27 June 2014

Samsung Can Enforce FRAND-Committed Patents in Japan

Tokyo High Court BuildingIn a dispute between Apple and Samsung, the Japanese Intellectual Property High Court has ruled that damages may be awarded for infringement of a standard-essential patent (SEP) which is subject to a commitment to licence on fair, reasonable and non-discriminatory (FRAND) terms, and that this is not an abuse of the patent if the amount claimed is within the licence fee.

The following report of this recent Japanese ruling in the long-running global dispute between Apple and Samsung has been provided by Daisuke Miyamura of the Ohtsuki Patent and Trademark Law Firm, which is based in Osaka. 

Overview

A series of lawsuits regarding smart phones are being fought between Apple and Samsung all over the world.  In Japan, Apple has filed suits against Samsung four times, and Samsung has filed suits against Apple three times.  On 16 May 2014, the Grand Bench of the Intellectual Property High Court handed down its decision in one of these cases, on an appeal by Samsung against the decision of the lower court granting declaratory judgment in favour of Apple. 

Apple had originally argued that its acts, such as production, transfer and import of products did not constitute infringement of Samsung’s Japanese patent no. 4642898, and demanded declaratory judgment ruling that Samsung had no right to an award of damages based on infringement of the patent right.

The original court decision concluded that some of Apple’s products were included in the scope of the present patent.  However the original court also determined that enforcement of an award of damages based on the Samsung patent was the abuse of the right, and granted all of Apple’s requests for declaratory judgment.

Samsung appealed against the original court decision.

The Grand Bench of the Intellectual Property High Court has now ruled that enforcement of the right to damages based on the Samsung patent is an abuse of the right if the compensation exceeds the licence fee based on the FRAND obligation, but is not an abuse of the right if the compensation is within the license fee based on the FRAND obligation.

Outline of facts

Each of Apple’s accused products complies with the UMTS standard (Universal Mobile Telecommunications System).  The UMTS standard is the telecommunications standard formulated by 3GPP (Third Generation Partnership Project), which is an organisation formed in order to promote the diffusion of the third generation of mobile telecommunications systems (commonly known as ‘3G’) and to develop global standards for 3G systems and products.

The European Telecommunications Standards Institute (ETSI) is one of the standards bodies which have established the 3GPP, and set the ‘IPR policy’ regarding handling of the intellectual property rights of members.  The IPR policy requires that each member inform ETSI of any essential IPRs (such as SEPs) relating to technology incorporated into a standard.  The policy further requires that members commit to the grant of irrevocable licences under FRAND terms and conditions for the essential IPR.

Samsung’s Japanese patent no. 4642898 is an essential patent for the UTMS standard, and Samsung pledged, according to the IPR policy, that it would grant licences under FRAND terms and conditions for this patent.

Outline of the court’s decision

(1) Whether or not license agreement was reached
Firstly, it was admitted that French law was the proper law to determine whether or not a licence agreement based on the FRAND commitment was reached.  (Neither party argued against the opinion that French law is the proper law).  In French law, at least an offer and acceptance of the license agreement are necessary to execute the license agreement.  However, the court indicated that Samsung’s FRAND commitment under the ETSI IPR policy cannot be interpreted as the required offer, for the following reasons.
  1. Although French law does not require determination of the compensation to execute the license agreement, the FRAND commitment provides no clue to the scope of the binding effect of the license agreement.  The FRAND commitment does not set a royalty rate for the license agreement, nor the geographical scope nor the time period of the license agreement.
  2. The article in the ETSI IPR policy states ‘ETSI rules that members (and people other than ETSI members) shall negotiate fairly and sincerely about the essential IPR for FRAND.’  So, this article is premised on the subsequent conduct of negotiations between parties.
  3. When the present IPR policy was adopted, ETSI attempted to rule that users are granted ‘automatic licenses’, but abandoned the attempt due to strong opposition from members.
Interpreting the FRAND commitment as the offer for the contract results in admitting the ‘automatic license’.  Therefore, this interpretation is improper.  The court therefore indicated that the FRAND commitment could not be interpreted as an offer of a licence agreement.
(2) Claim for damage exceeding license fee based on FRAND condition
A person who tries to produce or sell a product complying with the UMTS standards is aware of the FRAND commitments relating to at least the ETSI members’ SEPs, according to the IPR policy of ETSI, and therefore believes that he or she will be granted a licence based on the FRAND condition in the future, after the appropriate negotiation with the patent holder.  This belief should be said to be worth protecting.  Therefore, the court concluded that allowing an SEP holder to enforce the right to demand higher compensation than a FRAND licence fee based on the FRAND condition would be unfair to people who produced or sold UMTS compliant products on the basis of such belief.

The person owning the essential FRAND-pledged patent (‘essential pledged patent’) can gain higher licence fees than would be possible if the patent was not part of the UTMS standard, because the patented technology is necessarily widely used by multiple business operators all over the world in products implementing the standard.  Furthermore, parties accepting the IPR policy of ETSI, such as Samsung, voluntarily pledge that they are ready to grant an irrevocable licence on FRAND conditions.  Therefore, it is not necessary to allow them to enforce the right to demand higher compensation than a license fee based on the FRAND condition.

Therefore, the court indicated that if the patent holder making a FRAND commitment demanded higher compensation than a licence fee on FRAND terms on the basis of his or her patent right, the accused party could deny the demand exceeding the license fee by arguing and proving the fact that the patent holder had pledged a FRAND commitment.

On the other hand, if the patent holder argues and proves that a party producing and selling products compliant with the standard are not willing to be licensed according to the FRAND condition, a claim for damages exceeding the license fee should be allowed.  As such the adverse party does not hope to gain the benefit of licence terms based on the FRAND commitment, the right to damages of the patent holder should not be limited to a license fee according to FRAND conditions.  However, demands for higher compensation than a license fee on FRAND terms has the negative effect noted above, it should be strictly determined that the adverse party is unwilling to be licensed on FRAND terms.
(3) Claim for damages within license fee based on FRAND condition
The court indicated that a claim for damages within the license fee based on FRAND conditions should not be restricted, even if the claim for damages is based on an essential pledged patent.  This is because when people trying to produce or to sell products compliant with the UMTS standard start their business, they should anticipate paying licence fees based on FRAND conditions in the future.  Furthermore, section 3.2 in the IPR policy of ETSI states that ‘IPR holders … should be adequately and fairly rewarded for the use of their IPRs’.  So, this section seeks to ensure the adequate compensation for the patent holder, too.
(4) Anti-Monopoly Act
Apple argued that a series of Samsung’s actions violate the Anti-Monopoly Act.  However, the amount of damages sought by Samsung is no more than the license fee Samsung argues as the license fee based on FRAND conditions, and a claim for damages exceeding a license fee based on FRAND conditions is not allowed because it is an abuse of the right in principle.  Therefore, it is unacceptable on basis of all evidence that a claim for the damages within the license fee based on FRAND conditions violates the Anti-Monopoly Act.
(5) Indication of intention to be licensed according to FRAND condition
It was found that Apple continued negotiations to enter into a licence agreement with Samsung, because Apple presented an upper limit of the royalty rate in a letter dated 18 August 2011, presented a concrete royalty rate along with the basis for calculations multiple times, and conferred with Samsung to negotiate a license agreement intensively.  For this reason, the court determined that Apple had the intention to be licensed according to FRAND conditions.

On the other hand, Samsung argues that Apple did not have a genuine intention to be licensed because Apple avoided entering into the license agreement on purpose by presenting conditions for the licence in its own favour sequentially, without determining the patent to which the licence was applied, and by continuing to argue that its condition did not violate the FRAND condition.

However, according to the purpose and the significance to formulate the standard, it should be strictly determined that Apple is unwilling to be licensed according to FRAND conditions.  As the process of the negotiation on the licence agreement between Apple and Samsung was continuing, Apple was found to be willing to be licensed according to FRAND conditions.  Therefore, the court did not accept Samsung’s argument.
(6) The court’s conclusion
The court determined that Samsung has no right to damages based on the infringement of its patent in respect of two of the four accused Apple products.  The court further found that Samsung’s right to damages against Apple based on the infringement of the further two accused products does not exceed the amount admitted as the license fee. The court dismissed Apple’s other requests.
(7) Contributed public comments
The efficacy of standard-essential patents subject to a FRAND commitment was the main issue in this case.  The Grand Bench of the Intellectual Property High Court invited comments widely from home and abroad because this issue had a huge effect on the development of technologies, how to utilize technologies and so on.  The invitation asked “If a FRAND commitment was pledged on essential patents for a standard formulated by a standardization organization, is the right to demand an injunction and the right to damages restricted in any way?”

Regarding the restriction of the right to demand an injunction on basis of essential patents subject to a FRAND commitment, there were generally three types of comments:
  1. comments saying that it is not proper to restrict the right in any way because the restriction prevents the parties from entering into a license agreement and has harmful effects on technology innovation and the standards work;
  2. comments pointing the so-called hold-up problem and saying that the right to an injunction after FRAND a commitment should be restricted to some extent; and
  3. comments saying that an injunction based on a patent subject to a FRAND commitment should not be allowed at all.
Regarding the right to damages, many comments said that the enforcement of the right to damages should not be restricted, but some comments said that the permitted claimable amount should be limited to a license fee based on the FRAND condition.

Significance of the court’s decision

This decision has great significance firstly in that the Grand Bench of the Intellectual Property High Court expressed its opinion regarding enforcement of patent rights subject to a FRAND commitment.  The decision may greatly influence the relationship between a standard and a patent.  It is also significant that the court invited public comments.

However, according to the court’s decision, if the accused party denies infringement of a patent and enters into dispute with the patent holder, he or she may be deemed an unwilling licensee under FRAND conditions. In this case, the infringer may be liable for much higher compensation than only a license fee under FRAND conditions. Therefore, it is necessary to make a careful judgment about whether or not you have infringed FRAND-pledged patent rights.

About the Author

Daisuke Miyamura is a patent attorney at the Ohtsuki Patent and Trademark Law Firm, where he has worked since 2008 – which was also the year that he qualified as a patent attorney.  Miyamura-san has a Bachelor of Science, and a Master of Science, both from Kyoto University.  He specialises in handling patent matters relating to a range of electrical, electronic and information technologies, including wireless communications, computer hardware and software, and factory automation technology.

The Ohtsuki Patent and Trademark Law Firm was established by Satoshi Ohtsuki in 2001, and has since grown to become one of the leading intellectual property firms in Osaka, filing over 400 patent applications each year at the Japanese Patent Office.

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