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Fair, Reasonable and Non-Discriminatory (FRAND) Terms
Fair, Reasonable and Non-Discriminatory (FRAND) Terms
The FRAND Pyramid
The FRAND Pyramid
Adoption of standards Lower production costs and costs to consumers,
Adoption of standards Lower production costs and costs to consumers,
Develop and set industry standards Voluntary membership Different IPR
Develop and set industry standards Voluntary membership Different IPR
No single, precise definition Fair Terms are not anti-competitive Tied
No single, precise definition Fair Terms are not anti-competitive Tied
Hold-up by SEP owner Standard adopted and SEP owners engage in heavy
Hold-up by SEP owner Standard adopted and SEP owners engage in heavy
SEPs/FRAND Concerns
SEPs/FRAND Concerns
Reverse hold-up by standard implementer Pressure on SEP owner to
Reverse hold-up by standard implementer Pressure on SEP owner to
Microsoft claiming Motorola in breach of RAND obligations (good faith,
Microsoft claiming Motorola in breach of RAND obligations (good faith,
Microsoft v. Motorola No
Microsoft v. Motorola No
Motorola: Economic Guiding Principles
Motorola: Economic Guiding Principles
Motorola: Economic Guiding Principles
Motorola: Economic Guiding Principles
Motorola: Hypothetical, Bi-lateral Negotiation
Motorola: Hypothetical, Bi-lateral Negotiation
District Court finds: Video coding portfolio RAND royalty rate: 0.555
District Court finds: Video coding portfolio RAND royalty rate: 0.555
Unanimous Jury Verdict - September 4, 2013 Motorola breached
Unanimous Jury Verdict - September 4, 2013 Motorola breached
Injunctive Relief
Injunctive Relief
Injunctive Relief
Injunctive Relief
Exclusion Orders
Exclusion Orders
SEP Owners with FRAND obligations: Royalty proposed in initial offer
SEP Owners with FRAND obligations: Royalty proposed in initial offer
THE END
THE END

: Apple 2013 . : . : Apple 2013 .ppt. zip-: 1166 .

Apple 2013

Apple 2013 .ppt
1 Fair, Reasonable and Non-Discriminatory (FRAND) Terms

Fair, Reasonable and Non-Discriminatory (FRAND) Terms

Daphne C. Lainson Smart & Biggar AIPLA Annual Meeting: IP Practice in Japan Committee October 2013

2 The FRAND Pyramid

The FRAND Pyramid

3 Adoption of standards Lower production costs and costs to consumers,

Adoption of standards Lower production costs and costs to consumers,

shared R&D expenses, reduced switching costs for consumers, more efficient uptake of new technologies, expanded customer base for standard compliant technologies, enhanced innovation around standards, improved product quality But: Potential for abuses by SEP owners, lobbying/bias over standard setting, reduction of competition once standard adopted

Competing Interests

4 Develop and set industry standards Voluntary membership Different IPR

Develop and set industry standards Voluntary membership Different IPR

obligations Disclosure, FRAND commitments Commitment to licence ? licence Do not define FRAND terms Actual licensing: negotiation outside of SSO and as between parties Expectation: negotiations will be in good faith

Standard-Setting Organizations (SSOs)

5 No single, precise definition Fair Terms are not anti-competitive Tied

No single, precise definition Fair Terms are not anti-competitive Tied

selling, bundling, free grant backs, exclusive licensing/restrictive covenants on licensing to other parties Reasonable Royalties do not result in uncompetitive pricing Price-stacking Non-discriminatory All licensees are provided with similar terms and rates

What is FRAND?

6 Hold-up by SEP owner Standard adopted and SEP owners engage in heavy

Hold-up by SEP owner Standard adopted and SEP owners engage in heavy

handed negotiation (e.g., demanding excessive royalties) or withhold SEP protected technology Impacts adoption of standard, increases cost to implementers and potentially consumers, affects other owners of SEPs for that standard Royalty Stacking Single product, multiple standards and SEPs = cumulative excessive royalties

SEPs/FRAND Concerns

7 SEPs/FRAND Concerns

SEPs/FRAND Concerns

Availability of injunctive relief Equitable remedy: eBay Inc. v. MercExchange LLC (2006) 126 S Ct. 1837 Factors: irreparable harm, adequacy of available legal remedies (e.g., damages), balance of hardships, public interest FRAND obligation = admission money will make whole? If SEP owner has a FRAND obligation, is injunction contrary to public interest (e.g., harms competition, added expense to consumers, harms innovation)? See also Statement of FTC In the Matter of Google Inc. FTC File No. 121-0120 (January 3, 2013) Statement released with publication of Google settlement Seeking of injunctions, competition implications

8 Reverse hold-up by standard implementer Pressure on SEP owner to

Reverse hold-up by standard implementer Pressure on SEP owner to

negotiate unfavorable terms E.g., imbalance in negotiating power between small, upstream SEP owner over standard not yet adopted by SSO and implementer If an injunction or exclusion order is not available to a SEP owner, then this may shift the bargaining power to the implementer Anti-trust concerns: Broadcom v. Qualcomm 501 F.3d 297 (3d Cir. 2007) Patent holders intentional false promise to license SEP on FRAND terms and reliance by SSO on false promise when including patented technology in the standard = actionable anticompetitive conduct if SEP owner breaches promise

SEPs/FRAND Concerns

9 Microsoft claiming Motorola in breach of RAND obligations (good faith,

Microsoft claiming Motorola in breach of RAND obligations (good faith,

fair dealing) to SSOs (ITU, IEEE): Motorola offered SEPs at rates that are not RAND Motorola sent two offer letters for two SEP portfolios (wireless communications, video coding standards) with RAND rate in each offer = 2.25% of the price of the end product Motorola sought injunctive relief against Microsoft over SEPs Proceedings in US district courts, the ITC and in Germany

Microsoft v. MotorolaGood Faith Negotiations and Reasonable Royalties

10 Microsoft v. Motorola No

Microsoft v. Motorola No

10-cv-1823 (W.D. Wash., April 25, 2013)

Earlier decisions: RAND commitments create enforceable contracts between Motorola and SSOs and Microsoft entitled to enforce contract as a third party beneficiary (Order dated Feb. 27, 2012) Motorolas commitment to SSOs required initial offers to license be made in good faith (Oder dated June 12, 2012) Initial offers do not have to be on RAND terms, providing that a RAND license eventually issues (Order dated October 10, 2012) Good Faith Negotiations? In order to determine whether Motorolas offer was in good faith, a comparison to a reasonable RAND royalty rate and a reasonable RAND royalty range (since more than one rate could be RAND) is required Court therefore determining what is reasonable RAND licensing rate and RAND royalty range for Motorolas SEPs

11 Motorola: Economic Guiding Principles

Motorola: Economic Guiding Principles

A RAND royalty should be set at a level consistent with the SSOs goal of promoting widespread adoption of their standards. In the context of a disputea proper methodologyto determine a RAND royalty shouldrecognize and seek to mitigate the risk of patent hold-up that RAND commitments are intended to avoid. Likewise, a proper methodology for determining a RAND royalty should address the risk of royalty stacking by considering the aggregate royalties that would apply if other SEP holders made royalty demands of the implementer.

12 Motorola: Economic Guiding Principles

Motorola: Economic Guiding Principles

the RAND commitment must guarantee that holders of valuable intellectual property will receive reasonable royalties on that property. a RAND commitment should be interpreted to limit a patent holder to a reasonable royalty on the economic value of its patented technology itself, apart from the value associated with incorporation of the patented technology into the standard.

13 Motorola: Hypothetical, Bi-lateral Negotiation

Motorola: Hypothetical, Bi-lateral Negotiation

Hypothetical negotiation between willing licensor-willing licensee Applied modified version of Georgia-Pacific factors Factors applied within the RAND licensing context E.g., Past royalties received relevant if negotiated under a RAND obligation or comparable negotiations (patent pools) Hypothetical negotiation would set RAND royalty rates by looking at: Importance of the patent portfolio to the standard; and Importance of the standard and patent portfolio to the products at issue Motorola analysis applied in In re Innovation IP Ventures LLC 11-cv-09308 (N. Dist. IIl. ED, 3 October 2013) Innovation IP Ventures sues on acquired patents with RAND obligations and Court asked (pre-trial) to assess quantum of potential damages

14 District Court finds: Video coding portfolio RAND royalty rate: 0.555

District Court finds: Video coding portfolio RAND royalty rate: 0.555

cents per unit (All products) RAND royalty range: 0.555-16.389 cents per unit (Windows, Xbox) Wireless communication portfolio RAND royalty rate: 3.471 cents per unit (Xbox) RAND royalty rate: 0.8 cents per unit (All other products) RAND royalty range: 0.8-19.5 cents per unit (Xbox)

Motorola: Holding

15 Unanimous Jury Verdict - September 4, 2013 Motorola breached

Unanimous Jury Verdict - September 4, 2013 Motorola breached

contractual commitments to IEEE and ITU Damages incurred by Microsoft: $11,492,686 Motorolas conduct in seeking injunctive relief violated duty of good faith and fair dealing with respect to its contractual commitments to the IEEE and ITU Damages (attorneys fees and litigation costs) attributable to breach: $3,031,720

Motorola: Jury Verdict

16 Injunctive Relief

Injunctive Relief

Apple v. Motorola No. 1-11-cv-08540, 2012 WL 2376664 (N.D. Ill. June 22, 2012) [under appeal] Unless implementer refuses to pay a royalty that meets the FRAND requirement, the Court is not justified in granting injunctive relief By committing to license patents on FRAND terms, patentee implicitly acknowledges that a royalty is adequate compensation Apple v. Motorola No. 3:11-cv-00178-bbc, 2012 WL 5416941 (W.D. Wisc. October 29, 2012) Depending on specific obligations to the SSO, a RAND commitment may not deprive a SEP owner from seeking injunctive relief

17 Injunctive Relief

Injunctive Relief

Realtek Semiconductor v. LSI Corp. No. C-12-03451 RMW, 2013 WL 2181717 (N.D. Cal., May 20, 2013) Failure to offer a license on RAND terms before seeking an exclusion order or injunctive relief = breach of RAND commitment Microsoft v. Motorola No. C10-1823JLR (W.D. Wash., August 11, 2013) Seeking injunctive relief may be a breach of the duties of good faith and fair dealing, if the SEP owner is under a RAND commitment Attorneys fees and litigation costs as damages may be available

18 Exclusion Orders

Exclusion Orders

ITC Inv. No. 337-TA-947 Samsung successful in obtaining exclusion and cease and desist orders as against certain Apple products under 19 U.S.C. 1337 (s. 337) (June 4, 2013) USTR disapproves ITC order (August 3, 2013) S. 337 gives President (USTR) ability to disapprove exclusion and cease and desist orders on policy grounds Cites DOJ/USPTO Joint Statement of January 8, 2013 re remedies for SEPs subject to voluntary FRAND commitments Public interest: exclusion orders may pressure an implementer of a standard to accept more onerous licensing terms, affecting competition and price to consumers In the future, ITC to: (1) thoroughly consider public interest; and (2) have a well developed factual record with specific findings on hold-up and reverse hold-up

19 SEP Owners with FRAND obligations: Royalty proposed in initial offer

SEP Owners with FRAND obligations: Royalty proposed in initial offer

may be subject to duties of good faith and fair dealing Reasonableness of royalty: hypothetical, bi-lateral negotiation Breach of duties: damages Seeking injunctions (exclusion orders) may be a breach of duties of good faith and fair dealing Breach of duties: Attorneys fees/litigation costs Implementers of standards: Refusal to pay a RAND royalty may support injunctive relief (exclusion orders)

Concluding Remarks

20 THE END

THE END

Thanks for your attention! Questions?

Daphne C. Lainson Partner Smart & Biggar dclainson@smart-biggar.ca

Apple 2013
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