FOSS Patents: Funai

Friday, October 18, 2013

ITC starts first FRAND-related public interest consultation since Presidential veto of iPhone ban

In early August, the Obama Administration vetoed an ITC exclusion order relating to older iPhones and iPads on public interest grounds and indicated that it expects the U.S. trade agency to carefully consider the public interest before ordering import bans over FRAND-pledged standard-essential patents (SEPs). But there are still various SEP cases pending before the ITC, and patent holders have already made different suggestions as to how the U.S. trade agency could justify SEP-based exclusion orders in a post-veto world.

Two SEP investigations have reached the stage of a Commission review (the Commission being the six-member decision-making body at the top of the ITC) since the Presidential veto. On September 4, the Commission decided to conduct a full review of a preliminary ruling clearing Nokia, Huawei and ZTE of violation of various InterDigital patents. But in its review notice it stated that it "is not interested in receiving written submissions that address the form of remedy and bonding, if any, or the public interest at this time". This means that if InterDigital obtains a reversal of any non-liability finding, a second round of submissions will have to be requested to address FRAND-related public interest issues.

The fact that the ITC does not request FRAND-related submissions right away on a "just in case" basis could mean that the probability of a liability finding in InterDigital's favor is not too high. But it could also be due to the fact that there are so many liability-related questions to be analyzed in that investigation that the trade agency would need more time anyway if any FRAND questions later became outcome-determinative.

With a view to ITC complaints by the likes of InterDigital I'd like to highlight an opinion piece recently published by the Wall Street Journal, authored by a former ITC commissioner who says the agency "has drifted from its original mission" and has become the "International Trolling Commission". The debate over the ITC's role is part of a wider patent reform discussion in the U.S., and the ITC's jurisdiction over complaints by patent troll as well as its jurisdiction over SEP cases will remain controversial until abolished.

Yesterday the ITC decided to conduct another full review of an investigation involving FRAND issues. That investigation of an LSI/Agere complaint against Funai and Realtek was of interest to a very few people in the world until a federal judge in the Northern District of California ordered a preliminary injunction barring complainants from enforcing an exclusion over over a SEP should they win one against Realtek.

In the LSI/Agere case, the Administrative Law Judge did not find (in a preliminary ruling) Realtek to infringe a SEP, but the ITC's review notice does raise FRAND-relate public interest questions right away. All of the Commission's public interest questions are about FRAND, with a particular focus on negotiations between the parties:

Please discuss and cite any record evidence of the allegedly [F]RAND-encumbered nature of the declared standard essential '663, '958, and '867 patents. With regard to the '958 patent and the '867 patent, what specific contract rights and/or obligations exist between the patentee and the applicable standard-setting organization, i.e., the Institute of Electrical and Electronic Engineers, Inc. (IEEE)? With regard to the '663 patent, what specific contract rights and/or obligations exist between the patentee and the applicable standard-setting organization, i.e., the International Telecommunication Union (ITU)?
Please summarize the history to date of negotiations between LSI and Funai and between LSI and Realtek concerning any potential license to the '663, the '958, and the '867 patents, either alone, in conjunction with each other and/or the '087 patent, and/or in conjunction with non-asserted patents. Please provide copies of, or cite to their location in the record evidence, all offers and communications related to the negotiations including any offer or counteroffer made by Funai and Realtek.
Please summarize all licenses to the '663, the '958, and the '867 patents granted by LSI to any entity including evidence of the value of each patent if such patent was licensed as part of a patent portfolio. Please provide copies of, or cite to their location in the record evidence, all agreements wherein LSI grants any entity a license to these patents. Please also provide a comparison of the offers made to Funai and/or Realtek with offers made to these other entities.
If applicable, please discuss the industry practice for licensing patents involving technologies similar to the technologies in the '663, the '958, and the '867 patents individually or as part of a patent portfolio.
Please identify the forums in which you have sought and/or obtained a determination of a [F]RAND rate for the '663, the '958, and the '867 patents. LSI, Funai and Realtek are each requested to submit specific licensing terms for the '663, the '958, and the '867 patents that each believes are reasoanble and non-discriminatory.
Please discuss and cite any record evidence of any party attempting to gain undue leverage, or constructively refusing to negotiate a license, with respect to the '663, the '958, and the '867 patents. Please specify how that evidence is relevant to whether section 337 remedies with respec to such patents would be detrimental to competitive conditions in the U.S. economy and other statutory public interest factor.

The fifth question is the most interesting one in this particular case because it relates to the proceedings in Judge Whyte's court in Northern California.

The ITC's questions are broad and general. All that can be said at this stage is that the ITC wants to look at these questions in detail, including reasonable royalty rates, an area in which it doesn't have much expertise (if any). I interpret this FRAND questionnaire as an attempt by the ITC to encourage SEP holders to pursue import bans despite the recent veto. Even though it's now going to be harder than before to win a SEP-based exclusion order from the ITC and to actually enforce it, the ITC portrays these FRAND issues as highly case-specific, which is a way of creating legal uncertainty that could result in settlements. And such uncertainty is, in and of itself, not in the public interest.

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Tuesday, September 3, 2013

Philips writes to ITC to defend MPEG LA AVC/H.264 reciprocal-licensing obligation

The grant-back (reciprocal licensing) obligation that licensees of MPEG LA's AVC/H.264 video codec patent pool must respect already came up in connection with Microsoft's enforcement of Google's (Motorola's) FRAND licensing obligations. Google tried to weasel out of that obligation, and Microsoft elected not to sue Google (the parent company) so as not to delay the proceedings against Motorola Mobility (the wholly-owned subsidiary), especially since the court-determined FRAND royalty rate was pretty close to the per-patent equivalent of the MPEG LA pool rate anyway. A Microsoft v. Motorola breach-of-FRAND-pledge jury trial is being held in Seattle as we speak, and the jury will probably try to render a verdict before the weekend.

It's interesting that Philips, a company known especially in European Union politics as a vocal supporter of strong intellectual property protection and known around the world as a top-notch licensor of standard-essential patents (SEPs), is also concerned about certain companies' attempts to shirk their back-licensing obligations and their related requests for injunctive relief, including but not limited to ITC exclusion orders (U.S. import bans). Philips submitted a public interest statement to the ITC in the investigation of an LSI/Agere complaint against Funai and Realtek. That ITC investigation previously drew a lot of attention in standardization circles when a senior district judge in the Northern District of California granted a Realtek motion for a preliminary injunction barring LSI/Agere from enforcing an ITC import ban should it win one at all. Based on the Administrative Law Judge's initial determination, there's no finding of a violation, but such preliminary rulings can be reversed as a result of a Commission review, which is why the parties to the dispute and third-party stakeholders must comment on public interest considerations now.

Given Philips's pro-IP, pro-enforcement tradition, I thought that it was going to make an argument in favor of SEP-based exclusion orders, only to find out that the Dutch electronics giant focused almost exclusively on the MPEG LA grant-back issue. Here's the filing (this post continues below the document):

13-08-30 Philips Submission to ITC on Public Interest Re. Patent Pools by Florian Mueller

The H.264 declared-essential patent Philips exclusively focuses on (apart from a footnote relating to a WiFi patent) was asserted only against Funai, not Realtek. No infringement was identified, but in case this changes during the review, Philips urges the ITC to "deny any relief for the '663 Patent as contrary to the public interest, or in the alternative, direct the ALJ to reopen the factual record to address [the] important patent pool licensing issues [Philips raises in its submission]".

There are certain differences between the Microsoft-Google disagreement on the grant-back obligation and the LSI-Funai dispute, even though both have their basis in the same grant-back clause in the MPEG LA AVC/H.264 patent pool license agreement.

One difference is not central to Philips's argument: LSI allegedly "was a licensor of the H.264 pool" until its "voluntary withdrawal in 2007". Motorola was involved in negotiations on the formation of the pool, but never actually became a licensor. Philips emphasizes that its submission "focuses on LSI's obligations as a pool licensee", which is also Google's status, but not without raising "the additional issue of whether LSI has complied with its more general FRAND obligation by attempting to license [Funai] on discriminatory terms compared to similarly-situated patent pool licenses". Philips, for example, is still licensed to LSI's H.264 patents because it was granted a license (by LSI, through the pool) before LSI's 2007 withdrawal from the pool. This question of discrimination is a very interesting one, but Philips doesn't elaborate on it. We may see it come up in some other context at some point (I'm not aware of anything in the pipeline, but this looks like the kind of issue that might resurface).

Another difference is that Google came up with theories that didn't really convince me as to why the patents held and enforced by its Motorola Mobility subsidiary somehow wouldn't fall within the scope of the grant-back clause. That is not an issue in the LSI case, at least not one that Philips mentions.

The bottommost sentence on page 2 of Philips's submission makes an important public-interest argument specific to the grant-back obligation:

"By ensuring that no licensee can take advantage of the pool license while asserting its own essential patents against other licensees, these commitments protect the incentives of licensors and licensees to join the H.264 pool, and in turn encourage the adoption of the H.264 standard."

I concur with Philips on this one. Hold-up through the pursuit of sales and import bans is totally unacceptable when a reciprocal-licensing obligation exists. The ITC should not allow anyone to perform an end-run around a grant-back obligation. The ITC has set a rather low bar (not infinitely low, but very low) for referring patents to arbitration. It would be inconsistent to make it easy to shirk a reciprocal-licensing obligation by handing someone an import ban over a patent that is reasonably likely to be subject to a grant-back clause.