ENCOURAGING FRAND-LY NEGOTIATIONS: A COMPARISON OF THE UNITED STATES AND EUROPEAN APPROACHES TO ALLOWING INJUNCTIVE RELIEF IN CASES INVOLVING FRAND-ENCUMBERED STANDARD-ESSENTIAL PATENTS.

• Author: Miadzvedskaya, Lizaveta
• Position: Fair, reasonable and non-discriminatory

INTRODUCTION

Routers connect to a variety of devices, created by different manufacturers, allowing these gadgets--laptops, tablets, televisions and smartphones--to connect to the internet; these devices can communicate with the router and one another because they all belong to a common standard or standards. (1) The Wi-Fi standard is one of the many relevant standards for the aforementioned devices. Like other standards, the Wi-Fi standard allows for devices to be interoperable because Standard Setting Organizations (2) ("SSOs") provide manufacturers of various devices, or components of those devices, with "common blueprints that specify the physical interface, communication protocols, and other features . . ." (3)

Although participation in SSOs is voluntary, (4) many entities choose to participate in standardization processes (5) that determine which patents are included in the blueprints every implementer of a standard will have to follow. (6) The patents that are selected to be a part of the standard are known as standard-essential patents ("SEPs"). (7) Because one of the property rights in a patent-holder's "bundle of sticks" is the right to exclude others from practicing their patent, (8) and because an implementer will necessarily need to license the patents essential to the standard in order to comply with that standard, (9) SSOs ask their members to declare any patents they believe to be standard-essential and to license those patents on fair, reasonable, and non-discriminatory ("FRAND") terms. (10)

This Note maintains that holders of FRAND-encumbered SEPs should continue to have access to injunctive relief in United States courts as well as exclusionary relief at the United States International Trade Commission ("USITC") in limited circumstances; the Note argues these limited circumstances should include instances of egregious knowing or willful infringement and instances where an implementer refuses to take a license on FRAND terms." The Note also argues that United States courts and the USITC should develop a set of guidelines outlining the obligations of participants in licensing negotiations over FRAND-encumbered SEPs, such as the "safe harbor" guidelines (12) developed by the European Union in the Huawei v. ZTE litigation. Such guidelines would encourage parties to engage in good-faith negotiations by reducing opportunistic behavior, facilitating innovation and participation in the standard-setting process, and promoting economic efficiency. (13)

Part II of this Note provides background on SSOs and FRAND commitments as well as patent infringement, injunctions, and special considerations involved in the licensing of FRAND-encumbered SEPs. (14) Part III examines United States legal precedent concerning the grant of injunctions and exclusionary relief in disputes over SEPs subject to FRAND licensing commitments as well as two key decisions from the European Union addressing the issue. (15) Part IV highlights some of the reasons why injunctions and exclusionary relief should remain available to holders of FRAND-encumbered SEPs (16) and argues that the United States courts and agencies should develop guidelines outlining the obligations, and proper conduct expected of parties involved in licensing negotiations over FRAND-encumbered SEPs. (17) Part V concludes the Note, underscoring the benefits of developing a clear and comprehensive framework for licensing negotiations of FRAND-encumbered SEPs and delineating the instances in which injunctive and exclusionary relief remains available to holders of FRAND-encumbered SEPs. (18)

1. BACKGROUND

   1. Standard Setting Organizations and the Fair, Reasonable, and Nondiscriminatory Licensing Commitment

      SSOs produce technical standards, which are compilations of requirements for a given technical system. (19) The patents covering the technology selected for the standard are deemed "standard-essential" and are required for the implementation of the standard. (20) These patents are not necessarily more valuable or better than alternative patents for similar methods or products; however, once incorporated into the standard, implementers of the standard must use the SEPs to comply with the technical standard. (21)

      Establishing a standard promotes innovation. (22) However, standardsetting also creates a risk of a hold-up because anyone implementing the standard will need to license the relevant SEPs. As a result, the holders of these SEPs could attempt to extort greater royalties using their newfound market power, or refuse to license the patents at all. (23)

      To prevent this problem, SSOs require the licensing of SEPs to occur on FRAND terms. (24) FRAND terms are supposed to allow the patent holder to make a reasonable profit while preventing the aforementioned hold-up problem by requiring not only that a license be issued, but also issued at a reasonable royalty rate. (25)

   2. Patents, Patent Infringement, and Injunctive Relief

      SSOs promote innovation through their selection and incorporation of property rights, namely patents, (26) into a standard. Patent rights are a limited monopoly on inventions which are arguably granted in exchange for the disclosure (27) of claims that are new, useful, and non-obvious. (28) The United States patent system grants inventors a limited monopoly over patented subject matter in exchange for the disclosure of new inventions, which helps to promote innovation and thus benefits the public. (29) The patent holder may exclude others from making, using, offering for sale, selling, or importing the technology covered under her patent for a period of twenty years after a patent has been filed. (30)

      When another entity makes, uses, offers for sale, sells, or imports an item that infringes upon the claims of the patent holder without her permission, patent infringement occurs. (31) The patent holder can then bring an action against the infringing party, requesting both compensation and an injunction to halt further manufacture, use, sale, or importation of the goods. (32)

      Under United States law, injunctive relief is not necessarily available in all patent infringement cases; it is appropriate only in instances "when the remedy at law is inadequate," meaning that damages arc insufficient to provide "complete relief to the aggrieved party. (33) Thus, in patent infringement cases, where damages obtained for past infringement combined with a running royalty for future uses of the patent provide complete relief, a patentee cannot get an injunction. (34)

      In the United States, courts apply a four-factor test to determine whether permanent injunctive relief is appropriate, and their issuance of such an injunction is discretionary. (35) This same test, sometimes referred to as the "eBay test," is used in patent infringement disputes to determine whether a permanent injunction is appropriate. (36) Under the eBay test a plaintiff seeking an injunction must show:

      (1) that it has suffered an irreparable injury; (2) that remedies available at law arc inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. (37) Similarly, to qualify for a preliminary injunction under United States law, the plaintiff must show: "[1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest." (38) Finally, where infringement involves the importation of goods, exclusion orders are available by bringing an action through the USITC. (39)

   3. Standard-Essential Patents and Fair, Reasonable, and Nondiscriminatory Licensing

      Typically, patent holders may attempt to seek injunctive relief in a suit against infringers, however, it has been less clear whether, and if so, under what circumstances, this right extends to patent owners of SEPs subject to a commitment to license on FRAND terms. (40) A patent holder who commits to licensing her patents on FRAND terms indicates that she is willing to provide a license on reasonable terms to all the implementers of the standard who require her technology. (41) The crux of the issue is whether, and if so, under what conditions, a patent owner of a FRANDencumbered SEP should be allowed to ask for injunctive relief or an exclusion order against the infringing implementers. (42)

2. ACCESS TO INJUNCTIVE AND EXCLUSIONARY RELIEF SHOULD BE AVAILABLE TO HOLDERS OF FRAND-ENCUMBBERED STANDARDESSENTIAL PATENTS

   The worldwide examination of the issue--the availability of injunctions to holders of FRAND-burdened SEPs--has produced a near unanimous agreement "that a FRAND promise precludes seeking an injunction unless the infringer has refused to or cannot accept a FRAND licence [sic]." (43) However, there is some divergence in how this principle has been applied in the United States verses in the European Union.

   1. United States Legal Precedent

      1. United States Case Law

         American courts have been hesitant to allow the use of injunctions by holders of SEPs subject to FRAND obligations and have enjoined SEPholders from enforcing such injunctions, citing primarily three reasons. First, the act of requesting an injunction or otherwise asserting exclusionary rights is inconsistent with the FRAND commitment which requires patent holders to license their SEPs. (44) Second, the undertaking of the FRAND commitment implicitly assumes that royalties are a sufficient remedy for the infringement in most cases because the commitment requires the patent holders to license out their patents. (45) Third, negotiations under the threat of an injunction would disadvantage potential licensees and could result in an agreement with unreasonable, non-FRAND tenns and rates. (46)

         For instance, in Apple, Inc. v...