This is a follow-up to what I wrote four weeks ago, Federal Circuit calls into question whether ITC should impose import bans on willing licensees' products infringing standard-essential patents: Thales v. Philips appellate hearing. There is a certain overlap--not in terms of parties or patents, but legal questions--with an Ericsson v. Apple standard-essential patent (SEP) case before the ITC, where Apple just failed to obtain permission to amend its FRAND defenses and a U.S. trade judge found Apple's conduct puzzling.
On Wednesday, the Commission--in this case meaning the five-member decision-making body at the top of the United States International Trade Commission (USITC, or just ITC)--gave notice of a final determination that terminates the Sec. 337 Unfair Imports Investigation of a Philips complaint against French industrial giant Thales and other defendants (Telit, Quectel, Xirgo, Laird Connectivity). Bottom line: no import ban (unless Philips successfully appeals the decision to the United States Court of Appeals for the Federal Circuit).
In the post I linked to further above I discussed a Federal Circuit hearing of a preliminary injunction appeal by Thales. Let me also refer you to a late-March post on the multi-jurisdictional Philips v. Thales dispute (Delaware, ITC, France...). Suffice it to say here that what the Federal Circuit heard was an appeal that Thales brought after the Delaware district court, in a case in which the federal court was going to set the rate for a global portfolio license, denied a preliminary injunction--an antisuit or, at minimum, anti-enforcement injunction that would have precluded Philips from enforcing a U.S. import ban against Thales had Philips obtained one from the ITC. But Philips hasn't. What's next?
At last month's hearing, the Federal Circuit panel raised the question of whether there was actually a need to render an opinion. An Administrative Law Judge--ALJ David P. Shaw, who was in charge of the ITC investigation of an Ericsson v. Apple complaint over standard-essential patents (SEPs) until that one was reassigned to ALJ Bryan Moore--had made a final initial determination (a recommended decision that is subject to approval by the Commission) finding no violation of any of the four SEPs-in-suit. However, he did make a recommendation on remedy and said that an import ban should issue in the event he'd be reversed on the merits.
So the Federal Circuit panel thought one might just await the final ITC decision (which was pushed back by a few weeks, but still on the horizon), as Thales might no longer need a preliminary injunction. Counsel for Thales told the Federal Circuit that even a final finding of no violation wouldn't reliably solve the problem as it would merely take a successful appeal for an import ban to come down. That appeal, however, would also have to be filed with the Federal Circuit. Looking at what precisely the Commission has decided and (especially) elected not to decide, it would make a whole lot of sense for the Federal Circuit to declare the appeal moot.
The Commission
"determined to review and, on review, take no position on [some] issues," and
"determined not to review, and thus [to] adopt[], the remaining findings in the [ALJ's initial determination]."
The non-reviewed issues (the second group) are more than sufficient to throw out the case: not only did ALJ Shaw hold none of the four patents-in-suit to be infringed but he also didn't see the technical prong of the domestic industry requirement satisfied with respect to any of them. Moreover, he invalidated several of the asserted claims.
The first group--issues on which the Commission took no position despite having taken a look at them--includes three kind of SEP-specific defenses raised by Thales:
Implied waiver: ALJ Shaw found that "it has been shown by clear and convincing evidence that the four asserted patents are unenforceable under the doctrine of implied waiver" because "Philips had a duty of disclosure to the standard setting organization [ETSI], and it breached that duty."
Commissioner Jason E. Kearns , a Democrat who served as Chair of the USITC from mid-2020 until three weeks ago, stated that he would affirm the implied-waiver finding with respect to one of the four patents-in-suit but takes no position on the other three.
Implied waiver is specific to this case and has no bearing on Ericsson v. Apple.
Express/implied license: ALJ Shaw disagreed with the following line of defense by Thales:
"Philips has granted Thales both an express and an implied license to its self-declared SEPs, including the asserted patents, based on the FRAND licensing commitments that Philips made to ETSI and Thales’s unconditional agreement to license the patents on the FRAND terms determined by the Delaware District Court."
ALJ Shaw held that Thales would have "to prove that Philips conducted in such a way that led Thales to infer consent to use Philips’ patents," and not only was there no evidence for that, but "Philips and Thales entered into lengthy negotiations demonstrating no such inference."
Commissioner Kearns agrees with ALJ Shaw.
Equitable estoppel: ALJ Shaw also disagreed with this Thales defense (as does Commissioner Kearns):
"The record evidence demonstrates that Philips is equitably estopped by its FRAND commitments from seeking, and has waived its right to seek, an exclusion order against Thales, which is a willing licensee that negotiated in good faith. The equitable estoppel defense has been recognized by the ITC and requires: '(1) misleading conduct by the patentee, which can be either an affirmative act or inaction, that leads the alleged infringer to reasonably infer that patent rights will not be asserted against it; (2) reliance by the alleged infringer on the patentee’s conduct; and (3) material prejudice to the alleged infringer.” Where the defense of equitable estoppel is established, the claim is barred in its entirety.'"
ALJ Shaw noted that there was nothing misleading about Philips's FRAND pledge, and "Philips was entitled to bring an infringement action, including one seeking an exclusion order, after those years of negotiations failed to lead to a license." The latter is also a key argument made by Philips in the Federal Circuit.
There would be very strong reasons for the Federal Circuit not to adjudicate Thales's PI appeal. For each of the patent claims-in-suit, Philips faces at least two, in most cases even three hurdles to overcome on appeal. I also believe that even in a hypothetical best-case scenario for Philips, a remand to the ITC would be more likely than a direct decision by the ITC resulting in an import ban. And in any event, Thales's SEP-specific defenses (especially the claim that equitable estoppel bars Philips from pursuing an import ban against a willing licensee) are still in the case and could be raised again with the Federal Circuit.
All in all, Thales's PI appeal raises a purely academic question, and other cases could clearly be better vehicles for deciding the appropriateness of an import ban against someone who claims to be a willing licensee--such as Ericsson v. Apple, where the ITC staff believes Apple has met the pleading standard for an "unclean hands" defense (whether meritorious or not), but agrees with Ericsson that Apple failed to plead equitable estoppel, waiver, and patent misuse.
In the Philips-Thales dispute, the fact that Philips won't get leverage from an ITC import ban (at least not in the near term) means that the terms of the license will likely be determined in Delaware, and a French court--the Tribunal judiciare de Paris--may award Thales damages against Philips and ETSI (though only nominal damages against the letter) based on U.S. litigation expenses.
