Context: The standard-essential patent (SEP) dispute between Ericsson and Lenovo continues to be a treasure trove of FRAND-related information and, potentially, case law. Earlier this month, ip fray reported on a submission by the U.S. International Trade Commission’s (USITC, or just ITC) Office of Unfair Import Investigations (OUII; commonly referred to as the ITC staff) according to which Ericsson merely had to negotiate with Lenovo, but Lenovo was not entitled to a FRAND licensing offer concerning Ericsson’s HEVC video codec SEPs (December 1, 2024 ip fray article). Some readers could not believe this to be true.
What’s new: Before the weekend, the public redacted version of an Ericsson filing in the same HEVC-related investigation (337-TA-1387) became accessible. It sheds some additional light on what the International Telecommunication Union’s (ITU) FRAND pledge, as interpreted not only by the ITC Staff but also by a U.S. court, expects SEP owners to do. Effectively, SEP owners have two bites at the apple. They can either make a FRAND offer or, even if they don’t make one, they can still discharge their obligations by negotiating in good faith toward a FRAND license, which is a much lesser requirement. Additionally, the filing discusses the history of unsuccessful negotiations between Ericsson and Lenovo prior to the current dispute, and addresses Lenovo’s criticism of bundling three different SEP licenses (cellular for mobile devices, cellular for PCs, HEVC).
Direct impact: Should Ericsson prevail on the technical merits of at least one of the patents in this ITC investigation, the Administrative Law Judge (ALJ) is probably going to recommend an import ban. But the FRAND fight could continue at the stages of a Commission review, Presidential review (hypothetical veto) and Federal Circuit appeal.
Wider ramifications: The revelations from the U.S. proceedings also make it easier to understand why certain courts in Latin America may have concluded that Ericsson complied with any FRAND licensing (or negotiating) obligations. And looking beyond this dispute, the rules governing HEVC SEPs may give right holders better access to injunctions than over cellular SEPs, at least in jurisdictions that look at a FRAND as a contractual rather than antitrust matter.
Ericsson’s initial post-hearing brief spans almost 200 pages, and FRAND is discussed on only a few pages toward the end. This follow-up to the previous article on this FRAND dispute has three parts: one on HEVC, one on the bundling of different standards and one on the overall picture of Ericsson’s efforts to get Lenovo to take a license (and Lenovo’s efforts to bring down the price by avoiding to take a license).
1. HEVC obligations
Even a generally rather knowledgeable reader was confused by the headline of the December 1, 2024 article, but that headline was correct no matter how one looks at it:
ITC staff: HEVC SEPs are not FRAND-encumbered like cellular ones; Ericsson merely had to negotiate with Lenovo
It is often very difficult to keep headlines concise and precise. Here, however, a lot of thought went into it and the headline is a 100% accurate summary of the ITC staff’s position:
- Cellular SEPs, particularly under the ETSI pledge, come with a FRAND licensing obligation.
- HEVC SEPs are subject to the ITU pledge, which imposes lesser requirements.
The whole point that the ITC staff made in its submission is that Lenovo is not entitled to a FRAND offer, but merely to Ericsson being prepared to negotiate a FRAND license. Ericsson now points to case law from the Eastern District of Texas:
“An SEP holder satisfies its [F]RAND commitment by either (a) making an offer on [F]RAND-compliant terms and conditions or, (b) if the offer is not [F]RAND-compliant, negotiating in good faith toward a license that will be [F]RAND-compliant. [emphasis added] HTC v. Ericsson, 407 F. Supp.3d 631, 63637 (E.D. Tex. 2019) (ruling on the analogous FRAND commitment); HTC v. Ericsson, 2019 WL 4734950, at *6 (E.D. Tex. May 22, 2019).”
That HTC case was about cellular SEPs, so unlike the ITC staff, which stresses that an interpretation of the ETSI pledge by a UK court is irrelevant to a U.S. HEVC case, Ericsson argues that it meets even that standard. Basically, Ericsson is pointing to U.S. case law (albeit just from a district court) that reaches a different conclusion concerning the ETSI pledge than what Lenovo says a UK court concluded.
Part (b) is materially consistent with the German courts’ approach to any FRAND licensing obligation (including cellular SEPs). Those courts will fault the SEP holder only for a blatantly unreasonable royalty demand, but other than that they will just want to see efforts on both sides to conclude a license. Obviously the party that expects to get paid will always be more interested in making progress, and as a result, virtually every implementer’s FRAND defense goes nowhere in Germany. But in the U.S., FRAND is a matter of contract law, and that’s where there is, according to the ITC staff, an important difference between multimedia standards subject to the ITU pledge and cellular standards subject to the ETSI pledge (or comparable pledges elsewhere).
2. Bundling different standards
According to Ericsson’s brief, “Lenovo claims that Ericsson violated [F]RAND by failing to offer Lenovo a standalone license to Ericsson’s HEVC portfolio that it could accept.” Ericsson presented testimony that SEP holders commonly offer a license to all of their SEPs, even if those SEPs cover multiple standards.
It is not 100% clear due to redaction, but appears rather likely that Ericsson’s licensing offer to Lenovo comes with royalty-bearing part, which relates to Lenovo’s mobile devices (primarily that means Motorola Mobility-branded phones), and a “cross-license portion” that may be a zero-zero part of the deal under which (using the exact wordings from Ericsson’s filing but making it all easier to read with bullet points and brackets)
- Ericsson would license
- Lenovo’s non-cellular products [i.e., Lenovo PCs and tablets that are WiFi-only and do not have 4G/5G connectivity] to {Ericsson’s] HEVC portfolio and
- Lenovo’s cellular PCs to [Ericsson’s] 4G and 5G portfolios
- in exchange for a cross-license from Lenovo to Lenovo’s infrastructure patents [meaning that Ericsson’s mobile base stations would be licensed to Lenovo’s 4G/5G patents].
There is no reference to a balancing payment, and Ericsson argues that Lenovo would receive more value than it would give under the proposed deal.
According to Ericsson’s, Lenovo did not insist on an HEVC-only license offer until it raised the issue in this ITC investigation:
“Moreover, the parties’ negotiating history makes clear that Lenovo has never sought a HEVC only offer. It never requested one from Ericsson in any letters, never addressed HEVC in any correspondence, and instead repeatedly requested the exact offer it received, a global portfolio cross license offer.”
3. Ericsson’s neverending Lenovo story
Given that the ITU pledge, according to the U.S. case law cited by Ericsson and also in the ITC staff’s opinion, makes it impossible to hold a SEP holder in violation of its obligations as long as it negotiates in good faith toward a FRAND license, the history of Ericsson-Lenovo negotiations is likely going to be outcome-determinative in the U.S. and potentially also in one or more other jurisdictions (such as in Brazil and/or Colombia).
One of Lenovo’s arguments is that its Motorola Mobility-branded devices are licensed under a 2011 agreement. But an ITC ALJ rejected that one (December 1, 2024 ip fray article), and unless Lenovo can convince the Commission (the political appointees at the top of the trade agency) or, subsequently, the Federal Circuit, Ericsson can claim that Lenovo has been unlicensed for quite some time.
Ericsson’s post-hearing brief refers to 16 years of trying to get Lenovo to take a license. Elsewhere, it talks about more than a decade, and it quotes expert testimony according to which is highly unusual for negotiations to have yielded no result after 14 years. Whether we are now talking about 10+, 14 or 16 years, it is an unusually long period. The only other SEP dispute in which a similar period was at issue (until the parties decided to arbitrate (October, 9, 2024 ip fray article)) also involved Lenovo. The licensor in that case is InterDigital.
Not only does Ericsson sugggest that it has been exceedingly patient, but it also underscores its flexibility:
“Ericsson left its October 2023 offer open, offered binding arbitration, offered rate setting in the Eastern District of North Carolina, and exchanged repeated letters with Lenovo regarding its offer before filing the complaint in this Investigation in December of 2023.”
Lenovo’s demands for its own SEPs (to the extent they are implemented by Ericsson’s network infrastructure products) were criticized by the ITC staff a few months ago (September 18, 2024 ip fray article).
Over the last couple of years, there have been various issues according to Ericsson:
- Lenovo refused to sign a reasonable NDA for two years, instead making unreasonable demands such as requiring that Ericsson give up its rights to a jury trial and that Ericsson give notice 14 days before filing suit with no limits on Lenovo;
- Lenovo designated as the NDA negotiator an outside litigation counsel who represented HTC against Ericsson on [F]RAND issues.
- Lenovo did not respond to correspondence and even went radio-silent for nine months giving absolutely no communications between April 2022 and January 2023;
- Lenovo has refused to answer direct questions or provide requested information relating to the parties NDA negotiations or Lenovo’s portfolio both before and after litigation began.
By “outside litigation counsel,” Ericsson apparently means David Djahaverian, a former Broadcom in-house counsel who often gets involved with FRAND negotiations ahead of litigation and then testifies (particularly in U.S. and UK proceedings). He consistently takes implementer-friendly positions as far as ip fray knows (and it is unlikely that he has done work for net licensors that we would be unaware of), but when it comes to jurisdictional issues, different implementers have different preferences at different times, which is why Ericsson points to what he said in some other context years earlier:
“[A]s Mr. Djavaherian explained several years ago, deferring to a foreign court to determine a global rate for Ericsson’s patents including its U.S. patents, where Ericsson has not consented to such a determination, would allow a foreign importer like Lenovo to skirt U.S. patent law by filing in what it deems a more favorable jurisdiction, and would be an “encroachment upon the U.S. legal system” to which the Commission need not and should not countenance.”
Various Ericsson-Lenovo decisions are scheduled for the coming months. One that recently came down in the UK was the denial of an interim-license declaration (November 19, 2024 ip fray article).