’s business in various jurisdictions around the world, as reflected in the recent KFTC decision and FTC complaint, by misrepresenting facts and withholding information. We welcome the opportunity to have these meritless claims heard in court where we will be entitled to full discovery of Apple’s practices and a robust examination of the merits…”

Part II: United States Fair Trade Commission complaint

The US Federal Trade Commission (US FTC) on 17th January, 2017 filed a complaint (download here) in a federal district court in California charging Qualcomm with abusing it position to maintain its monopoly in the supply of chipsets used used in cell phones.  The FTC complaint alleges that Qualcomm: ”

  • Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.
The FTC states that it was seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.

Interestingly,the US FTC voted 2-1 to file the complaint.  Republican Commissioner Maureen Ohlhausen dissented and issued a statement.  She is likely to become the next head of the FTC after the current chairman ( Democrat Edith Ramirez) departs in February, 2017.  Unsurprisingly, Qualcomm in its statement uses the dissent as its defense.  See statement here.

The coming FTC administration may or may not be swayed to change course.  But for reasons given below including parts III and IV of this post, even if FTC filing is withdrawn, Qualcomm will continue to fight the same issues elsewhere.

In the FTC complaint, paragraph 77, it is stated:

  • a. Qualcomm’s royalties are disproportionately high relative to the value contributed by its patented inventions, and often are several times higher than the royalties of other SEP licensors that have made similar technical contributions;
  • b. Qualcomm has continued to calculate royalties as a percentage of a handset’s price, even though handsets today offer a number of features—including cameras, high-resolution touch-screen displays, powerful applications and graphics processors—other than cellular connectivity;
  • c. Qualcomm’s standard royalty rate has not fallen, even though many of Qualcomm’s patents related to CDMA technology have expired; and
  • d. Qualcomm has required OEMs to grant Qualcomm cross-licenses (in some cases, to both SEPs and non-SEPs), often with pass-through rights to other OEMs.
These issues exist independent of the FTC complaint (see parts III and IV below) – in my view the new FTC administration, even if taking the most conservative view, would work on principles of harm to competition / fair competition rules.  Conservative principles and harm to competition principles can co-exist.

Part III: Consumer Class Action:

On 18th January, a consumer class action law suit was filed in California on the grounds that consumers had to pay extra / inflated prices for cellphones as Qualcomm’s licensing practices increased costs for phone manufacturers.  As is typical of US legal system, more such complaints are likely, whether or not they succeed.  The case is Jordie Bornstein et al v. Qualcomm Incorporated, case number 5:17-cv-00234, filed in the U.S. District Court for the District of Northern California.  Both the FTC’s case and these class action cases, raise the same issue.  I will upload the complaint on the site when the complaint is available.

Part IV: Korean FTC Fine and Guideline

In the last week of 2016, the Korean Fair Trade Commission (“Korean FTC”) fined Qualcomm, about $850 Million for antitrust violations regarding Qualcomm’s failure to license its Standard Essential Patents (“SEP”) on Fair, Reasonable and Non-Discriminatory (“FRAND”) terms.  This is the largest fine ever to be imposed by the Korean FTC.

The decision makes it clear that the Korean FTC views SEPs / FRAND commitments made outside Korea (but having an impact in Korea) under its jurisdiction.  Apart from the fine, the Korean FTC issued a remedial action report.  Qualcomm must enter into negotiations with interested chipset makers; there is a prohibition against linking chipset sales with patent license contracts; if requested by mobile phone companies, to renegotiate some previously signed licensing contracts.

It is clear that the decision is based on Qualcomm’s global business model, rather than limited to Korea.  I had in a previous post highlighted the problem with portfolio licensing as having an extraterritorial reach, on this blog, here.

The Korean FTC’s decision is very different from the one issued in 2014 by the Chinese Antitrust Authority.  The Chinaese National Development and Reform Commission had imposed a fine of ~ $ 975 Million on Qualcomm for alleged violation of the country’s Anti-Monopoly Law but was limited to the impact on Chinese companies and Chinese consumers.  In China, Qualcomm had agreed to a lower royalty base for sales limited to China.

An (unofficial) English translation of the decision can be downloaded from here.

The ramifications of the decision of the Korean FTC alone could be huge for Qualcomm as other competition agencies, including our CCI and the Taiwanese AntiTrust authority may also take similar views as the Korean FTC.

Qualcomm has publicly states that it plans to fight any attempt by the KFTC “….[T]o regulate intellectual property rights granted by other countries, or activities outside of Korea.”  Per Qualcomm the Korean action is in direct conflict with international law priniciples.  See Qualcomm press release here.

In my view, such an attempt will backfire – the test is not whether the activities arose outside Korea: it is whether the test has “appreciable adverse effects on competition” in Korea.  A similar clause is Section 32, The Competition Act, 2002.

There is the story of a “lie” becoming the truth if the lie is spoken a 100 times.  If interested parties speak in collective voice that any discussion on the base makes a party an unwilling licensee, then it is the case that willingness cannot be unilateral – it takes two parties to disagree. The licensor must be willing to discuss terms that are fair and not impose unilateral terms.  Sadly, in India, the reverse is true and courts have so far looked at licensees as being unwilling.  Most of the issues that have been raised in the SEP wars have been temporarily adjudicated against the licensees.

To conclude, another is the story of the truth just wearing its boots, and the lie reaching half way around the world. The actions by the Korean and US anti-trust authorities may have been delayed. But better late than never!!

Disclaimer: I. as a lawyer, advise several clients in the technology domain and particularly in SEP licensing and FRAND issues.

SAMSUNG GETS A FAVOURABLE RULING V. APPLE FROM THE US SUPREME COURT


In a crisp 10 page unanimous opinion, the US Supreme Court overruled the (unanimous) Federal Circuit decision.   The US Supremes held that an “article of manufacture” need not be the end product as was claimed by Apple and agreed with Samsung that the article could be an intermediate product or a component !!!

“The Federal Circuit’s narrower reading of ‘article of manufacture’ cannot be squared with the text of §289. The Federal Circuit found that components of the infringing smartphones could not be the relevant article of manufacture because consumers could not purchase those components separately from the smartphones. […] But, for the reasons given above, the term ‘article of manufacture’ is broad enough to embrace both a product sold to a consumer and a component of that product, whether sold separately or not. Thus, reading ‘article of manufacture’ in §289 to cover only an end product sold to a consumer gives too narrow a meaning to the phrase.” (Emphasis added – see below for analysis).

The decision in many ways is instructive: writing style, size, discussion of the issues are all covered.  Take note that the 10 page length is when there are 2″ margins on both sides.  I am counting only the pages of the decision and not the 2 page summary.  How I wish our courts embrace such practices.  But that is matter for a different post.

Image: For illustration of components only and does not pertain to either Apple or Samsung.

Justice Sotomayor delivered the opinion of the nine and first analysed §289: “Whoever during the term of a patent for a design, without license of the owner, (1) applies the patented design, or any colorable imitation thereof, to any article of manufacture for the purpose of sale, or (2) sells or exposes for sale any article of manufacture to which such design or colorable imitation has been applied shall be liable to the owner to the extent of his total profit, but not less than $250 . . . .” 35 U. S. C. §289.

“Arriving at a damages award under §289 thus involves two steps. First, identify the “article of manufacture” to which the infringed design has been applied. Second, calculate the infringer’s total profit made on that article of manufacture. This case requires us to address a threshold matter: the scope of the term “article of manufacture.” The only question we resolve today is whether, in the case of a multi-component product, the relevant “article of manufacture” must always be the end product sold to the consumer or whether it can also be a component of that product. Under the former interpretation, a patent holder will always be entitled to the infringer’s total profit from the end product.”

“The term “article of manufacture” is broad enough to encompass both a product sold to a consumer as well as a component of that product. A component of a product, no less than the product itself, is a thing made by hand or machine. That a component may be integrated into a larger product, in other words, does not put it outside the category of articles of manufacture.” ….”While the design must be embodied in some articles, the statute is not limited to designs for complete articles, or ‘discrete’ articles, and certainly not to articles separately sold . .”).

“This reading is also consistent with 35 U. S. C. §101, which makes “any new and useful . . . manufacture . . . or any new and useful improvement thereof ” eligible for utility patent protection. Cf. 8 D. Chisum, Patents §23.03[2], pp. 23–12 to 23–13 (2014) (noting that “article  of manufacture” in §171 includes “what would be considered a ‘manufacture’ within the meaning of Section 101”).  “[T]his Court has read the term ‘manufacture’ in §101 . . . to mean ‘the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery.’ ” Diamond v. Chakrabarty, 447 U. S. 303, 308 (1980) (quoting American Fruit Growers, Inc. v. Brogdex Co. , 283 U. S. 1, 11 (1931)). The broad term includes “the parts of a machine considered separately from the machine itself.” W. Robinson, The Law of Patents for Useful Inventions §183, p. 270 (1890).
Ramifications on SEPs and the SSPPU principle:  This decision goes a long way in supporting the smallest saleble patent practicing unit proposition put forth by several US district court judges (In Re: Innovatio; Microsoft v. Motorola, D-Link v Ericsson, etc.) and even the Federal Circuit (D-Link v. Ericsson, Virnet X, etc.)  Supporters of the Entire Market Value Rule may argue that the decision is limited to Designs and not general Patent law.  However, the answer here is the reference of the court to Diamond v. Chakrabarty and to 35 U. S. C. §101.  This reading refers to the term “manufacture” which includes components of an end product.

The term “article of manufacture” is broad enough to encompass both a product sold to a consumer as well as a component of that product. A component of a product, no less than the product itself, is a thing made by hand or machine. That a component may be integrated into a larger product, in other words, does not put it outside the category of articles of manufacture.”
This reading is also consistent with the scope of grant of a patent globally.  If one looks at the patent laws, without exception, they are for claims and claims themselves are based on the specification / disclosure made.  If the claim is to an encoder / decoder, then the royalty is limited to the encoder / decoder – and it does not matter if the encoder / decoder is used in a mobile phone / smart phone / feature phone / satellite phone or even a ship / satellite / aircraft.

One can only wish that our courts look to global decisions like these to interpret Indian patent law.  If they continue the way they do – granting ex-parte injunctions, damages as demanded by patent owner, etc. then they deal a body blow to the Make in India program.  The manner in which several cases are going on right now, I can foretell that the Delhi High Court will become a litigation hub and the preferred forum for resolving patent disputes in favour of patentees and against the detriment of consumers, and manufacturers.