Context: Standard-essential patent (SEP) enforcement is a constant subject of debate in the IP ecosystem (November 27, 2024 ip fray article). One high-profile dispute at the moment is Ericsson v. Lenovo, where a U.S. import ban over SEPs is definitely a possibility in light of a position taken by the Office of Unfair Import Investigations (OUII, or “ITC Staff”) of the U.S. International Trade Commission (USITC, or just ITC) (September 18, 2024 ip fray article). Lenovo failed to secure an interim-license declaration in UK court (November 19, 2024 ip fray article). While cellular SEPs are the economically most important category, owners of multimedia SEPs are ever less prepared to condone infringement (September 20, 2024 ip fray article).
What’s new: The public redacted version of an ITC Staff opinion has surfaced recently and is interesting not only in connection with the Ericsson-Lenovo dispute but even more generally with a view to the enforcement of HEVC and other multimedia patents subject to International Telecommunication Union (ITU) standard-setting rules. According to the ITC Staff, HEVC SEPs come with lesser obligations than patents subject to the European Telecommunications Standards Institute (ETSI) FRAND pledge. In the ITC Staff’s opinion, an HEVC patentee merely needs to negotiate and is then free to obtain injunctive relief.
Direct impact: The ITC Staff’s views are not binding on the Administrative Law Judge deciding the case (here, ALJ Monica Bhattacharyya), but often bear weight with the ALJ as well as the Commission (the political appointees at the top of the organization who make the final decision). Lenovo faces multiple problems here, only one of which is the interpretation of the ITU pledge.
Wider ramifications: Patentees enforcing HEVC SEPs (and patents essential other ITU standards) may consider using the ITC Staff’s opinion as persuasive authority, not only in the United States but around the world. HEVC patents are licensed bilaterally as well as through pools operated by Access Advance, Avanci and Via LA . And as for the wider Ericsson-Lenovo dispute, the very next ip fray article will show that Lenovo’s seemingly most important license-based defense has already been rejected by at least one ITC judge.
In ITC investigation no. 337-TA-1387, Ericsson is asserting multimedia patents against Lenovo. There are also two other ITC investigations instigated by Ericsson against Lenovo: one over cellular SEPs (337-TA-1375) and one over non-SEPs (337-TA-1376). There are also a couple of investigations of Lenovo’s countercomplaints against Ericsson (337-TA-1388 and 337-TA-1397).
In the multimedia investigation (337-TA-1387), an evidentiary hearing (i.e., trial) was recently held. Subsequently, in mid-November, the ITC Staff filed its initial post-hearing brief on remedial questions, which particularly means the public interest considerations over which ITC import bans can be denied (or, if the ITC grants them, vetoed by the President of the United States, who typically delegates this authority to the U.S. Trade Representative). Those questions are briefed at a stage where it is not yet clear whether the ALJ will identify an infringement of at least one valid patent. Now the public redacted version of that initial post-hearing brief on public interest and remedy become available:
Lenovo has a weak public interest case because “the evidence shows that HEVC decoding capability is available on non-accused PCs, tablets and mobile phones.” Replacements for any Lenovo products that might be banned are thus abundantly available, and, for example, “Lenovo has not identified any unique functionality in Lenovo PCs that materially effects the public’s interest in Lenovo PCs as opposed to any of the suitable alternative PCs” (emphasis in original).
The longer and more interesting part of the brief deals with “RAND Related Arguments” (RAND being a synonym for FRAND; originally, RAND was the common term in the U.S., and in connection with ETSI standards the European term FRAND is now also commonly used in the U.S., but this is not about an ETSI standard). ip fray, however, will use the interchangeable term FRAND even in this context for consistency (and because the additional word “fair” has not made a difference in any known case so far, which is unsurprising as an unreasonable and/or discriminatory deal can hardly be fair).
The ITC Staff criticizes Lenovo’s FRAND argument for not being clear enough about whether it is a public interest argument or, which in the ITC Staff’s opinion would require a showing of a breach of contract, an affirmative defense. It appears that Lenovo wanted to have it both ways: “Lenovo appears to have treated the RAND arguments as some unknown hybrid between an affirmative defense and a Section 337 public interest issue.” But regardless of whether Lenovo briefed the issue in the appropriate context(s) or possibly waived certain arguments by not raising them when and where required, the ITC Staff also disagrees on substance (“fatal flaws,” the brief says).
This is not the first time for the ITC Staff to find that Ericsson has complied with its FRAND obligations in dealing with Ericsson. In connection with cellular SEPs, it already happened a couple of months ago (September 18, 2024 ip fray article). But it is a highly fact-intensive inquiry, so it could have gone either way in the multimedia context.
The first subsection of the ITC Staff’s FRAND analysis stresses something that should not even have to be mentioned, but Lenovo apparently conflated different standards in such a way that the ITC Staff underlined the need “to show a breach of contract for the standard[-]setting organization relevant to this investigation,” i.e., the ITU.
On this basis, the ITC Staff lays out a three-step test (with the burden on Lenovo for each part):
- that a FRAND obligation exists with regard to the Asserted Patents (i.e. scope of any applicable RAND obligation for HEVC);
- that Ericsson has failed to satisfy the applicable FRAND obligation; and
- that under these circumstances, imposing exclusionary relief [a U.S. import ban] would be contrary to the public interest.
The conflation of different standards-related licensing pledges that the ITC Staff takes issue with is due (in whole or in part) to the fact that Lenovo very much pointed to a recent Federal Circuit decision that revived its bid for a U.S. antisuit injunction (October 24, 2024 ip fray article). But that one was all about ETSI, which is why the ITC Staff considers it inapposite here: “[even with that decision,] there is no blanket rule that an exclusion order may not issue where the Complainant is alleged to violate a [F]RAND obligation under the ITU patent policy.” And what is not a topic of discussion in the ITC proceedings but bears remembering is that the Federal Circuit largely relied on its interpretation of the ETSI agreement, which was procedurally questionable as the interpretation of a contract under French law is a matter of fact (not law).
It is a different Federal Circuit opinion that the ITC Staff considers apposite: Spansion v. ITC (2010) (PDF), which was not SEP-specific but about how much of the eBay injunction standard one could read into the ITC’s public interest statute. The appeals court noted that Congress clearly did not mean that one to be as “broad and inclusive” as some parties (here, Lenovo) claim it is.
The ITC Staff’s brief identifies evidence that “the committee drafting the
ITU patent policy considered and rejected proposals that would limit the right to seek injunctive relief for standard essential patents.
The filing goes on to explain that Lenovo hasn’t even shown that the specific patents-in-suit are subject to a FRAND obligation, certainly not under Ericsson’s ETSI pledge and not even necessarily under the ITU pledge because Lenovo failed to make an essentiality argument, much less one related to a particular version of HEVC. A private agreement between the parties to treat patents as standard-essential is considered irrelevant by the ITC Staff.
The ITC Staff doesn’t see how Lenovo has any rights under the reciprocity clause of the ITU agreement. Lenovo apparently doesn’t own any such patents.
And then comes the arguably most fundamental finding concerning the ITU pledge:
“Notably, Respondents do not appear to dispute that the extent of the obligation under the ITU policy is that Ericsson engage in good faith negotiations towards a license. […] Thus, it appears undisputed that the only
obligation at issue in this investigation is, at most, an obligation to engage in good faith negotiations towards a license.”
And this “obligation to negotiate in good faith does not go so far as to require
specific licensing terms or consummation of a license.” Just like the European Commission, in a public announcement concerning a Samsung investigation in the early 2010s, made it sound like an implementer merely had to be prepared to negotiate, the ITC Staff now finds that under ITU rules, a SEP holder doesn’t have to go further:
“Because the evidence shows negotiations (regardless of the values offered
therein) have occurred as between Ericsson and Lenovo, in the Staff’s view, the ITU [F]RAND requirement is satisfied.”
The ITC Staff also credits Ericsson for having offered binding arbitration well before filing the relevant ITC complaint.
Again, that submission is not binding on anyone, but it comes from a neutral third party (a division of a U.S. government agency) and may persuade decision makers in other jurisdictions to adopt a similar stance when HEVC (or other ITU-pledged) SEPs are at issue.