For the most part, this has been a bad week for implementers of standard-essential patents (SEPs) because three U.S. government agencies (DOJ, USPTO, NIST) merely did away with a Trump-era policy but neither agreed on an implementer-friendlier position nor did they reinstate the Obama Administration's SEP policy. But the picture wouldn't be complete without a development over at the United States Appeals Court for the Federal Circuit that could--in a worst-case but far-from-impossible scenario--complicate matters for SEP holders in the only U.S. forum where they have a realistic shot at getting (the equivalent of) an injunction against implementers: the United States International Trade Commission (USITC, or just ITC).
It's already so difficult to obtain SEP injunctions in U.S. federal court that even small U.S. non-practicing entities like Longhorn IP are flocking to the Munich I Regional Court for help. That trend could be reinforced should the ITC no longer be able to impose import bans on willing licensees--unless, of course, the ITC ultimately set the bar for an implementer's willingness to take a FRAND license similarly high as German courts under Sisvel v. Haier I & II.
The ITC can't award damages. Its only remedy is a U.S. import ban on infringing products (which it can reinforce through a cease-and-desist order, to be precise). As I explained at yesterday's Concurrences webinar keynoted by FTC commissioner Christine Wilson and moderated by Paul Lugard of BakerBotts, the ITC does consider public-interest arguments prior to entering an exclusion order, and respondents to ITC complaints can try to raise eBay-like arguments (or even import entire antitrust cases into the public-interest part of an ITC investigation), but the ITC is not bound by the eBay precedent. It operates under its own statutory framework (Sec. 337 Unfair Import Investigations) and is not an Article III court.
Even the Presidential veto in a Samsung-Apple case in 2013, which was based on FRAND considerations, didn't discourage SEP holders from bringing ITC complaints. In my observations, pending ITC investigations have repeatedly made a key contribution to getting SEP disputes settled.
A Presidential veto, however, is only one of two bites at the apple for implementers seeking to have an ITC import ban overturned. The other avenue is an appeal to the Federal Circuit, which could (by granting an emergency motion) stay the enforcement of an ITC exclusion order pending the appellate proceedings. In light of what a Federal Circuit panel--Chief Judge Kimberly Moore and Circuit Judges Timothy Dyk and Raymond Chen--said at a Tuesday hearing in Thales v. Philips, ITC complainants asserting SEPs would be well advised to ensure that their adversaries are deemed unwilling licensees. If ITC SEP complainants are looking for inspiration, I strongly recommend that they study German SEP cases, especially recent Munich case law and statements made by judges and counsel at Munich trials--a treasure trove of ways to argue that an implementer is an unwilling licensee.
It's an ordeal to listen to the recording of the Federal Circuit's Thales v. Philips hearing due to an extremely unpleasant sound effect. I went through it nonetheless. On the aforementioned Concurrences panel, Axinn's Michael Keeley, who is on Thales's legal team in the Philips dispute and therefore wasn't at liberty to discuss that case (which Commissioner Wilson had referenced), recommended it.
In the first part, the circuit judges appeared outright hostile to Axinn's Paul Zeineddin, who argued that a district judge in Delaware was wrong to deny a U.S.-internal antisuit injunction that would bar Philips from enforcing an ITC import ban. A circuit judge even called one of Mr. Zeineddin's arguments "ridiculous." The appeals court placed the emphasis on whether Thales could establish irreparable harm--a requirement for any injunction. The procedural state of affairs is that an Administrative Law Judge (ALJ) did not find a violation (i.e., an infringement of a valid Philips patent), but he did say that in the event his ruling should be overturned by the ITC's final decision-making body, an import ban should issue. The ITC postponed the deadline for deciding whether to review that decision until next week. Should it not review the final initial determination, or agree with it at the end of a review, it would really become final, though it could be appealed to the Federal Circuit. So the question is whether Thales is really suffering irreparable harm just because of the effects that the shadow of a potential import ban may have on existing or prospective customer relationships.
It's definitely possible that the Federal Circuit will duck the tricky and sensitive question of whether U.S. district courts should enjoin litigants under certain circumstances from pursuing an ITC import ban over SEPs. The circuit judges didn't appear convinced that Thales had provided enough evidence of the actual business implications of the threat of an import ban. Frankly, I think there is no irreparable harm: Thales has five licensing offers from Philips on the table, and Thales's customers have no reason to assume that Philips would actually want to bar Thales from selling its products. Philips just wants to get paid--though it has repeatedly been criticized to make supra-FRAND demands and even been held out of compliance with its FRAND licensing obligations by the Mannheim Regional Court (in two different disputes a few years ago).
Another potential weakness in Thales's case is that it allegedly limited its "willing licensee" argument before the Federal Circuit to the fact that it wants the Delaware district court to set a FRAND rate and to take a license on whatever the court-determined dterms may be.
Thales v. Philips is, however, one of those cases in which the Federal Circuit appeared hostile to an appellant (in fact, a judge even considered one of Mr. Zeineddin's arguments ridiculous) only to put similar or even greater pressure on the appellee. Foley & Lardner's Eley Thompson got a rough ride, too. The Federal Circuit may or may not conclude that Thales has established irreparable harm, but that would be highly case-specific and a different litigant could take that hurdle, such as by means of customer testimony. But the very fundamental question raised by the Federal Circuit is whether it was appropriate for Philips to seek an exclusion order, given that the Delaware proceedings will result in a license agreement on FRAND terms.
It became clear during the hearing that the Federal Circuit struggles with the notion of the ITC--if it were to ultimately find a violation and to adopt the ALJ's recommendation on remedy--potentially enjoining Thales despite the ALJ having conceded that Thales is a willing licensee. Philips argues that it's not enough for Thales to be a willing licensee: Philips has made five offers, and if at least one of them is FRAND, Thales should take it. Still, the Federal Circuit panel appeared to be concerned that an import ban would be inappropriate against a willing licensee--though the circuit judges at the same time look at the willingness question holistically and may not be sold that someone who (and this was just a hypothetical scenario they outlined) shows no willingness to take a license for five years and then, after being sued, runs to a district court and asks for a rate-setting decision.
Whatever the outcome of that particular appeal may be (the dispute could even be settled before the appellate opinion comes down), the ITC and its ALJs will likely read the writing on the wall, so ITC complainants asserting SEPs should develop a robust "unwilling licensee" argument.
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