14th annual Women in IP Law CLE event - DLA Piper

November 17, 2020

14th annual Women in IP Law CLE eventNextGen Connected Everything: 5G, IoT, Blockchain

and WDTX Litigation and FRAND Licensing for 5G –

Are you prepared?

www.dlapiper.com

• Wendy Callaghan, Chief Innovation Officer and Associate General Counsel, AIG

• Tracey Robertson, IP Law Counsel, IBM

• Margo Tank, Partner, US Co-Chair, Financial Services Sector, DLA Piper

2

Part I: NextGen Connected Everything: 5G, IoT, Blockchain

• Artificial Intelligence

• Blockchain

• 3D Printing

• Virtual/Augmented Reality

• XaaS

• Cloud

• Virtual Assistants

• Edge Computing

• IoT /IIoT

• Big Data

• Streaming Data Analytics

Connected Everywhere = Connected Risk

www.dlapiper.com

• Deborah Bould, Partner, Intellectual Property and Technology, DLA Piper

• Erin Gibson, Partner, Patent Litigation, DLA Piper

• Tiffany Miller, Partner, Patent Litigation, DLA Piper

4

Part II: WDTX Litigation and FRAND Licensing for 5G –Are you prepared?

www.dlapiper.com

• Roughly 20 percent of all US patent cases now being filed in the WDTX

• New judge with patent case experience

• Some unique procedures

• Recent trends

5

Western District of Texas

www.dlapiper.com

• Substantive discovery stayed through Markman hearing

• Preliminary infringement contentions served 1 week before case management conference

• Preliminary invalidity contentions served 7 weeks after case management conference

• Markman hearing approximately 6 months after case management conference

• Preliminary constructions

• Oral orders

• Trial approximately 1 year after Markman hearing

Procedures

6


www.dlapiper.com

• Does not favor 101 motions via Rule 12 before Markman and fact discovery

• Has dismissed willfulness and indirect infringement claims via Rule 12 if no prior notice

• Venue transfer

• Resistant to convenience transfers

• Limited venue discovery permitted

• Several writs filed – a few grants of mandamus

• Implications for inter partes review (IPR)

• No stay pending IPR

• Discretionary denial under 35 U.S.C. 314(a): Apple, Inc. v. Fintiv, Inc., Case No. IPR2020-00019 (Paper No. 11) (Designated Precedential on March 20, 2020); Paper No. 15 (Denying Institution)

• Timing for issues on appeal

Hot topics

7


www.dlapiper.com

Fintiv factors

8

Western District of Texas and IPR discretionary denial

1. Whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted

2. Proximity of the court’s trial date to the board’s projected statutory deadline for a final written decision

3. Investment in the parallel proceeding by the court and the parties

4. Overlap between issues raised in the petition and in the parallel proceeding Sand Revolution II LLC v. Continental Intermodal Group – Trucking LLC, IPR2019-01393 (Paper No. 24) (Designated Informative on July 13, 2020)

5. Whether the petitioner and the defendant in the parallel proceeding are the same party

6. Other circumstances that impact the board’s exercise of discretion, including the merits

“These factors relate to whether efficiency, fairness, and the merits support the exercise of authority to deny institution in view of an earlier trial date in the parallel proceeding” (Fintiv at 6)

www.dlapiper.com

• Telecommunications standards – 3G, 4G and 5G

• 3rd Generation Partnership Project (3GPP) provides the environment to develop specifications

• Member companies contribute and negotiate the content of specifications

• 3GPP Partner Organizations (eg, ETSI) deliver the standards

• Intellectual property rights (IPR) policy governs members’ obligations regarding patent rights and the standard

Standards and Patents – landscape

9

Standards Essential Patent (SEP) Licensing

www.dlapiper.com

10

SEP Licensing

ETSI Rules of Procedure, 4 December 2019.

www.dlapiper.com

• What’s fair and reasonable?

• Royalty rate

• Product price?

• Smallest saleable unit (SSU) price?

• Dollar amount per unit?

• Lump sum

• What’s non-discriminatory?

• Other comparable licenses

Licensing terms – Fair, Reasonable and Non-discriminatory (FRAND)

11

SEP Licensing

www.dlapiper.com

• Unwired Planet v Huawei – UK Supreme Court decision, August 2020

• Technologies: 2G, 3G and 4G

• English courts have jurisdiction to determine the terms of a global FRAND SEP portfolio license without the parties’ consent

• Injunctions to prevent infringement of SEPs in the UK will be imposed unless implementers take the FRAND license; damages are inadequate – injunction granted to force Huawei’s hand

• Calculation methodologies:

• Unpacking comparable licenses

• “Top down” cross check – apportioning the total aggregate royalty burden for a standard

• Not yet used in UK: “bottom up” – valuing the incremental technological benefit of the SEP over ex ante alternatives

UK

12

SEP Licensing - European case law update

www.dlapiper.com

0.064

0.032

0.052

0

0.015

0.034

0.1

0.1

0.2

0 0.05 0.1 0.15 0.2 0.25

2G

3G

4G

Unwired Planet Huawei offer Court rate

Major market royalty rates – handsets – percentage of ASP

13

What were the licensing terms?

www.dlapiper.com

• Philips v TCL – UK High Court, September 2020: first seized (2018) and will determine FRAND

• TCL v Philips and ETSI – French Court, February 2020: second case (2019) but also has jurisdiction to continue and determine FRAND terms

UK, France

14


www.dlapiper.com

• Huawei v ZTE (2015) – procedure that licensors and implementers must follow to comply with antitrust law focusing on availability of injunctions

• Sisvel v Haier (2020) – implementer must agree unconditionally to take a FRAND license to avoid an injunction; willingness to negotiate, or requiring Court decisions on validity and infringement first, is not good enough

• Avanci patent pool members (Nokia, Sharp, Conversant); various automotive 4G injunctions

• Nokia v Lenovo (2020) – H.264 injunction, Lenovo an unwilling licensee, but injunction suspended on appeal because the patent is likely invalid; first case to do so

• Possible CJEU reference: component level SEP licensing?

Germany

15


www.dlapiper.com

• Risk of injunction: How valuable are the UK and German markets to you? Might you be prepared to exit them for a period of time?

• Implementers suing first in the US, China and France?

• Getting a great team to value the patent portfolio early in the process

• License to all or access to all? Supplier and licensor positioning; see the 4iP Council paper

• Amplified/GreyB 5G essentiality paper

Points to think about

16

Key commercial implications

www.dlapiper.com

• Leverage against patent owners and PAEs: implementer’s own patent portfolio

• Unified Patents: unifiedpatents.com/

• RPX: rpxcorp.com/

• LOT Network: lotnet.com/

• Open Invention Network: openinventionnetwork.com/

• Google Open Patent Non-Assertion Pledge: google.com/patents/opnpledge/

• Patent pools

• Avanci (5G, 4G, 3G, 2G, automotive focus for now)

• Sisvel – Mobile Communication Platform (4G, 3G), Video Coding Platform (VP9, AV1), etc.

• Via Licensing – Multi-Generational Wireless program (3G, 4G), WiFi (802.11), audio (AAC), etc.

• H.265 video codec (4K, 8K TV): 3 pools – MPEG LA, HEVC Advance, Velos Media

What should you do?

17

SEP Licensing – other options to think about

www.dlapiper.com

• Supplier agreements

• Indemnity: Is it as strong as you think it is?

• Has your supplier actually reported and paid full royalties for the license?

• Enforcement regime

• Other proactive measures

• What is the 5G stack worth on your product?

• Enter low-dollar license to establish something “comparable”?

• Make a declaration of value/amount willing to pay?

What should you do?

18

SEP Licensing

www.dlapiper.com

Thank you

19

All information, content, and materials contained in this program are for informational purposes only. This program is intended to be a general overview of the subjects discussed and does not create a lawyer-client relationship. Statements and opinions are those of the individual speakers, authors, and participants and do not necessarily reflect the policies or opinions of DLA Piper LLP (US). The information contained in this program is not, and should not be used as, a substitute for legal advice. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this program and should seek legal advice from counsel in the relevant jurisdiction. This program may qualify as “Lawyer Advertising,” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. DLA Piper LLP (US) accepts no responsibility for any actions taken or not taken as a result of this program.

www.dlapiper.com

• The Law of Electronic Signatures, Thomson Reuters Publishing (2020 Edition)

• Smart Contracts Legal Primer, Chamber of Digital Commerce (2018)

• eSignature and ePayment News and Trends, monthly newsletter from DLA Piper– available at

www.dlapiper.com under Insights and at the DLA Piper Linkedin Page

• Blockchain and Digital Assets News and Trends, monthly newsletter from DLA Piper– available at

www.dlapiper.com under Insights and at the DLA Piper Linkedin Page

• Special Considerations For Perfection Opinions Covering Electronic Chattel Paper As

Collateral, Journal of Equipment Lease Financing (Spring 2015)

• Enabled by Lenders, Embraced by Borrowers, Enforced by the Courts: What You Need to Know

About eNotes, MERSCORP Holdings, Inc. (2017)

• Electronic Retail Installment Sales Contracts in California, The Review of Banking & Financial

Services, Vol. 33, No.12 (December 2017)

*Please contact presenters for access to Resources

1

Key Digital Transformation Resources

So you want to go digital…

Intellectual Property and Technology News

11 APR 2019

By: Margo H. K. Tank | David Whitaker

In the United States, there are two primary laws – we refer to them below as the eSignature Laws – that make it

possible to present information and sign agreements and other documents electronically in circumstances where a

written document and a "wet" signature would previously have been required.

These two laws bring with them new challenges and, more importantly, potential liability. The design of a system for

signing electronic records, or delivering notices or disclosures electronically, requires a detailed understanding of

the interaction between electronic processes and legal requirements.

This article assists businesses in identifying the core issues that must be addressed to ensure the legal

sufficiency of transactions conducted on eSignature platforms.

We do not attempt to provide a reference to the many other laws that may be applicable to various transactions, or

to any given industry sector. Rather, this is a short analysis of key elements of the eSignature laws applicable to

all industry sectors, providing key minimum requirements and additional guidance with respect to the following:

DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com. This may qualify as

Authority to sign

Authentication

Consent

Delivery and presentation

Signature and attribution

Record management and retention

Part 1: A brief overview of the US eSignature laws

The following two statutes are the primary sources of law for using "electronic records" and "electronic signatures"

in consumer financial services transactions (sometimes collectively referred to as the "eSignature Laws"):

The Electronic Signatures in Global and National Commerce Act (ESIGN) and

The Official Text of the Uniform Electronic Transactions Act, as approved and recommended by the Uniform

Law Commission (formerly the National Conference of Commissioners on Uniform State Laws) in July 1999

(UETA).

While ESIGN is a federal law, UETA is a uniform law recommended by the Uniform Law Commission for adoption

by individual states.

Scope of the eSignature laws

As written, the UETA applies to the use of electronic records and signatures in connection with a "transaction,"

which is defined as "any action or set of actions occurring between two or more persons relating to the conduct of

business, commercial, or governmental affairs." The term "commercial" is meant in its broadest sense,

encompassing virtually any transaction, which is related to or connected with trade and traffic or commerce in

general. As such, both business‑to‑business and consumer transactions are covered. ESIGN has an equivalent

definition covering business, commercial and consumer affairs.

A transaction requires an interaction between at least two parties – a unilateral act, such as the creation of a "living

will," is not included in the definition. Consumer protection laws requiring the delivery of notices and disclosures "in

writing" are among the types of laws and regulations covered by ESIGN and UETA.

There are a few specific exceptions, among them:

Under ESIGN (but not UETA) recordings of oral communications are excluded from the definition of electronic

record for purposes of consumer notices and disclosures.

Under ESIGN (but not UETA), notices of utility termination, default or foreclosure under a mortgage or lease,

termination of health or life insurance, and product recalls and safety notices.

Under ESIGN and UETA, any notices or disclosures required to be provided in writing under the Uniform

Commercial Code, other than notices and disclosures under Article 2 (Sales) and 2A (Leases).

While most of the Uniform Commercial Code, other than Article 2 and 2A, is excluded from coverage under both

UETA and ESIGN, the UCC Articles governing funds transfers, letters of credit, security interests in personal

property and securities all permit the use of electronic records and signatures for most purposes, according to their

own terms. As a result, most types of commercial agreements, and related documents, may now be delivered and

executed electronically.

Some states have added special exclusions not in the UETA. These exclusions do not necessarily mean the

excluded documents cannot be executed electronically; however, the authorization must exist under other law. In

addition, some exclusions may be preempted by the ESIGN Act, described further below.

Three states have their own electronic signature laws: Illinois, New York and Washington. In general, these laws

support the use of electronic records and signatures, and to the extent they conflict with the ESIGN Act, may be

preempted (see below). Documents for use in these states may require additional scrutiny.

Authorization to use electronic signatures and records

For the vast array of laws and transactions within the scope of UETA and ESIGN, the following rules are the pillars

1

2

3

4

5

6

7


on which the two statutes are built:

A record or signature may not be denied legal effect or enforceability solely because it is in electronic form

If a law requires a record to be in writing, an electronic record satisfies the law; and

If a law requires a signature, an electronic signature satisfies the law.

The three pillars, in turn, are built upon three defined terms: record, electronic record and electronic signature.

A record is "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and

is retrievable in perceivable form." This encompasses not only traditional writings, but also anything stored on

magnetic or optical media (such as a computer hard drive or CD‑ROM).

An electronic record is "a record created, generated, sent, communicated, received, or stored by electronic means."

Essentially, the term is intended to cover any type of record generated or stored electronically; as such, it would

cover records created on a computer and stored on any type of media.

An electronic signature is an "electronic sound, symbol, or process attached to or logically associated with a record

and executed or adopted by a person with the intent to sign the record." Included within this definition would be

typed names, a click‑through on a software program's dialog box combined with some other identification process,

biometric measurements (such as a retinal scan or thumbprint), a digitized picture of a handwritten signature, or a

complex, encrypted authentication system. As with traditional ink signatures, the legal consequences of the

signature, and the question of whether it may properly be attributed to a particular person, is left to other law and

the surrounding factual circumstances.

Consent to use electronic records and signatures

The eSignature Laws are opt-in statutes. This means that a set of actions constituting a transaction is covered by

the eSignature Laws only if the parties have agreed to conduct the transaction through electronic means. Consent

to conduct one transaction electronically does not prevent a party from refusing to conduct another transaction

electronically.

Consent may be obtained on a transaction-by-transaction basis, or in the form of a blanket or continuing consent

to perform whole classes of transactions electronically. Unless blanket consent is given, the scope of the

transaction limits the scope of consent. The eSignature Laws do not prescribe standards for determining what chain

of events constitute a single transaction, as opposed to multiple transactions. This should leave the parties free to

determine by agreement what constitutes a single "transaction."

ESIGN includes special consent rules for use in connection with certain consumer transactions (the ESIGN

Consumer Consent Process). The special consent procedure applies if a federal statute, regulation, or other rule of

law calls for information related to a transaction to be provided to a consumer in writing, and should precede

presentation of the material covered by the writing requirement.

The elements of the ESIGN Consumer Consent Process are:

The consumer must affirmatively consent, or confirm prior consent, electronically;

The party obtaining the consumer's consent must provide some specific disclosures prior to consent in clear and

conspicuous statement; and

The consent must "reasonably demonstrate" the consumer's ability to receive electronic records in the formats

that will be used for delivering the required information.

Some states have adopted the ESIGN Consumer Consent Process as part of their state enactment of UETA, so

that it also applies to state laws in those states.

Special rules for electronic records

While ESIGN and UETA set up no special standards for the use of electronic signatures, they do have a number of

special rules for electronic records that are intended to substitute for certain types of writings. These rules include:

If a person is required by law to provide or deliver information in writing to another person, an electronic record

only satisfies that requirement if the recipient may keep a copy of the record for later reference and review. If

8

9

10

11

12

13


the sender deliberately inhibits the recipient's ability to print or store the record, then the record doesn't satisfy

the legal requirement.

If a law or regulation requires that a record be retained, an electronic record satisfies that requirement only if it is

accurate and remains accessible for later reference. UETA does not establish for how long the record must be

retained or to whom it must remain accessible. ESIGN provides that the record must be accessible to all people

entitled by law to access it for the retention period prescribed by law.Neither statute requires that the electronic

record necessarily be accessible in a particular place – the parties entitled to access can, by agreement,

establish a storage location.

If a particular writing is required by law to be displayed in a particular format, UETA does not change that

requirement. For example, if a law requires a notice to be printed in at least 12‑point type and a boldface font,

that requirement remains in place under UETA. If the law requires two elements of a document to be placed in a

particular physical relationship to each other or some other part of the document, that requirement is not

changed by UETA. For example, if the law requires a disclosure to be displayed just above a contracting party's

signature, that rule must be observed within the electronic record.

If a law expressly requires a writing to be delivered by US mail or by hand delivery, UETA does not change

those delivery rules.

Generally speaking, these rules are not variable by agreement under either ESIGN or UETA; however, under UETA

if the underlying statutory requirement that information be delivered in writing, or by a particular delivery method,

may be varied by agreement, then the requirement that an equivalent electronic record be capable of storage, or

be delivered by the same method as a writing, may also be waived.

Permitting electronic records to substitute for writings serves little purpose if the records are not admissible in

evidence in the event of a dispute. The rule is simple: a record or signature may not be excluded from evidence

solely because it is in electronic form. An electronic record also qualifies as an original, even if that record is not

the original form of the document, and satisfies statutory audit and record retention requirements. Beyond that,

the ordinary rules of evidence will apply.

Federal preemption – which law applies?

ESIGN, as a federal law, governs both federal and state laws governing a transaction affecting interstate

commerce. ESIGN gives states limited authority to "modify, limit or supersede" the provisions of section 101 of

ESIGN (which contains the act's provisions giving legal recognition to the use of electronic records and

signatures). States may "modify, limit or supersede" section 101 of ESIGN by adopting either:

the official text of UETA or

any other law that specifies "alternative procedures or requirements for the use or acceptance" of electronic

records or signatures, but only if those alternative procedures or requirements are:

"consistent" with the substantive provisions of the act and

neither require nor accord preferred status to the use of a specific technology or technical specification for

electronic records or signatures.

This generally means that any provisions of state law that are inconsistent with section 101 of ESIGN, other than

provisions that are part of the Official Text of UETA, are preempted by ESIGN with respect to any transaction

affecting interstate commerce.

Documents requiring special treatment

Some documents that are otherwise eligible for electronic records and signatures require special treatment or are

subject to special rules. These documents include:

Documents evidencing debt obligations secured by specific goods or leases of specific goods (eg,automobile

purchase loans, leases and retail installment sales contracts)

Documents evidencing a transfer of an interest in real property

Documents that must be notarized

Documents filed with a public office

Powers of attorney

Negotiable promissory notes

14

15

16

17

18 19

20

21

22


IRS Forms

Special review with legal counsel is required for documents falling in these categories.

Part II: Minimum requirements and additional guidance

Capitalized terms are defined in the glossary at the end of the table.

Topic Minimum Requirements Additional Guidance

Consent Each party to the transaction must

agree to use electronic records and

electronic signatures in place of written

documents and manual signatures. This

agreement may be express, or implied

from the circumstances, except for

consumer transactions, where the

ESIGN Consumer Consent Process

must be followed.

Consent for business-to-business transactions

does not need to be written or expressly stated –

it can be implied from the circumstances (such as

using an online signing process). However, for

commercial transactions consent is generally

evidenced by:

Entering into an express, separate agreement

or statement of consent to use electronic

records and signatures and/or

Including provisions for the use of electronic

records and signatures in the transaction

documents (See the sample terms attached as

Appendix B).

For most consumer transactions, the ESIGN

Consumer Consent Process must be completed.

This special consent procedure applies if a

statute, regulation, or other rule of law calls for

information related to a transaction to be provided

to a consumer in writing, and should precede

presentation of the material covered by the writing

requirement. The elements of the ESIGN

Consumer Consent Process are:

The consumer must affirmatively consent, or

confirm prior consent, electronically

The party obtaining the consumer’s consent

must provide some specific disclosures prior to

consent in clear and conspicuous statement

and

The consent must "reasonably demonstrate"

the consumer's ability to receive electronic

records in the formats that will be used for

delivering the required information.

Authority Transaction participants must have

authority to engage in the transaction

and to make agreements.

In most consumer transactions, authority is based

on the individual’s competence to contract.

In commercial transactions, authority is

established through processes that are

independent of the process used to present

electronic records and obtain electronic signatures

as part of the transaction. For example,

documentation appropriate to show necessary

authority to engage in the transaction:



Articles of incorporation or organization

Operating agreements

Bylaws

Corporate resolutions

Certifications

Evidence appropriate to show necessary

representative authority:

Self-authentication (eg, business card)

Positive authentication (eg, individual’s name

and title conform to information published by a

trusted third party)

Third-party authentication (eg, the transacting

company certifies that the individual holds the

appropriate business title)

Authentication Generally, the identity of the transaction

participants must be established in some

manner. Authentication includes:

Confirming a transaction participant's

actual identity or status as an

authorized business representative at

the beginning of the transactions

("initial authentication") and

Confirming that the same person

initially identified as a transaction

participant continues to be the person

participating in the transaction

("ongoing authentication").

Initial authentication of participants in a business

transaction usually focuses on the participant's

business title or role and authority to act as the

representative of a business entity. It is less

common for authentication to focus on the

participant’s actual identity as an individual. In

other words, the process often focuses on

whether the individual actually holds the business

position/title being asserted, and whether the

individual has been authorized to enter into the

transaction, and not on whether the individual is

actually "Fred Smith."

Methods of initial authentication for business

transactions, for example, could include:

Self-authentication (optionally combined with):

Positive authentication (eg, obtain the

person’s contact information, including

business email address and telephone

number, and/or

Negative authentication (eg, confirm that

office address is not a known mail drop or

temporary office suite) and

Positive authentication – certification or

verification documents from the represented

entity or a trusted third party.

Logical authentication – the information

provided by the transaction participant is

checked to make sure it is logically consistent.

Negative authentication – the information

provided by the transaction participant is

checked to determine if it has previously been

associated with fraudulent transactions or

identity theft.

Knowledge-based authentication – KBA can be

used if the actual identity of the transaction



participant is also relevant.KBA authentication

is a combination of positive, negative and

trusted-third party authentication.

Ongoing authentication of the participant also

needs to be addressed.

Delivery and

presentation

Electronic records should be presented

in a way that is easy to identify,

navigate and read.

Electronic records should be presented

at the appropriate time and sequence in

the context of the transaction.

Disclosures, notices and agreement terms should

generally be placed by any decision the

transaction participant is asked to make by

checking a box, clicking a button or creating an

electronic signature.

Electronic records may be displayed behind

properly labeled hyperlinks. When using

hyperlinks, always take into account general

principles of fairness and state and federal

prohibitions against unfair and deceptive

practices. As a related matter, whenever possible,

businesses often include in their agreements,

terms governing sending and receipt of email.

These terms usually include a description of the

delivery methods, such as attaching the

electronic record to an email or making the

electronic record available at a particular website.

Where delivery is necessary and is provided via

email, it is common for the sender to monitor its

systems for notice of actual delivery failures and

to re-send or send via traditional means in the

event of a bounce back or other notice of

non-delivery.

Electronic signature Examples of electronic signatures

include click-through, holographic or

digitized signatures, check boxes/radio

buttons, process-based (including digital

signatures using system-generated

digital certificates), oral recordings.

The electronic signature, or the process

through which the electronic signature is

created, should:

Establish the signer's intent to create

the signature and

Attach the electronic signature to, or

logically associate the electronic

signature with, the record being

signed.

Confirm that a previously identified

transaction participant is the person

accessing, reviewing and/or signing

the electronic records ("ongoing

authentication").

Intent can be established if, for example, the

transaction is structured so that language

evidencing the signer's intent to be bound by his

electronic signature is presented to the transaction

participant on or just prior to the electronic record

to be electronically signed.

Electronic signatures are often attached or

embedded in electronic records as graphic

symbols. However, certain types of electronic

signatures, such a click-through signatures, are

not usually attached or embedded in the electronic

record. Those signatures are often logically

associated with the signed electronic record

through an audit trail tying the signature to the

signed electronic record — this is often part of the

same process used to establish attribution of the

electronic signature to the signer (see below).



Attribution The electronic signature process must

create and preserve evidence of the

identity of the person who signed for the

signed electronic record to be

enforceable against the signer.

A signature is attributable to a person if it was the

act of the person. The act may be shown in any

manner, including a showing of the efficacy of

any security procedure (such as a password or

PIN) applied to determine the person to whom the

electronic signature was attributable. Moreover,

the effect of an electronic signature attributed to

a person is determined by the context and

surrounding circumstances at the time of its

execution or adoption, including the transaction

participants' agreement.

Audit trails Evidence of each electronic signature

that is either incorporated into, or

logically associated with, a signed

electronic record should be captured in

an audit trail and should include data

relevant under the circumstances and

appropriate to the type of Electronic

Signature and the transaction.

Data captured by the audit trail will usually include

the following:

The date and time the person accesses the

system

Confirmation that the person accessing the

system has successfully completed the

applicable authentication process

The date, time, and system identifier of each

electronic record accessed by the person on

the system for review and signing, and the

identity of the person accessing the electronic

records

The date and time each electronic record is

signed, the system identifier for the electronic

record being signed, and the identity of the

person signing the electronic record

The role in which the person was signing

Association of the authentication process with

the person to whom the user ID and password

was assigned, and also, as of the date of

signing, the actions the person was authorized

to take on the system.

Record retention by

the provider of the

electronic record

To satisfy the rules of evidence related

to business records, it must be possible

to establish that the integrity and

reliability of the Electronic Records have

been protected since the time they were

first presented for effect or signed, as

applicable.

It should be possible to logically associate

material transaction data through identifiers that

may be both used within the transaction system

and transmitted to other systems for

management and storage.

For electronic records to be validly retained, it is

necessary:

That each electronic record accurately reflects

the information in the document

That the electronic record remains accessible

to all persons entitled by law to access for the

period of time required by law and

That the electronic record is in a form capable

of being accurately reproduced for later

reference.



Record retention by

the recipient of the

electronic record

Counterparty must have opportunity to

retain copies of the documents,

including a fully executed copy that

includes FCA's signature.

The transaction process should include the ability

to print or save documents while the transaction is

ongoing and delivering fully executed copies of all

documents once the transaction is concluded.

Glossary

Term Definition

Authentication Authentication refers to the process of identifying a transaction participant.

There are two types of authentication (each defined in this glossary):

Initial authentication

Ongoing authentication

Authentication process Refers to the process chosen to perform initial or ongoing authentication, and

can include the following:

Self-authentication

Positive authentication

Logical authentication

Negative authentication

Third-party authentication

Credentials

KBA (see definition below)

Commercial transaction A commercial transaction is a transaction between a company and FCA for a

business purpose.

Audit trail Documentation and electronic records generated by a technology platform or

system which evidence the delivery of, display of, presentation of, access to,

consent to, and/or signing of, and ongoing integrity and accuracy of, electronic

records.

Company Legal entities that are created by law. The most common types include

corporations, general partnerships, limited partnerships, limited liability

companies and trusts.

Consumer An individual who is entering into a relationship or participating in a transaction

for personal, family or household purposes, and also a legal representative

(such as a guardian) of such an individual.

Consumer transaction A Transaction entered into between a consumer and FCA.

Credential A token, device or process provided to a transaction participant to authenticate

his or her identity in connection with a transaction or series of transactions.

Examples include PINs, passwords, digital certificates, stored biometric

measurements and random-number generators.

Electronic record A record created, generated, sent, communicated, received or stored by

electronic means.


Electronic signature An electronic sound, symbol or process attached to or logically associated with

a record and executed or adopted by a person with the intent to sign the record.

ESIGN Act The federal Electronic Signatures in Global and National Commerce Act

ESIGN consumer consent

process

The process required under the ESIGN Act and under the UETA in some states

for obtaining consent from consumers for electronic delivery of information

otherwise required by law to be delivered in writing

ESIGN contract terms Provisions added to transaction agreements concerning specific issues related

to the use of electronic records (eg, delivering notices electronically).

Initial authentication Initial authentication is generally performed in connection with the creation of a

relationship and can refer to the authentication of a transaction participant's

actual identity or the transaction participant's identity as an authorized

representative of an organization.

KBA Knowledge-based authentication. KBA uses private information about an

individual to prove that the person providing such information is the person

being identified.

Logical authentication The information provided by the transaction participant is checked to make sure

it is logically consistent.

Negative authentication The information provided by the transaction participant is checked to determine

if it has previously been associated with fraudulent transactions or identity

theft.

Ongoing authentication Ongoing authentication is generally performed in connection with the transaction

participant's participation in a transaction and can be used to confirm a

transaction participant's identity as established during the initial authentication.

Participant See transaction participant below.

PDF Portable document format.

Positive authentication The information provided by the transaction participant is confirmed with a

trusted external source of information.

Record Information that is inscribed on a tangible medium or that is stored in an

electronic or other medium and is retrievable in perceivable form. All paper

documents are records, but not all records are paper documents.

Rule of law A statute, court decision, regulation or ordinance.

Rules of evidence The Federal Rules of Evidence and the Uniform Rules of Evidence

Self-authentication The transaction participant provides a declaration of identity.

SMS Short message service. Commonly referred to as text messaging.

Third-party authentication The identity of the transaction participant is confirmed by a trusted third party.

Transaction An action or set of actions occurring between two or more persons relating to the

conduct of business, consumer or governmental affairs. Transactions include,

but are not limited to, the following: consumer loans and leases, including

post-funding authorizations; commercial loans and leases, including crop

insurance and post-funding authorizations; equipment loans and leases; real

estate related loans and leases; procurement contracts; routine third-party

contracts; internal signature processes, including HR; and intellectual property


agreements.

Transaction participant (or

participant)

A person that is an active participant in a transaction.

Trusted third party A person, other than the signer or the person entitled to enforce the signed

record, who is in the business of providing services intended to enhance (i) the

trustworthiness of the process for signing electronic records using an electronic

signature; or (ii) the integrity and reliability of the signed electronic records.

UETA The Uniform Electronic Transactions Act as approved and recommended by the

Uniform Law Commission in July 1999.

AUTHORS

Margo H. K. TankPartner

Washington, DC | T: +1 202 799 4000

[email protected]

1 15 U.SC. §§ 7001 et seq.

National Conference of Commissioners on Uniform State Laws, Final Draft of Uniform Electronic Transactions Act (July 1999), available at2

http://www.uniformlaws.org/shared/docs/electronic%20transactions/ueta_final_99.pdf (last visited March 23, 2018). UETA §§ 3, 2(16).3

15 U.S.C. § 7001 et seq.; 15 U.S.C. § 7006(13). 4

15 U.S.C. § 7001(c)(6).5

15 U.S.C. § 7003(b).6

UETA § 3(b)(2); 15 U.S.C. § 7001(b)(2).7

UETA § 7; 15 U.S.C. § 7001(a).8

UETA § 2(13); 15 U.S.C. § 7006(9).9

UETA § 2(7); 15 U.S.C. § 7006(4).10

UETA § 2(8); 15 U.S.C. § 7006(5).11

UETA § 5(e), 9(b).12

15 U.S.C. § 7001(c).13

UETA §§ 8 & 12(a); 15 U.S.C. § 7001(d) & (e)14

UETA § 8(d).15

UETA § 13; 15 U.S.C. § 7001(a). There is a special provision in ESIGN that would permit use of electronic delivery in lieu of mail delivery if certain16

conditions are met. See 15 U.S.C. § 7001 (c)(2)(B).

UETA § 12(d); 15 U.S.C. § 7001(d)(3).17

15 U.S.C. § 7002.18

15 U.S.C. § 7001. Note that the other provisions of ESIGN are not superseded by state law.19

Id.20

Subject to special rules under § 9-105 of the Uniform Commercial Code.21

Subject to special rules under 15 U.S.C. § 7021 and UETA § 16. 22


David WhitakerPartner

Chicago | T: +1 312 368 4000

[email protected]


United States Court of Appeals for the Federal Circuit

______________________

IN RE: APPLE INC., Petitioner

______________________

2020-135 ______________________

On Petition for Writ of Mandamus to the United States

District Court for the Western District of Texas in No. 6:19-cv-00532-ADA, Judge Alan D. Albright.

______________________

ON PETITION AND MOTION ______________________

MELANIE L. BOSTWICK, Orrick, Herrington & Sutcliffe LLP, Washington, DC, argued for petitioner. Also repre-sented by ABIGAIL COLELLA, New York, NY; MELANIE HALLUMS, Wheeling, WV; JOHN GUARAGNA, DLA Piper US LLP, Austin, TX.

CHRISTIAN JOHN HURT, The Davis Firm, P.C., Longview, TX, argued for respondent Uniloc 2017 LLC. Also represented by WILLIAM DAVIS.

______________________

Before PROST, Chief Judge, MOORE and HUGHES, Circuit Judges.

Order for the court filed by Chief Judge PROST. Dissent filed by Circuit Judge MOORE.

PROST, Chief Judge. O R D E R

Case: 20-135 Document: 55 Page: 1 Filed: 11/09/2020

IN RE: APPLE INC. 2

Apple Inc. petitions this court for a writ of mandamus directing the United States District Court for the Western District of Texas (“WDTX”) to transfer the underlying pa-tent infringement suit to the United States District Court for the Northern District of California (“NDCA”) pursuant to 28 U.S.C. § 1404(a). Uniloc 2017 LLC opposes. Uniloc also moves to file a sur-reply brief and to supplement the record.

We grant Uniloc’s motions to file a sur-reply and to sup-plement the record. For the reasons below, we grant Ap-ple’s petition.

BACKGROUND In September 2019, Uniloc sued Apple in the Waco Di-

vision of WDTX, alleging that several Apple products in-fringe U.S. Patent No. 6,467,088 (“the ’088 patent”). App. 16. According to Uniloc, “Apple’s software download functionality, including how Apple determines compatibil-ity for application and operating system software updates through the App Store, infringes the ’088 patent.” Re-sponse Br. 4. The “Accused Products include Apple devices that run iOS and macOS-based operating systems.” Id.

In November 2019, Apple moved to transfer the case to NDCA on the basis that it would be clearly more conven-ient to litigate the case in that district. App. 84; see also 28 U.S.C. § 1404(a). To support its motion, Apple submit-ted a sworn declaration from Michael Jaynes, a senior fi-nance manager at Apple. App. 105.

In January 2020, Apple moved to stay all activity in the case unrelated to its transfer motion pending a decision on the motion. App. 166–73. The district court denied the stay motion without explanation in a text entry on the docket. App. 7. The parties completed briefing and discov-ery on transfer in February 2020. App. 4–9.

The district court held a hearing on Apple’s motion on May 12, 2020, during which the court stated that it would deny the motion and issue a written order as soon as pos-sible. App. 10, 296. After the hearing, but before issuing a written order, the court held a Markman hearing, issued its claim construction order, held a discovery hearing


IN RE: APPLE INC. 3

regarding the protective order in the case, and issued a cor-responding discovery order. App. 11. In response to these advances in the case, on June 15, 2020, Apple filed this pe-tition for a writ of mandamus. The district court issued its order denying transfer a week later, on June 22, 2020. S. App. 1–34.

DISCUSSION The writ of mandamus is an extraordinary remedy

available to correct a clear abuse of discretion or usurpa-tion of judicial power. Cheney v. U.S. Dist. Ct., 542 U.S. 367, 380 (2004). “In reviewing a district court’s ruling on a motion to transfer pursuant to § 1404(a) [on mandamus re-view], we apply the law of the regional circuit,” in this case the Fifth Circuit. See In re Barnes & Noble, Inc., 743 F.3d 1381, 1383 (Fed. Cir. 2014). “A district court abuses its discretion if it: (1) relies on clearly erroneous factual find-ings; (2) relies on erroneous conclusions of law; or (3) mis-applies the law to the facts.” In re Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc) (“Volkswagen II”) (quoting McClure v. Ashcroft, 335 F.3d 404, 408 (5th Cir. 2003)). As “the distinction between an abuse of discre-tion and a clear abuse of discretion cannot be sharply de-fined for all cases,” “[o]n mandamus review, we review for these types of errors, but we only will grant mandamus re-lief when such errors produce a patently erroneous result.” Id. “To determine whether a district court clearly abused its discretion in ruling on a transfer motion, some petitions for mandamus relief that are presented to us require that we ‘review[] carefully the circumstances presented to and the decision making process’ of the district court.” Id. at 312 (alteration in original) (quoting In re Horseshoe Ent., 337 F.3d 429, 432 (5th Cir. 2003)).

In general, three conditions must be satisfied for a writ to issue: (1) the petitioner must demonstrate a clear and indisputable right to issuance of the writ; (2) the petitioner must have no other adequate method of attaining the de-sired relief; and (3) the court must be satisfied that the writ is appropriate under the circumstances. Cheney, 542 U.S. at 380–81. In the § 1404(a) transfer context, however, the test for mandamus essentially reduces to the first factor, given that “the possibility of an appeal in the transferee


IN RE: APPLE INC. 4

forum following a final judgment . . . is not an adequate al-ternative,” and that “an erroneous transfer may result in judicially sanctioned irreparable procedural injury.” In re McGraw-Hill Glob. Educ. Holdings LLC, 909 F.3d 48, 56 (3d Cir. 2018) (internal quotation marks omitted); see also In re TS Tech USA Corp., 551 F.3d 1315, 1322 (Fed. Cir. 2008). Accordingly, the issue on appeal is whether Apple has shown a clear and indisputable right to issuance of the writ.

I Before addressing the merits of Apple’s petition, we

first consider Uniloc’s argument that Apple waived a num-ber of arguments by failing to raise them in its petition.

Apple filed its petition on June 15, 2020—one week be-fore the district court issued its written order denying transfer and more than one month after the court held a hearing on the transfer motion and orally indicated that it would deny the motion. Apple’s reply brief, however, was filed after the district court issued its written order deny-ing transfer. Uniloc moved to file a sur-reply on the basis that Apple’s reply brief raised “new points of error” not raised in the petition because Apple incorrectly guessed in its pre-order petition as to the bases on which the district court would support its order denying transfer. See Op-posed Non-Confidential Motion of Respondent for Leave to File Sur-Reply Brief (July 13, 2020), ECF No. 39; see also Response Br. 11 (arguing that Apple “guessed wrong [in its petition] at how the [district court] would rule on a number of factors” and, as a result, failed “to challenge several find-ings at all” in the initial petition). In its sur-reply, Uniloc addresses the merits of the arguments it contends Apple first raised in its reply brief and further argues that Apple’s purportedly newly raised arguments are waived. See Sur-Reply Br. 1. Apple defends its pre-order filing, explaining that “[g]iven the rapid progression of this case, [it could not] wait any longer for a written order before seeking mandamus to prevent the case from moving forward in an inconvenient venue.” Pet. 10–11.

Ordinarily, an appellant waives issues or arguments not properly raised in its opening brief. See Becton


IN RE: APPLE INC. 5

Dickinson & Co. v. C.R. Bard, Inc., 922 F.2d 792, 800 (Fed. Cir. 1990). “This practice is, of course, not governed by a rigid rule but may as a matter of discretion not be adhered to where circumstances indicate that it would result in ba-sically unfair procedure.” Id.; see also Harris Corp. v. Er-icsson Inc., 417 F.3d 1241, 1251 (Fed. Cir. 2005) (“An appellate court retains case-by-case discretion over whether to apply waiver.”). To the extent Apple raises new arguments in its reply brief in response to the district court’s order, we exercise our discretion to not apply waiver because doing so would be unfair under the circumstances.

Although district courts have discretion as to how to handle their dockets, once a party files a transfer motion, disposing of that motion should unquestionably take top priority. E.g., In re Horseshoe, 337 F.3d at 433 (explaining that transfer motions should take “top priority” in the han-dling of a case); McDonnell Douglas Corp. v. Polin, 429 F.2d 30, 30 (3d Cir. 1970) (“To undertake a consideration of the merits of the action is to assume, even temporarily, that there will be no transfer before the transfer issue is de-cided. Judicial economy requires that another district court should not burden itself with the merits of the action until it is decided that a transfer should be effected.”); In re Nintendo Co., 544 F. App’x 934, 941 (Fed. Cir. 2013) (ex-plaining that “a trial court must first address whether it is a proper and convenient venue before addressing any sub-stantive portion of the case”); In re EMC Corp., 501 F. App’x 973, 975 (Fed. Cir. 2013) (acknowledging the “importance of addressing motions to transfer at the outset of litiga-tion”).

Instead, the district court barreled ahead on the merits in significant respects, prompting Apple to file its manda-mus petition before the district court issued its transfer or-der. For example, the court held a Markman hearing, issued its claim construction order, held a discovery hear-ing, and issued a corresponding discovery order. App. 11. These are not merely rote, ministerial tasks. Indeed, a Markman hearing and claim construction order are two of the most important and time-intensive substantive tasks a district court undertakes in a patent case.


IN RE: APPLE INC. 6

Given Apple’s concern over the rapid progression of this case, Apple filed its petition before the district court issued its transfer order. In the petition, Apple addressed what it believed would be the court’s likely reasons for its denial of the motion. Apple was first able to directly ad-dress the district court’s order in its reply brief. On these facts, and because we grant Uniloc’s motion to file a sur-reply, we decline to apply waiver.1

II As to the merits, under 28 U.S.C. § 1404(a), “[f]or the

convenience of parties and witnesses, in the interest of jus-tice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have con-sented.” Under Fifth Circuit law, to prevail on its transfer motion before the district court, Apple bore the burden of demonstrating that “the transferee venue is clearly more convenient.” Volkswagen II, 545 F.3d at 314. The district court denied that motion. On mandamus review, Apple bears the burden of demonstrating that the court’s denial amounted to a clear abuse of discretion. Id. at 308.

The Fifth Circuit assesses transfer requests using the well-established private and public interest factors. Id. at 315. “The private interest factors are: ‘(1) the relative ease of access to sources of proof; (2) the availability of compul-sory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expedi-tious and inexpensive.’” Id. (quoting In re Volkswagen AG,

1 To the extent this order could be construed as con-

doning pre-order mandamus petitions, we take care to em-phasize the particular circumstances of this case: namely, the district court heavily prioritized the merits of the case, and Uniloc was allowed a sur-reply. We also note that Ap-ple’s decision to file a pre-order petition was not without consequence to Apple. Indeed, Apple was only able to file one brief directly responding to the district court’s argu-ments, and Uniloc, through its sur-reply, received both the last word and extra space for briefing.


IN RE: APPLE INC. 7

371 F.3d 201, 203 (5th Cir. 2004) (“Volkswagen I”)). And “[t]he public interest factors are: ‘(1) the administrative dif-ficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the famil-iarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws [or in] the application of foreign law.’” Id. (alteration in original) (quoting Volkswagen I, 371 F.3d at 203).

The parties agree that the third and fourth public in-terest factors are neutral in this case but dispute whether the remaining factors weigh for or against transfer. See Pet. 34; Response Br. 11. We conclude that Apple has demonstrated that the district court clearly abused its dis-cretion in denying transfer.2 We discuss the relevant pri-vate and public interest factors in turn.

A. Relative ease of access to sources of proof The district court concluded that the first private inter-

est factor—the relative ease of access to sources of proof—“weighs slightly in favor of transfer.” S. App. 15; see also S. App. 22. The court divided its analysis between the lo-cation of witnesses and the location of relevant documents.

The district court determined that “the location of wit-nesses weighs in favor of transfer,” because “Apple pro-vides sufficient argument that most relevant party witnesses are located in NDCA.” S. App. 21. Even after taking potential third-party witnesses into account, the

2 The dissent states in its conclusion that Apple’s

“petition itself does not raise many of the arguments the majority relies upon in its decision.” Dissent at 12. To the extent this statement might be misconstrued as suggesting that we have relied on arguments not advanced by Apple, that is not the case. For the reasons explained above, we have not applied waiver under the circumstances here. Therefore, we have considered all the arguments in the papers before us, including those in Apple’s reply brief and in the sur-reply we permitted Uniloc to file.


IN RE: APPLE INC. 8

district court concluded that “the greater balance of wit-nesses . . . are located within NDCA.” S. App. 21–22.

The court concluded that “the location of relevant doc-uments was neutral.” S. App. 22; see also S. App. 19. In reaching this conclusion, the court credited “Uniloc’s argu-ment concerning the physical location of its documents” in a different Texas district as being closer to WDTX than NDCA. S. App. 19. With respect to Apple, the court noted that Apple’s campus in Austin, Texas houses revenue and accounting documents that the court concluded might be “relevant to ascertaining what damages Uniloc could argue at trial and Uniloc’s inducement claim.” S. App. 20. The court also highlighted that Apple’s Austin campus might house instruction documents relevant to Uniloc’s induce-ment claim. Id. The court further noted that Apple owns content delivery network (“CDN”) servers in the Northern District of Texas that might be relevant because Apple uses the CDN “to store and distribute apps and other content of the accused App Store.” Id. With respect to third parties located within WDTX, the district court explained that “Flextronics, the third-party manufacturer of an Accused Product, may have relevant documents,” but that such doc-uments may be “duplicative” of what Apple will itself pro-duce. Id. For these reasons, the court found “that there are documents relevant to this case located in this District, such that Apple has not shown it is clearly more convenient to transfer this case to NDCA.” Id.

The district court ultimately determined that because the location of witnesses weighs in favor of transfer, but the location of documents was neutral, the first private interest factor “weighs slightly in favor of transfer.” S. App. 15; see also S. App. 22.

The district court legally erred in considering wit-nesses as “sources of proof” for purposes of the first private interest factor. This factor relates to the ease of access to non-witness evidence, such as documents and other physi-cal evidence; the third private interest factor—the cost of attendance for willing witnesses—relates to the conven-ience of each forum to witnesses. See, e.g., Volkswagen II, 545 F.3d at 316–18; see also Duha v. Agrium, Inc., 448 F.3d 867, 876 (6th Cir. 2006) (“Access to non-witness sources of


IN RE: APPLE INC. 9

proof, including documents in particular, is properly con-sidered as part of the ease-of-access factor.”); In re Acer Am. Corp., 626 F.3d 1252, 1255–56 (Fed. Cir. 2010) (analyzing witness convenience under the third private interest factor and documentary and physical evidence under the first pri-vate interest factor). If witness convenience is considered when assessing both the first and third private interest fac-tors, witness convenience will be inappropriately counted twice.

The district court also misapplied the law to the facts in analyzing the location of relevant documents. Notably, in its substantive analysis of this factor, the district court failed to even mention Apple’s sources of proof in NDCA, much less meaningfully compare them to proof in or nearer to WDTX. Rather, the district court concluded that the fac-tor was neutral merely because there existed some “docu-ments relevant to this case located in the District, such that Apple has not shown it is clearly more convenient to transfer this case to NDCA.” S. App. 20. The district court’s analysis confuses Apple’s burden of demonstrating that the transferee venue is clearly more convenient with the showing needed for a conclusion that a particular pri-vate or public interest factor favors transfer. Indeed, a fac-tor can favor transfer even if that factor is, standing alone, insufficient to warrant transfer. See, e.g., Volkswagen II, 545 F.3d at 315; Action Indus., Inc. v. U.S. Fidelity & Guar. Co., 358 F.3d 337, 340 (5th Cir. 2004). And although we credit the district court’s determination that some relevant documents are located in WDTX, the movant need not show that all relevant documents are located in the transferee venue to support a conclusion that the location of relevant documents favors transfer. Nor is this factor neutral merely because some sources of proof can be identified in the district. The district court erred in holding otherwise.

Even to the extent the district court’s order can be in-terpreted as attempting to conduct an appropriate compar-ison of the ease of access to sources of proof in the two forums, the court erred by overemphasizing the sources of proof in or nearer to WDTX and failing to meaningfully consider the sources of proof in NDCA. “In patent infringe-ment cases, the bulk of the relevant evidence usually comes


IN RE: APPLE INC. 10

from the accused infringer. Consequently, the place where the defendant’s documents are kept weighs in favor of transfer to that location.” In re Genentech, Inc., 566 F.3d 1338, 1345 (Fed. Cir. 2009). In his sworn declaration, Mr. Jaynes stated that Apple stores a significant amount of rel-evant information in NDCA, including the relevant source code, Apple records relating to the research and design of the accused products, and marketing, sales, and financial information for the accused products. See, e.g., App. 115–16 ¶¶ 23, 30; App. 119 ¶¶ 47, 48; App. 184; Pet. 29–30. Nei-ther the district court nor Uniloc disputes that such records are located in NDCA. Mr. Jaynes also stated in his sworn declaration that he was unaware of any relevant docu-ments in WDTX. App. 119 ¶ 49. Again, although we credit the district court’s identification of some relevant proof lo-cated in or nearer to WDTX, the district court erred by fail-ing to meaningfully consider the wealth of important information in NDCA.

While we note these errors, we need not reweigh the evidence (or, rather, weigh Apple’s evidence in the first in-stance), or otherwise disturb the district court’s ultimate conclusion that the location of relevant documents is neu-tral, because the remainder of the factors convince us that transfer is appropriate and that the court clearly abused its discretion in concluding otherwise. B. The availability of compulsory process to secure the at-

tendance of witnesses The district court concluded that the second private in-

terest factor—the availability of compulsory process to se-cure the attendance of witnesses—was neutral in this case. S. App. 23–24. On review, we see no reason to disturb the district court’s conclusion on this factor.

C. The cost of attendance for willing witnesses Next we turn to “an important factor, the convenience

for and cost of attendance of witnesses.” Genentech, 566 F.3d at 1343. In analyzing this factor, the Fifth Circuit uses the “100-mile rule,” which provides that “[w]hen the distance between an existing venue for trial of a matter and a proposed venue under § 1404(a) is more than 100 miles, the factor of inconvenience to witnesses increases in direct



relationship to the additional distance to be traveled.” Volkswagen II, 545 F.3d at 317 (quoting Volkswagen I, 371 F.3d at 204–05).

In Genentech, this court—applying Fifth Circuit law—held that “the ‘100-mile’ rule should not be rigidly applied” where “witnesses . . . will be required to travel a significant distance no matter where they testify.” 566 F.3d at 1344. Genentech specifically held that witnesses traveling from Europe, Iowa, and the East Coast would be only “slightly more inconvenienced by having to travel to California” than to Texas. Id. at 1348. This sensible holding stems from the observation that, regardless of the ultimately cho-sen venue, such witnesses will be required to travel a sig-nificant distance, will likely incur meal and lodging expenses, and will likely incur time away from home. See id. at 1344. Genentech’s interpretation of the 100-mile rule is consistent with the Fifth Circuit’s reasoning underlying the rule, which forcefully applies to witnesses who reside near one of the two districts but not to the circumstances presented here:

Additional distance means additional travel time; additional travel time increases the probability for meal and lodging expenses; and additional travel time with overnight stays increases the time which these fact witnesses must be away from their regu-lar employment. Furthermore, the task of schedul-ing fact witnesses so as to minimize the time when they are removed from their regular work or home responsibilities gets increasingly difficult and com-plicated when the travel time from their home or work site to the court facility is five or six hours one-way as opposed to 30 minutes or an hour.

Volkswagen I, 371 F.3d at 205. The district court concluded that this factor was neu-

tral. S. App. 26–27. The court divided its analysis into the convenience to third-party witnesses and the convenience to party witnesses.

The court determined that “the location of third-party witnesses weighs against transfer.” S. App. 26; see also S. App. 27 (concluding that “the inventors being located



closer to WDTX is a significant fact that weighs against transfer” (emphasis added)). The court highlighted that Uniloc identified three important third-party witnesses be-lieved to reside in New York: the attorney who prosecuted the asserted patent and the patent’s two named inventors. S. App. 25, 27. The court reasoned that because the inven-tors are likely to be two of the most important witnesses called at trial, and because these inventors live “much closer to WDTX than NDCA,” the location of third-party witnesses weighed against transfer. S. App. 26–27. The court also determined that “the location of party witnesses slightly weighs in favor of transfer to NDCA.” S. App. 26. In sum, the court concluded that the factor was neutral. S. App. 26–27.

The district court misapplied the law to the facts of this case by too rigidly applying the 100-mile rule. As a result, the district court gave too much significance to the fact that the inventors and patent prosecutor live closer to WDTX than NDCA. Although it might be true that these individ-uals will need to travel a greater distance to reach NDCA than WDTX, and although a flight from New York to WDTX might take a bit less time than from New York to NDCA, in either instance these individuals will likely have to leave home for an extended period of time and incur travel, lodging, and related costs. As expressed in Genen-tech, the 100-mile rule “should not be rigidly applied” where witnesses “will be required to travel a significant distance no matter where they testify.” 566 F.3d at 1344. These witnesses will only be “slightly more inconvenienced by having to travel to California” than to Texas.3 See id. at 1348.

3 The dissent argues that our determination reflects

“mere disagreement with the district court[].” Dissent at 3. We are puzzled as to how our conclusion—that the district court misapplied the law by rigidly applying the law in a manner inconsistent with Genentech—amounts to a mere “disagreement” with the district court. We also do not un-derstand how this conclusion disregards our standard of review, considering that we are obligated to review for



In view of this misapplication of the law, and in view of the district court’s findings that “most relevant party wit-nesses are located in NDCA” and “it is likely that both Ap-ple and Uniloc will each have one or more potential trial witnesses from NDCA,” S. App. 27, this factor weighs at least slightly in favor of transfer. See Volkswagen II, 545 F.3d at 317 (concluding that the district court “erred in ap-plying this factor” when, contrary to the district court’s con-clusion, the factor weighed in favor of transfer).

D. All other practical problems that make trial of a case easy, expeditious, and inexpensive

The district court concluded that the fourth private in-terest factor—all other practical problems that make trial of a case easy, expeditious, and inexpensive—“weighs heavily against transfer.” S. App. 30. The court reasoned that “significant steps” had already been taken in the case. S. App. 29. In particular, the court explained that the par-ties exchanged infringement and invalidity contentions, the parties “briefed and argued Markman claim terms,” and the court held a Markman hearing and “issued a claim construction order.” S. App. 29–30. Thus, wrote the court, “NDCA would have to duplicate this Court’s efforts to con-strue the patent unless it merely chose to accept what this Court has already determined and entered.” S. App. 30. The district court further remarked that because NDCA has more pending civil cases than WDTX, a transfer to NDCA, “a forum with a significantly higher level of case

clear misapplications of the law. E.g., Volkswagen II, 545 F.3d at 310. Only by giving district courts unbounded discretion would we defer to this misapplication of law. Fi-nally, we reject the dissent’s apparent invitation to discard or otherwise ignore Genentech.

The dissent also appears to suggest that we have en-tirely dispensed with the 100-mile rule and that we “seek[] to eliminate the application of this rule to third-party wit-nesses residing a plane ride away from both districts.” Dis-sent at 4. To the contrary, we merely follow Genentech’s sensible holding that the 100-mile rule should not be rig-idly applied in circumstances such as these.



congestion,” would be “an act against judicial economy.” S. App. 29–30.

Apple argued that this factor “weighs in favor of trans-fer because of the twenty-one cases [presenting some over-lapping issues] that have been transferred from districts in Texas to NDCA.” S. App. 28. The district court was unper-suaded, reasoning that many of those twenty-one cases were stayed, the active cases lacked set trial dates, and the cases related to different patents. S. App. 29–30. The court explained that it “disagrees that a case should be trans-ferred when another case with the same parties and only some overlapping issues such as standing and subject mat-ter jurisdiction are present in another district.” S. App. 30.

The district court legally erred in its analysis of this factor. Aside from the service of preliminary infringement contentions, see App. 32–34, all the “significant steps” that had been taken by the court and parties in the case were taken after Apple moved for transfer in November 2019, as well as after Apple moved to stay the case in January 2020. For example, the parties submitted Markman briefing in February and March 2020. What’s more, most of the “sig-nificant” steps the district court relied on were taken after the district court’s May 12, 2020 hearing on the transfer motion, during which the court explained that the motion would be denied. In particular, after the transfer hearing but before issuing a transfer order, the district court held a Markman hearing and issued its claim construction order. The court also held a discovery hearing and issued a corre-sponding discovery order.

As stated previously, once a party files a transfer mo-tion, disposition of that motion should take top priority in the case. E.g., In re Horseshoe, 337 F.3d at 433; McDonnell Douglas Corp., 429 F.2d at 30; In re Nintendo, 544 F. App’x at 941; In re EMC, 501 F. App’x at 975. Setting aside the questionable prioritization of other proceedings over the pending transfer motion, the district court legally erred in concluding that the merits-related steps it had taken weighed heavily against transfer. A district court’s deci-sion to give undue priority to the merits of a case over a party’s transfer motion should not be counted against that party in the venue transfer analysis.



The district court also misapplied the law to the facts of this case in concluding that judicial economy weighed against transfer because NDCA has more pending cases than WDTX.4 “To the extent that court congestion matters, what is important is the speed with which a case can come to trial and be resolved.” See In re Ryze Claims Sols., LLC, 968 F.3d 701, 710 (7th Cir. 2020) (quoting In re Factor VIII or IX Concentrate Blood Prods. Litig., 484 F.3d 951, 958 (7th Cir. 2007)); see also Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1337 (9th Cir. 1984) (concluding, in assessing the impact of court congestion on the § 1404(a) analysis, that “[t]he real issue is . . . whether a trial may be speedier in another court because of its less crowded docket”).

As the district court acknowledged, NDCA and WDTX have historically had comparable times to trial for civil cases (25.9 months for NDCA versus 25.3 months for WDTX), and, most relevantly, NDCA has historically had a shorter time to trial for patent cases. See S. App. 30. Alt-hough the district court noted that NDCA has more pend-ing cases than WDTX, this fact is, without more, too tenuously related to any differences in speed by which these districts can bring cases to trial.

After accounting for the district court’s errors, we are left with nothing relevant to this factor weighing against transfer. However, there are judicial economy benefits on the other side of the ledger: namely, as the district court conceded, there are pending cases in NDCA with “some overlapping issues.” S. App. 30. Even crediting (as we do) each of the district court’s findings discounting the benefits of transfer to NDCA on this basis (e.g., many cases in NDCA are stayed and lack trial dates, and the cases differ in many respects), it is beyond question that the ability to transfer a case to a district with numerous cases involving some overlapping issues weighs at least slightly in favor of

4 We question whether such considerations of “judi-

cial economy” might have been more appropriately as-sessed under the first public interest factor—the administrative difficulties flowing from court congestion.



such a transfer. Accordingly, this factor weighs at least slightly in favor of transfer. E. The administrative difficulties flowing from court con-

gestion The district court concluded that the first public inter-

est factor—the administrative difficulties flowing from court congestion—“weighs against transfer.” S. App. 30–31. The court acknowledged that NDCA historically “has a shorter time to trial for patent cases than WDTX.” S. App. 30. But, the district court concluded, “because the Court has already set the trial date in this case, the pro-spective time from filing to trial is 18.4 months,” which is “42.5 percent faster than previous WDTX cases” and faster than the historical time to trial in NDCA. S. App. 31.

The district court misapplied the law to the facts of this case by relying too heavily on the scheduled trial date. We have previously explained that a court’s general ability to set a fast-paced schedule is not particularly relevant to this factor. See, e.g., In re Adobe Inc., 823 F. App’x 929, 932 (Fed. Cir. 2020). Indeed, a district court cannot merely set an aggressive trial date and subsequently conclude, on that basis alone, that other forums that historically do not re-solve cases at such an aggressive pace are more congested for venue transfer purposes. This is particularly true where, like here, the forum itself has not historically re-solved cases so quickly. Thus, this factor is neutral.5

5 We further note that this factor frequently calls for

speculation. For example, scheduled trial dates are often subject to change, and the district court’s anticipated time to trial is significantly shorter than the district’s historical time to trial. Because this factor often calls for speculation, where “several relevant factors weigh in favor of transfer and others are neutral, then the speed of the transferee dis-trict court should not alone outweigh all of those other fac-tors.” See Genentech, 566 F.3d at 1347.



F. The local interest in having localized interests decided at home

The district court concluded that the second public in-terest factor—the local interest in having localized inter-ests decided at home—was “neutral in terms of transfer.” S. App. 33. The court reasoned that “Apple has substantial presences in both NDCA and WDTX, so both districts have a significant interest in this case.” S. App. 32. In addition, the court explained that “WDTX has a significant localized interest because of the state and local tax benefits received by and pledged to Apple to build a second campus in Aus-tin.” Id. The district court concluded that “Uniloc’s pres-ence in NDCA, but not in WDTX, weighs in favor of transfer.” S. App. 33. The district court further remarked that “Flextronics’ presence in this District weighs slightly against transfer,” but the court ultimately concluded that the factor was neutral irrespective of whether Flextronics was considered. See S. App. 33 (concluding that this factor is neutral “even if Flextronics was excluded from the Court’s analysis”).

The district court misapplied the law to the facts of this case in analyzing this factor. This factor most notably re-gards not merely the parties’ significant connections to each forum writ large, but rather the “significant connec-tions between a particular venue and the events that gave rise to a suit.” See In re Acer, 626 F.3d at 1256 (emphasis added); see also Volkswagen II, 545 F.3d at 318 (explaining that this factor pertains to a forum’s “connections with the events that gave rise to th[e] suit”); In re HP Inc., No. 2020-140, 2020 WL 5523561, at *1, *4 (Fed. Cir. Sept. 15, 2020) (concluding that the district court correctly recognized that the local interests factor weighed at least slightly in favor of transfer from the Eastern District of Texas (“EDTX”) to NDCA because “more of the events giving rise to this suit appear to have occurred in [NDCA] than in [EDTX]—specifically, the development of the accused products”). The district court thus misapplied the law to the facts by so heavily weighing Apple’s general contacts with the fo-rum that are untethered to the lawsuit, such as Apple’s general presence in WDTX and the state and local tax



benefits it purportedly received from the district.6 The dis-trict court also misapplied the law to the facts by failing to give weight to the “significant connections between [NDCA] and the events that gave rise to a suit.” See In re Acer, 626 F.3d at 1256 (emphasis added). Because of Uniloc’s “presence in NDCA” and absence from WDTX; be-cause the accused products were designed, developed, and tested in NDCA; and because the lawsuit “calls into ques-tion the work and reputation of several individuals resid-ing” in NDCA, In re Hoffman-La Roche Inc., 587 F.3d 1333, 1336 (Fed. Cir. 2009), this factor weighs in favor of trans-fer.7

The dissent argues that our analysis of this factor is “overblown.” Dissent at 8. It relies on the following facts as both relevant to the local interests factor and weighing against transfer: (1) Apple has a large presence, and is in-creasing its presence, in WDTX; (2) Apple maintains CDN servers in Dallas, Texas, and has “at least seven employees in WDTX with duties concerning Apple’s CDN”; (3) Apple

6 In addition, to the extent the district court relies on

the fact that Apple’s presence in the district is expected to increase in the future, neither Uniloc nor the district court has explained how Apple’s future plans in WDTX relate in any way to this lawsuit.

7 The dissent states that “[e]ven Apple’s petition did not argue that it would be a clear abuse of discretion to find this factor neutral.” Dissent at 10. We decline to engage with this minor semantical point other than to say that Ap-ple properly raised an argument that the district court erred in concluding that this factor did not favor transfer. See, e.g., Pet. at 34 (“The other two public-interest factors either weigh in favor of transfer or, at the very least, cannot weigh against it.”); id. (“The interest of the district where the accused technology was designed and developed is self-evidently stronger than that of a district with no tie to this case.”); id. at 34–37 (generally arguing that NDCA’s inter-est outweighs WDTX’s interest, and that “[e]ven accepting every speculation by Uniloc, the local interest factor would at most be neutral”); see also Reply Br. 19 (The local inter-ests factor “should have weighed in favor of transfer.”).



performs some relevant revenue reporting and accounting activities in WDTX; and (4) Apple contracts with Flextron-ics to manufacture one of the accused products in WDTX. Dissent at 8–9.

We have already discussed Apple’s presence, and in-creasing presence, in WDTX above but add that both the district court and the dissent improperly conflate the re-quirements for establishing venue under 28 U.S.C. § 1400(b) and the requirements for establishing transfer under § 1404(a). “The statutory rights under [§] 1400(b) . . . are independent of the convenience-based rights under § 1404(a).” In re Oath Holdings Inc., 908 F.3d 1301, 1306 (Fed. Cir. 2018). Indeed, the entire premise of a § 1404(a) transfer motion is that a case, although brought in a proper venue, should nevertheless be transferred for the conven-ience of the parties. See, e.g., HollyAnne Corp. v. TFT, Inc., 199 F.3d 1304, 1307 (Fed. Cir. 1999) (“Section 1404(a) al-lows a court where venue is proper to transfer a case to a more convenient forum.”).

As to the CDN servers in Dallas, Texas, it is unclear why these servers are entitled to any weight, particularly given that the district court neither mentioned nor gave weight to these CDN servers in its analysis, and consider-ing that the servers are located in the Northern District of Texas, not WDTX.

As to Apple’s CDN employees in the district and the fact that Apple performs some relevant financial activity in WDTX, we are unclear as to why the dissent focuses exclu-sively on these employees and this activity to the exclusion of all other employees and activity. This is particularly perplexing considering that the district court did not dis-cuss these employees or activity at all in its analysis of this factor, other than to merely acknowledge Uniloc’s argu-ment that the “witnesses it identified” weigh against trans-fer. S. App. 32. Moreover, the district court did not otherwise provide any reason to give these employees and



this activity weight above and beyond other relevant em-ployees and activity.8

Finally, as to Flextronics, as we note above, the district court itself gave Flextronics little weight with respect to this factor. We see no error in this conclusion.

III We conclude our discussion by addressing two addi-

tional points from the dissent. First, on numerous occa-sions, the dissent criticizes us for applying what it refers to as “de novo” review. To the contrary, and as we have ex-plained throughout the order, we properly reviewed the district court’s order only for reliance on clearly erroneous fact findings, erroneous conclusions of law, or misapplica-tions of law to fact. See Volkswagen II, 545 F.3d at 310. District courts have no discretion to make these kinds of errors. See id. And when such errors accumulate to pro-duce a patently erroneous result, as they have here, we are obliged to act. See id.; see also id. at 318 (“[W]e hold that the district court’s errors resulted in a patently erroneous result.”). To the extent the dissent believes otherwise, it is mistaken. A district court’s “exercise of its discretion is not unbounded; that is, a court must exercise its discretion within the bounds set by relevant statutes and relevant, binding precedents.” Id. at 310.

Even more troubling, the dissent says that our order will somehow invite mandamus petitions based “almost en-tirely” on what it refers to as “ad hominem attacks on es-teemed jurists.” Dissent at 3. That is a baseless and counterproductive statement about our order. Notably, the dissent supports its assertion with citations to Apple’s pe-tition that the dissent contends constitute such attacks. Our order, however, relies on Apple’s relevant arguments and the record in the case, not on anything the dissent re-fers to as “ad hominem attacks.” For this reason, we do not

8 And in any event, when discussing the private in-

terest factors, the district court concluded that most rele-vant party witnesses resided in NDCA, which undercuts the dissent’s analysis.



understand how our order could reasonably be construed as inviting such attacks. If anything, the fact that our or-der completely ignores what the dissent calls “ad hominem attacks” will discourage future litigants from wasting pre-cious briefing space on such statements.

CONCLUSION We have considered Uniloc’s remaining arguments but

find them unpersuasive. For the foregoing reasons, we hold that “the district court’s errors resulted in a patently erroneous result” and grant Apple’s mandamus petition. See Volkswagen II, 545 F.3d at 318.

Accordingly, IT IS ORDERED THAT:

(1) The petition is granted. (2) The motion to file a sur-reply brief is granted. (3) The motion to supplement the record is granted.

(4) The motion by ACT │ The App Association, The Computer & Communications Industry Association, Uni-fied Patents, LLC, and Roku, Inc. for leave to file a brief amici curiae in support of Apple Inc. is granted.

FOR THE COURT November 9, 2020 /s/ Peter R. Marksteiner

Date Peter R. Marksteiner Clerk of Court


1 OGP Version 3.2

United States District Court Western District of Texas

Waco Division

[Plaintiff],

v.

[Defendant].

§ § § § § § § § § §

CIVIL ACTION NO. JUDGE ALBRIGHT

ORDER GOVERNING PROCEEDINGS – PATENT CASE

This Order shall govern proceedings in this case. The following deadlines are hereby set:

1. This case is SET for a telephonic Rule 16 Case Management Conference on ______________ at ____. Participants shall dial into the following number 5 minutes before the scheduled time: 866.434.5269; access code 967-8090. Lead counsel for each party, and all unrepresented parties, shall be present. Client representatives are welcome to attend, but such attendance is not required. The Court expects the parties to be prepared to discuss any pre-Markman issues raised in the parties’ joint Case Readiness Status Report.

2. (Not later than 7 days before the CMC). Plaintiff shall serve preliminary infringement contentions in the form of a chart setting forth where in the accused product(s) each element of the asserted claim(s) are found. Plaintiff shall also identify the priority date (i.e. the earliest date of invention) for each asserted claim and produce: (1) all documents evidencing conception and reduction to practice for each claimed invention, and (2) a copy of the file history for each patent in suit.

3. (Two weeks after the CMC). The Parties shall submit an agreed Scheduling Order. If the parties cannot agree, the parties shall submit a separate Joint Motion for entry of each Order briefly setting forth their respective positions on items where they cannot agree. Absent agreement of the parties, the Plaintiff shall be responsible for the timely submission of this and other Joint filings.

4. (Two weeks after the CMC). Deadline for Motions to Transfer. The Court also adopts the following page limits and briefing schedule for Motions to Transfer:

a. Opening – 15 pages

b. Response – 15 pages, due 14 days after the Opening brief

2 OGP Version 3.2

c. Reply – 5 pages, due 7 days after the Response brief

5. (Seven weeks after the CMC). Defendant shall serve preliminary invalidity contentions in the form of (1) a chart setting forth where in the prior art references each element of the asserted claim(s) are found, (2) an identification of any limitations the Defendant contends are indefinite or lack written description under section 112, and (3) an identification of any claims the Defendant contends are directed to ineligible subject matter under section 101. Defendant shall also produce (1) all prior art referenced in the invalidity contentions, (2) technical documents, including software where applicable, sufficient to show the operation of the accused product(s), and (3) summary, annual sales information for the accused product(s) for the two years preceding the filing of the Complaint,1 unless the parties agree to some other timeframe.

DISCOVERY

Except with regard to venue, jurisdictional, and claim construction-related discovery, all other discovery is stayed until after the Markman hearing. Notwithstanding this general stay of discovery, the Court will permit limited discovery by agreement of the parties, or upon request, where exceptional circumstances warrant. For example, if discovery outside the United States is contemplated, the Court will be inclined to allow such discovery to commence before the Markman hearing. With respect to venue and jurisdictional discovery, the Court generally grants leave for the parties to conduct targeted discovery. The Court’s default venue/jurisdiction discovery limits are as follows:

1. Interrogatories: 5 per party 2. Requests for Production: 5 per party 3. Fact depositions: 4 hours for a 30(b)(6) witness per party

To the extent a party provides multiple declarations in support or against a motion to transfer venue or a motion to dismiss based on lack of jurisdiction, the Court will allow the other side to have additional interrogatories (e.g., 2 more), RFPs (e.g., 2 more), and deposition time (e.g., 2 more hours). To the extent the parties cannot agree what the additional number of interrogatories, RFPs, and deposition time should be, the Court encourages the parties to contact the Court to request a telephonic discovery hearing. Following the Markman hearing, the following discovery limits will apply to this case. The Court will consider reasonable requests to adjust these limits should circumstances warrant.

1. Interrogatories: 30 per side2

1 With regard to expired patents, the sales information shall be provided for the two years preceding expiration. 2 A “side” shall mean the plaintiff (or related plaintiffs suing together) on the one hand, and the defendant (or related defendants sued together) on the other hand. In the event that the Court consolidates related cases for pretrial purposes, with regard to calculating limits imposed by this Order, a “side” shall be interpreted as if the cases were

3 OGP Version 3.2

2. Requests for Admission: 45 per side 3. Requests for Production: 75 per side 4. Fact Depositions: 70 hours per side (for both party and non-party witnesses combined) 5. Expert Depositions: 7 hours per report3

Electronically Stored Information. As a preliminary matter, the Court will not require general search and production of email or other electronically stored information (ESI), absent a showing of good cause. If a party believes targeted email/ESI discovery is necessary, it shall propose a procedure identifying custodians and search terms it believes the opposing party should search. The opposing party can oppose, or propose an alternate plan. If the parties cannot agree, they shall contact chambers to schedule a call with the Court to discuss their respective positions.

DISCOVERY DISPUTES

A party may not file a Motion to Compel discovery unless: (1) lead counsel have met and conferred in good faith to try to resolve the dispute, and (2) the party has contacted the Court’s law clerk (with opposing counsel) to arrange a telephone conference with the Court to summarize the dispute and the parties respective positions. Summaries shall be neutral and non-argumentative. After hearing from the parties, the Court will determine if further briefing is required.

PROTECTIVE ORDER

Pending entry of the final Protective Order, the Court issues the following interim Protective Order to govern the disclosure of confidential information in this matter:

If any document or information produced in this matter is deemed confidential by the producing party and if the Court has not entered a protective order, until a protective order is issued by the Court, the document shall be marked “confidential” or with some other confidential designation (such as “Confidential – Outside Attorneys Eyes Only”) by the disclosing party and disclosure of the confidential document or information shall be limited to each party’s outside attorney(s) of record and the employees of such outside attorney(s). If a party is not represented by an outside attorney, disclosure of the confidential document or information shall be limited to one designated “in house” attorney, whose identity and job functions shall be disclosed to the producing party 5 days prior to any such disclosure, in order to permit any motion for protective order or other relief regarding such disclosure. The person(s) to whom disclosure of a confidential document or information is made under this local rule shall keep it confidential and use it only for purposes of litigating the case.

proceeding individually. For example, in consolidated cases the plaintiff may serve up to 30 interrogatories on each defendant, and each defendant may serve up to 30 interrogatories on the plaintiff. 3 For example, if a single technical expert submits reports on both infringement and invalidity, he or she may be deposed for up to 14 hours in total.

4 OGP Version 3.2

CLAIM CONSTRUCTION ISSUES

Terms for Construction. Based on the Court’s experience, the Court believes that it should have presumed limits on the number of claim terms to be construed. The “presumed limit” is the maximum number of terms that each side may request the Court to construe without further leave of Court. If the Court grants leave for the additional terms to be construed, depending on the complexity and number of terms, the Court may split the Markman hearing into multiple hearings. The presumed limits based on the number of patents-in-suit are as follows:

Limits for Number of Claim Terms to be Construed 1-2 Patents 3-5 Patents More than 5 Patents 8 terms 10 terms 12 terms

When the parties submit their joint claim construction statement, in addition to the term and the parties’ proposed constructions, the parties should indicate which party or side proposed that term, or if that was a joint proposal. Claim Construction Briefing. The Court will require non-simultaneous claim construction briefing with the following default page limits; however, where exceptional circumstances warrant, the Court will consider reasonable requests to adjust these limits. These page limits shall also apply collectively for consolidated cases; however, the Court will consider reasonable requests to adjust page limits in consolidated cases where circumstances warrant. In addition, the Court is very familiar with the law of claim construction and encourages the parties to forego lengthy recitations of the underlying legal authorities and instead focus on the substantive issues unique to each case. Unless otherwise agreed by the parties, all filings will take place at 5:00 p.m. CT. Unless otherwise agreed to by the parties, the default order of terms in the parties’ briefs shall be based on 1) the patent number (lowest to highest), the claim number (lowest to highest), and order of appearance within the lowest number patent and claim. An example order may be as follows:

1. 10,000,000 Patent, Claim 1, Term 1 2. 10,000,000 Patent, Claim 1, Term 2 (where Term 2 appears later in the claim than does

Term 1) 3. 10,000,000 Patent, Claim 2, Term 3 (where Term 3 appears later in the claim than does

Terms 2 and 3) 4. 10,000,001 Patent, Claim 1, Term 4 5. 10,000,001 Patent, Claim 3, Term 5 6. 10,000,002 Patent, Claim 2, Term 6

5 OGP Version 3.2

To the extent that the same or similar terms appear in multiple claims, those same or similar terms should be ordered according to the lowest patent number, lowest claim number, and order of appearance within the patent and claim.

Page Limits for Markman Briefs Brief 1-2 Patents 3-5 Patents More than 5 Patents Opening (Plaintiff)

20 pages 30 pages 30 pages, plus 5 additional pages for each patent over 5 up to a maximum of 45 pages

Response (Defendant)


Reply (Plaintiff)


Sur-Reply (Defendant)


Technology Tutorials and Conduct of the Markman Hearing

Technology tutorials are optional. If the parties would like to submit one, the tutorial should be in electronic form, with voiceovers, and submitted at least one week before the Markman hearing. If a party believes a live tutorial would be of particular benefit to the Court, the parties should contact the Court to request a Zoom or telephonic tutorial so that the tutorial can be scheduled to occur at least a week before the Markman hearing. In general, tutorials should be: (1) directed to the underlying technology (rather than argument related to infringement or validity), and (2) limited to 15 minutes per side. For the Court’s convenience, the tutorial may be recorded, but will not be part of the record. Parties may not rely on or cite to the tutorial in other aspects of the litigation. The Court generally sets aside one half day for the Markman hearing; however, the Court is open to reserving more or less time, depending on the complexity of the case and input from the parties. As a general rule, the party opposing the Court’s preliminary construction shall go first. If both parties are unwilling to accept the Court’s preliminary construction, the Plaintiff shall typically go first.

6 OGP Version 3.2

GENERAL ISSUES

1. The Court will entertain reasonable requests to streamline the case schedule and discovery and encourages the parties to contact the Court’s law clerk (with opposing counsel) to arrange a call with the Court when such interaction might help streamline the case.

2. To the extent the parties need to email the Court, the parties should use the following email address: [email protected].

3. The Court is generally willing to extend the response to the Complaint up to 45 days if agreed by the parties. However, longer extensions are disfavored and will require good cause.

4. Plaintiff must file a notice informing the Court when an IPR is filed, the expected time for an institution decision, and the expected time for a final written decision, within two weeks of the filing of the IPR.

5. After the trial date is set, the Court will not move the trial date except in extreme situations. To the extent a party believes that the circumstances warrant continuing the trial date, the parties are directed to contact the Court to request a telephonic hearing.

6. The Court does not have a limit on the number of motions for summary judgment (MSJs); however, absent leave of Court, the cumulative page limit for Opening Briefs for all MSJs is 40 pages per side.

7. There may be instances where the submission of substantive briefs via audio file will be of help to the Court. If a party is contemplating submitting a brief via audio file it should contact the Court for guidance on whether it would be helpful to the Court. However, the Court has determined that audio recordings of Markman briefs are of limited value and those need not be submitted. The recordings shall be made in a neutral fashion, shall be verbatim transcriptions without additional colloquy (except that citations and legal authority sections need not be included), and each such file shall be served on opposing counsel. The Court does not have a preference for the manner of recording and has found automated software recordings, as well as attorney recordings, to be more than satisfactory. Audio files shall be submitted via USB drive, Box (not another cloud storage)4, or email to the law clerk (with a cc to opposing counsel) and should be submitted in mp3 format.

8. For Markman briefs, summary judgment motions, and Daubert motions, each party shall deliver to Chambers one (1) paper copy of its Opening, Response, and Reply briefs, omitting attachments, at least a week before the hearing. Each party shall also provide an electronic copy of the briefs and exhibits via cloud storage5 or USB drive. For Markman briefs, the parties should also include a (1) paper copy of all patents-in-suit and the Joint Claim

4 The parties should contact the law clerk to request a Box link so that the party can directly upload the files to the Court’s Box account. 5 The parties should contact the law clerk to request a Box link so that the party can directly upload the files to the Court’s Box account. The filenames for any exhibits should be a description of the exhibit, e.g., “U.S. Patent No. 10,000,000” or “Prosecution history for 10,000,000 (January 20, 2020, Office Action).”

mailto:[email protected]

7 OGP Version 3.2

Construction Statement. To the extent the Court appoints a technical adviser, each party shall deliver the same to the technical adviser.

8 OGP Version 3.2

APPENDIX A – DEFAULT SCHEDULE

6 The parties may amend preliminary infringement contentions and preliminary invalidity contentions without leave of court so long as counsel certifies that it undertook reasonable efforts to prepare its preliminary contentions and the amendment is based on material identified after those preliminary contentions were served, and should do so seasonably upon identifying any such material. Any amendment to add patent claims requires leave of court so that the Court can address any scheduling issues.

Deadline Item

7 days before CMC Plaintiff serves preliminary6 infringement contentions in the form of a chart setting forth where in the accused product(s) each element of the asserted claim(s) are found. Plaintiff shall also identify the earliest priority date (i.e. the earliest date of invention) for each asserted claim and produce: (1) all documents evidencing conception and reduction to practice for each claimed invention, and (2) a copy of the file history for each patent in suit.

2 weeks after CMC Deadline for Motions to Transfer.

7 weeks after CMC Defendant serves preliminary invalidity contentions in the form of (1) a chart setting forth where in the prior art references each element of the asserted claim(s) are found, (2) an identification of any limitations the Defendant contends are indefinite or lack written description under section 112, and (3) an identification of any claims the Defendant contends are directed to ineligible subject matter under section 101. Defendant shall also produce (1) all prior art referenced in the invalidity contentions, (2) technical documents, including software where applicable, sufficient to show the operation of the accused product(s), and (3) summary, annual sales information for the accused product(s) for the two years preceding the filing of the Complaint, unless the parties agree to some other timeframe.

9 weeks after CMC Parties exchange claim terms for construction.

11 weeks after CMC Parties exchange proposed claim constructions.

12 weeks after CMC Parties disclose extrinsic evidence. The parties shall disclose any extrinsic evidence, including the identity of any expert witness they may rely upon with respect to claim construction or indefiniteness. With respect to any expert identified, the parties shall identify the scope of the topics for the witness’s

9 OGP Version 3.2

7 Any party may utilize a rebuttal expert in response to a brief where expert testimony is relied upon by the other party. 8 The parties should contact the law clerk to request a Box link so that the party can directly upload the file to the Court’s Box account.

expected testimony.7 With respect to items of extrinsic evidence, the parties shall identify each such item by production number or produce a copy of any such item if not previously produced.

13 weeks after CMC Deadline to meet and confer to narrow terms in dispute and exchange revised list of terms/constructions.

14 weeks after CMC Plaintiff files Opening claim construction brief, including any arguments that any claim terms are indefinite.

17 weeks after CMC Defendant files Responsive claim construction brief.

19 weeks after CMC Plaintiff files Reply claim construction brief.

21 weeks after CMC Defendant files a Sur-Reply claim construction brief.

3 business days after submission of sur-reply

Parties submit Joint Claim Construction Statement.

See General Issues Note #8 regarding providing copies of the briefing to the Court and the technical adviser (if appointed).

22 weeks after CMC (but at least 1 week before Markman hearing)

Parties submit optional technical tutorials to the Court and technical adviser (if appointed).8

23 weeks after CMC (or as soon as practicable)

Markman Hearing at [9:00 a.m. or 1:30 p.m.]

1 business day after Markman hearing

Fact Discovery opens; deadline to serve Initial Disclosures per Rule 26(a).

6 weeks after Markman hearing

Deadline to add parties.


Deadline to serve Final Infringement and Invalidity Contentions. After this date, leave of Court is required for any amendment to Infringement or Invalidity contentions. This deadline does not relieve the Parties of their obligation to seasonably amend if new information is identified after initial contentions.

10 OGP Version 3.2


Deadline to amend pleadings. A motion is not required unless the amendment adds patents or patent claims. (Note: This includes amendments in response to a 12(c) motion.)

26 weeks after Markman Deadline for the first of two meet and confers to discuss significantly narrowing the number of claims asserted and prior art references at issue. Unless the parties agree to the narrowing, they are ordered to contact the Court’s Law Clerk to arrange a teleconference with the Court to resolve the disputed issues.


Close of Fact Discovery.


Opening Expert Reports.


Rebuttal Expert Reports.


Close of Expert Discovery.


Deadline for the second of two meet and confer to discuss narrowing the number of claims asserted and prior art references at issue to triable limits. To the extent it helps the parties determine these limits, the parties are encouraged to contact the Court’s Law Clerk for an estimate of the amount of trial time anticipated per side. The parties shall file a Joint Report within 5 business days regarding the results of the meet and confer.


Dispositive motion deadline and Daubert motion deadline.

See General Issues Note #8 regarding providing copies of the briefing to the Court and the technical adviser (if appointed).


Serve Pretrial Disclosures (jury instructions, exhibits lists, witness lists, discovery and deposition designations).


Serve objections to pretrial disclosures/rebuttal disclosures.


Serve objections to rebuttal disclosures and File Motions in limine.

11 OGP Version 3.2

9 If the actual trial date materially differs from the Court’s default schedule, the Court will consider reasonable amendments to the case schedule post-Markman that are consistent with the Court’s default deadlines in light of the actual trial date.


File Joint Pretrial Order and Pretrial Submissions (jury instructions, exhibits lists, witness lists, discovery and deposition designations); file oppositions to motions in limine


File Notice of Request for Daily Transcript or Real Time Reporting. If a daily transcript or real time reporting of court proceedings is requested for trial, the party or parties making said request shall file a notice with the Court and e-mail the Court Reporter, Kristie Davis at [email protected]

Deadline to meet and confer regarding remaining objections and disputes on motions in limine.

3 business days before Final Pretrial Conference.

File joint notice identifying remaining objections to pretrial disclosures and disputes on motions in limine.

49 weeks after Markman hearing (or as soon as practicable)

Final Pretrial Conference. The Court expects to set this date at the conclusion of the Markman Hearing.

52 weeks after Markman hearing (or as soon as practicable)9

Jury Selection/Trial. The Court expects to set these dates at the conclusion of the Markman Hearing.


______________________

IN RE: APPLE INC., Petitioner

______________________

2020-135 ______________________



______________________

MOORE, Circuit Judge, dissenting. Our review on a petition for a writ of mandamus is sup-

posed to be limited—we are to grant mandamus to over-turn a transfer decision only when the district court has clearly abused its discretion, “produc[ing] a patently erro-neous result.” In re Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (Volkswagen II). “Our reluctance to in-terfere is not merely a formality, but rather a longstanding recognition that a trial judge has a superior opportunity to familiarize himself or herself with the nature of the case and the probable testimony at trial, and ultimately is bet-ter able to dispose of these motions.” In re Vistaprint Ltd., 628 F.3d 1342, 1346 (Fed. Cir. 2010). Our mandamus ju-risdiction is not an invitation to exercise de novo dominion, as the majority does here, over the district court’s individ-ual fact findings and the balancing determination that Congress has committed “to the sound discretion of the trial court.” Id. at 1346; 28 U.S.C. § 1404(a). Nor is it an invitation for us to criticize the way our district court


IN RE: APPLE INC. 2

colleagues generally manage their dockets, or as the major-ity puts it, “barrel” ahead on the merits in any given case. Maj. at 5.

The district court here thoroughly considered each con-venience factor on the record before it. It acknowledged that Apple had identified several party witnesses residing in the Northern District of California. It ultimately found, however, that Uniloc chose a venue in the district in which Apple maintains a large campus employing thousands of people, where one of the accused products is manufactured, where third-party information and potential witnesses are located, and which is convenient for potential witnesses and sources of proof and which would not impose a signifi-cant hardship on Apple. The district court therefore con-cluded that Apple has not shown that it is clearly more convenient for the parties and witnesses to transfer the in-stant case to the Northern District of California. S.A. 34. I do not agree with the majority in light of these facts that the district court clearly abused its discretion in refusing transfer.

We must recognize our limited role in this process—there is no more deferential standard of review than clear abuse of discretion. Under the clear abuse of discretion standard, our role is to defer to the broad discretion of the district court except as necessary to correct a usurpation of judicial power or a patently erroneous result. Volkswagen II, 545 F.3d at 312 (“But—and we stress—in no case will we replace a district court’s exercise of discretion with our own; we review only for clear abuses of discretion that pro-duce patently erroneous results.”); In re Volkswagen of Am., Inc., 566 F.3d 1349, 1351 (Fed. Cir. 2009) (Volkswagen III) (“A suggestion that the district court abused its discre-tion, which might warrant reversal on a direct appeal, is not a sufficient showing to justify mandamus relief.”); In re Barnes & Noble, Inc., 743 F.3d 1381, 1383 (Fed. Cir. 2014) (“Th[e] standard is an exacting one, requiring the peti-tioner to establish that the district court’s decision


IN RE: APPLE INC. 3

amounted to a failure to meaningfully consider the merits of the transfer motion.”). Rather than conducting this lim-ited review, the majority usurps the district court’s role in the transfer process, disregards our standard of review and substitutes its judgment for that of the district court. I am concerned that the majority’s blatant disregard for the dis-trict court’s thorough fact findings and for our role in a pe-tition for mandamus will invite further petitions based almost entirely on ad hominem attacks on esteemed jurists similar to those Apple wages here. See, e.g., Petition at 12; id. at 14; id. at 14–15; id. at 15; id. at 16. First, parties should be mindful that personal attacks against judges such as those lodged in this case are not welcome, and at least in my opinion completely unwarranted. Second, I am not comfortable with the new role the majority has carved out for our court, and I believe it is inconsistent with the Fifth Circuit law that we are bound to follow.

I. The Cost of Attendance for Willing Witnesses The majority’s mere disagreement with the district

court’s determination that the cost of attendance for willing witnesses is neutral does not warrant the extraordinary remedy of mandamus. The majority feigns confusion re-garding the suggestion that it merely disagrees with the district court’s weighing of this factor. Maj. at 12 n.3. But it does not contest the district court’s finding that the loca-tion of party witnesses only “slightly weighs in favor of transfer.” S.A. 26. Nor does it address the court’s finding that because “Apple is building its own hotel [in Austin], the cost of attending a trial in the Austin division of WDTX may also weigh against transfer.” S.A. 13. Nor does it con-test, even under Genentech, the district court’s findings that the Northern District of California would be more in-convenient, time-consuming and costly for potential third-party witnesses residing in New York and within the West-ern District of Texas, or that these facts weigh against transfer. S.A. at 26–27; Maj. at 12 (expressly acknowledg-ing that the third-party witnesses will be “‘more


IN RE: APPLE INC. 4

inconvenienced by having to travel to California’ than to Texas”). Try as it may to cast this as a “misapplication of the law to facts,” the majority’s criticism of the district court merely amounts to a belief that the district court “gave too much significance” to the inconvenience of the third-party witnesses. Maj. at 12. That criticism is incon-sistent with our role in reviewing district court transfer de-cisions on mandamus, where the district court’s decision must be upheld unless it is “patently erroneous.”

To justify its appellate fact finding that the inconven-ience to party witnesses outweighs the inconvenience to third-party witnesses, the majority strains to identify a le-gal error in the district court’s application of the Fifth Cir-cuit’s 100-mile rule. The 100-mile rule is clear: “[w]hen the distance between an existing venue for trial of a matter and a proposed venue under § 1404(a) is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.” Volkswagen II, 545 F.3d at 317. The majority seeks to elim-inate the application of this rule to third-party witnesses residing a plane ride away from both districts. But the Fifth Circuit reaffirmed the 100-mile rule in 2008, clearly contemplating air travel, and yet imposed no air-travel lim-its on the rule. The majority contends that the district court applied the 100-mile rule “in a manner inconsistent with Genentech.” Maj. at 12 n.3. But as the majority con-cedes, even in Genentech, which the majority cites for the proposition that the 100-mile rule “should not be rigidly ap-plied,” we applied the 100-mile rule to witnesses residing a plane ride away from both the transferee and transferor districts, and concluded that those third-party witnesses would more be inconvenienced by traveling to the Northern District of California than to the Eastern District of Texas. 566 F.3d 1338, 1348 (Fed. Cir. 2009); Maj. at 12. Contrary to the majority’s suggestion, it is not a clear abuse of dis-cretion to find the right facts, apply the right law and simply weigh a factor differently than an appellate judge


IN RE: APPLE INC. 5

would. To the extent there is any dispute regarding the extent of inconvenience faced by all willing witnesses, it was Apple’s burden to prove that the transferee forum is clearly more convenient. The district court found that Ap-ple failed to carry that burden and we must defer to that finding absent a clear abuse of discretion.

II. All Other Practical Problems That Make Trial of a Case Easy, Expeditious and Inexpensive

The majority next criticizes the district court’s analysis of the practical problems that make trial of a case easy, ex-peditious and inexpensive. Maj. at 13–16. The district court found that this factor weighed heavily in favor of denying transfer. S.A. 30. I agree that the district court erred in considering events (such as claim construction) oc-curring after Apple filed its motion to transfer, therefore the court’s conclusion that this factor weighs heavily against transfer may be flawed. This error alone, however, does not mean that this factor flips from heavily against transfer to slightly in favor of transfer. Volkswagen II, 545 F.3d at 315 n.11 (emphasizing that “mandamus does not reach all erroneous rulings of the district court”). The dis-trict court considered factors of judicial economy separate and apart from its own case progress such as trial dates, case and docket congestion, and the similarity of other pending lawsuits and concluded that these factors also “in-dicate that keeping the case in WDTX would have a more positive impact.” S.A. 29. Setting aside the district court’s consideration of its own progress in the case occurring after Apple filed its transfer motion, we must defer to the district court’s finding that the separate judicial economy consider-ations also weigh in favor of denying transfer. To the ex-tent the majority believes the district court’s consideration of events occurring after Apple filed its motion undermines the entirety of the district court’s remaining fact findings, the appropriate remedy would be to remand for reconsider-ation. See, e.g., In re Nitro Fluids, No. 2020-142, Slip op. at 8 (Fed. Cir. Oct. 28, 2020); In re Dropbox, 814 F. App’x


IN RE: APPLE INC. 6

598, 599–600 (Fed. Cir. 2020). It is inappropriate for the majority to use a single legal error to justify resolving fac-tual disputes and to reconsider this factor anew on a peti-tion for mandamus.

The majority seizes on the fact that there are other cases between Apple and Uniloc that have already been transferred to the Northern District of California, and con-cludes “it is beyond question that the ability to transfer a case to a district with numerous cases involving some over-lapping issues weighs at least slightly in favor of transfer.” Maj. at 15–16. This statement of law that is apparently beyond question (though without citation to anything) dis-regards all the carefully considered facts regarding NDCA and the cases themselves which the district court discussed over many pages of its opinion. The district court deter-mined that judicial economy does not weigh in favor of transfer after carefully considering the transferred cases, noting that “the asserted patent” and “the documents and source code relevant to proving infringement” are “unique to this case.” S.A. 29. Given the limited overlap in the cases, the “lack of set trial dates and the number of stayed cases” between the parties in the Northern District of Cal-ifornia, and the congestion of the transferee docket, the court found that keeping the case in the Western District of Texas would have “a more positive impact.” Id. The dis-trict court also noted that the other cases between these parties were spread among various Northern District of California judges, that the cases were not consolidated be-fore the same trial judge, and the NDCA local rules would not steer towards consolidation. S.A. 28–30. In short, the court found the other NDCA cases significantly different and widely dispersed. The majority barely mentions these careful, thoughtful, thoroughly analyzed fact findings en route to its conclusion that it will grant transfer.

Moreover, the court extensively analyzed the conges-tion in both dockets, explaining that although WDTX his-torically had only a slightly quicker median time from


IN RE: APPLE INC. 7

filing to disposition (25.3 versus 25.9 months), NDCA cur-rently had three times the number of civil cases as WDTX. S.A. 29–30. The court further held that its trial date for this case would result in a shorter time to trial of 18.4 months compared with the average time to trial of approx-imately 32 months for patent cases in NDCA. S.A. 31. The majority finds no flaws with these fact findings (and claims to credit them), but it nonetheless dismisses them out of hand as insufficient to support the district court’s analysis.

The majority cites our decision in Adobe for the propo-sition that the district court relied too heavily on the sched-uled trial date. But in Adobe, we merely concluded that the district court erred in giving dispositive weight to the dis-trict court’s general ability to set a trial schedule. 823 F. App’x 929, 932 (Fed. Cir. 2020). Contrary to the majority’s suggestion, the court here did not conclude “on that basis alone” that NDCA is more congested than WDTX. Maj. at 16. The court instead considered the relative congestion in each district, number of pending cases, historical time to trial for each district and the projected time to trial in the instant case and found that there was an appreciable dif-ference in court congestion. The majority does not refute these thoughtful, thorough fact findings or point to any ev-idence that NDCA would resolve this case faster than WDTX. Nor does the majority suggest a district court should not consider its time to trial. Instead, the majority cites Genentech in an attempt to distract from its de novo review. Maj. at 16 n.5. But as in Genentech, I do not see how we can disturb the district court’s finding that judicial economy favors denying transfer under a clear abuse of dis-cretion standard. See Genentech, 566 F.3d at 1347 (“We do not disturb the district court’s suggestion that it could dis-pose of the case more quickly than if the case was trans-ferred to the Northern District of California”). Setting aside the district court’s own post-transfer motion case pro-gress, the facts still support the court’s conclusion that this factor favors denying transfer. This is true de novo (the


IN RE: APPLE INC. 8

standard the majority seems to be applying), and certainly true under the actual standard—the clear abuse of discre-tion standard.

III. Local Interests in Having Localized Interests De-cided at Home

Lastly, the majority criticizes the district court’s weigh-ing of the parties’ local interests. This criticism is over-blown and inconsistent with our role as an appellate court. As the district court found, even though Apple is headquar-tered in Cupertino, California, it has a campus of more than 8,000 employees in the Western District of Texas. S.A. 4. Apple has committed to expanding this presence in the district by adding 5,000 to 15,000 employees. S.A. 12. It also has multiple retail stores in the district and is build-ing its own local hotel. This is not the same local interest as every other district where Apple happens to have a retail store. Apple performs some of its revenue reporting and accounting activities on its Austin campus and Uniloc al-leges (and Apple does not dispute) that these accounting activities process revenue tied to the alleged infringing functionality. Apple maintains content delivery network (CDN) servers in Dallas that store and distribute apps and other content. S.A. 20. The district court found that Apple has at least seven employees in WDTX with duties concern-ing Apple’s CDN (related to the actual alleged infringe-ment in this case).

The majority does not dispute these facts. Instead, the majority contends that these facts should not be entitled to any weight based on a specious claim that the district court did not mention Apple’s CDN servers, engineers or its fi-nancial activities “at all in its analysis of this factor.” Maj. at 19. This is untrue. The district court referenced Apple’s CDN servers, CDN engineers and Apple’s financial ac-counting activities throughout its opinion:

Uniloc acknowledges the fact that Apple uses a con-tent delivery network (CDN) to store and distribute


IN RE: APPLE INC. 9

apps and other content of the accused App Store. Because there are Apple-owned CDN servers lo-cated in Dallas, and at least seven Apple employees in the District have job duties pertaining to Apple’s CDN, Uniloc makes a reasonable argument that these sources of proof are relevant and located in this District.

S.A. 20. The district court then expressly refers to these facts again in support of its conclusion that the local inter-est factor is neutral:

Additionally, Uniloc contends that between the witnesses it identified (e.g., Ms. Titus, seven em-ployees in Austin with duties concerning Apple’s CDN, and others) and the fact that Flextronics is located in this District, this factor weighs against transfer or is at worst, neutral.

S.A. 32. The district court also found that Apple contracts with

Flextronics to manufacture one of the accused products in Austin (and that Flextronics has hundreds of employees in WDTX some of whom may be relevant witnesses). S.A. 33. Far from giving “Flextronics little weight” as the majority suggests, the district court found that Flextronics’ presence in the district “also contribute[s] towards a higher localized interest in this case” and weighs against transfer.1 Id. Fi-nally, Apple has multiple retail stores with employees and customer support personnel to instruct and train users on

1 The district court’s conclusion that the local inter-

est factor “would be neutral in terms of transfer” absent Flextronics’ presence does not justify the majority’s blatant disregard for the fact that Flextronics manufactures an ac-cused product and “has a few hundred employees in the District—including some who may be potential witnesses.” S.A. 33.



how to use the accused functionality. Weighing these facts, the district court determined that the local interest factor was neutral. S.A. 32–33.

Contrary to the majority’s suggestion, the district court did not “fail[] to give weight” to the connections between this case and NDCA. Maj. at 18. The district court ex-pressly acknowledged that Apple alleges that the software was designed and developed in NDCA. S.A. 31–32. And, as the majority concedes, the district court addressed the “relevant party witnesses residing in NDCA,” and nonethe-less concluded that this factor was neutral. That there are facts on both sides does not mean we grant mandamus. The majority may not agree with the district court’s fact findings or may have weighed them differently, but it is impossible to say (and the majority never does) that the district court clearly abused its discretion in its local inter-est analysis.

And while the majority would rather not “engage with th[e] minor semantical point” of what the parties actually argue, even Apple’s petition did not argue that it would be a clear abuse of discretion to find this factor neutral. Maj. at 18 n.7; Petition at 36 (“the local interest factor would at most be neutral”); see also Petition at 35 (“Any finding that the local-interest factor weighs against transfer would re-quire legal error.”). It wasn’t until its reply brief when Ap-ple for the first time alleged that this factor weighs in favor of transfer. I do not see how the majority can conclude that a district court clearly abused its discretion in finding this factor neutral where even the moving party argued that the facts support neutrality.

The majority dismisses Apple’s and its manufacturer’s significant presence in the district. Neither this court nor the Fifth Circuit has held that an accused infringer’s gen-eral presence in a district is irrelevant to the district’s local interest in resolving the case. See, e.g., In re Acer Am. Corp., 626 F.3d 1252, 1255–56 (Fed. Cir. 2010) (considering



as relevant to the local interest factor the fact that one of the parties alleged to have caused harm resided in the transferor district). Moreover, the manufacture of the ac-cused product in the district and the maintenance of a cam-pus that may house documents related to the development of the accused products is indisputably relevant to the in-stant case. And to the extent there is a dispute regarding whether Apple or Flextronics have may have information or witnesses in Austin relevant to this case, that is a fact-intensive matter left to the discretion of the district court, not the appellate court. See In re Apple Inc., 818 F. App’x. 1001, 1004 (Fed. Cir. June 16, 2020) (“Whether individuals or organizations may have relevant information . . . are fact-intensive matters often subject to reasonable dis-pute. . . . Those determinations are generally entrusted to the discretion of the district court.”).

It is not for us to criticize the district court’s weighing of these facts. It is Apple’s burden to prove that the local interest factor weighs in favor of transfer. On this record, the district court did not clearly abuse its discretion in find-ing that Apple failed to meet that burden.

CONCLUSION I do not believe the district court’s denial of Apple’s

transfer motion reflects a clear abuse of discretion. The majority identifies a “misapplication of law to fact” in nearly every factor the district court analyzed. But looking beyond this label, which the Fifth Circuit notably has never relied on as a basis for granting a petition for mandamus, the majority’s criticism amounts merely to a disagreement with the district court’s weighing of its thorough fact find-ings. See, e.g., Maj. at 12 (“The district court misapplied the law to the facts of this case” and “gave too much signif-icance to the fact that the inventors and patent prosecutor live closer to WDTX than NDCA.”); id. at 16 (“The district court misapplied the law to the facts of this case by relying too heavily on the scheduled trial date.”); id. at 17 (“The



district court thus misapplied the law to the facts by so heavily weighing Apple’s general contacts with the fo-rum.”); id. at 18 (“The district court also misapplied the law to the facts by failing to give weight” to the connections be-tween NDCA and the suit.); id. at 19–20 (“Moreover, the district court did not otherwise provide any reason to give these employees and this activity weight above and beyond other relevant employees and activity.”). Though the dis-trict court erred in considering events that occurred after the transfer motion was filed, the court cannot fairly be charged with having failed to “meaningfully consider the merits of the transfer motion.” See Barnes & Noble, 743 F.3d at 1383. Nor can we say that the district court’s well-reasoned decision amounts to a “a clear abuse of discretion or usurpation of judicial power.” In re Nintendo Co., 589 F.3d 1194, 1197 (Fed. Cir. 2009). The majority has simply substituted its judgment that transfer should be ordered for that of the district court. At most, the alleged errors identified by the majority would support a motion for re-consideration; they do not warrant the extraordinary rem-edy of mandamus. It is particularly troubling to grant mandamus here where the petition itself does not raise many of the arguments the majority relies upon in its deci-sion. Under the proper standard of review, I believe the only patently erroneous result here is the one reached by the majority. I dissent from that result. Though the stand-ard of review is not de novo, because the majority has ap-proached the case as though it is, let me add—I agree with the district court and I would have denied transfer de novo.


[email protected] Paper No. 11

571-272-7822 Entered: March 20, 2020

UNITED STATES PATENT AND TRADEMARK OFFICE

____________

BEFORE THE PATENT TRIAL AND APPEAL BOARD

____________

APPLE INC.,

Petitioner,

v.

FINTIV, INC.,

Patent Owner.

____________

Case IPR2020-00019

Patent 8,843,125 B2

___________

Before WILLIAM M. FINK, Vice Chief Administrative Patent Judge, and

LINDA E. HORNER and LYNNE E. PETTIGREW, Administrative Patent

Judges.

FINK, Vice Chief Administrative Patent Judge.

ORDER

Conduct of the Proceeding

Supplemental Briefing on Discretionary Denial

35 U.S.C. § 314(a) and 37 C.F.R. § 42.5(a)


IPR2020-00019

Patent 8,843,125 B2

2

I. INTRODUCTION

Petitioner, Apple, Inc., filed a Petition in this case on October 28,

2019, challenging certain claims of U.S. Patent No. 8,843,125 B2 (Ex. 1001,

“the ’125 patent”) owned by Patent Owner, Fintiv, Inc. Paper 1 (“Pet.”).

Patent Owner filed a Preliminary Response on February 15, 2020. Paper 10

(“Prelim. Resp.”). In its Preliminary Response, Patent Owner requests that

the Board apply its discretion under 35 U.S.C. § 314(a) to deny institution of

the requested proceeding due to the advanced state of a parallel district court

litigation in which the same issues have been presented and trial has been set

for November 16, 2020. Prelim. Resp. 22‒26 (citing NHK Spring Co. v.

Intri-Plex Techs., Inc., IPR2018-00752, Paper 8 (PTAB Sept. 12, 2018)

(precedential, designated May 7, 2019)). Although Petitioner addressed the

issue briefly in the Petition, at that time no trial date had been set. See

Pet. 7. In light of the apparent change in status of the parallel proceeding,

the panel has determined that supplemental briefing on the issue of

discretionary denial is necessary in this case to give Petitioner an

opportunity to respond. This Order discusses the factors relevant to the

Board’s decision on whether to apply its discretion under 35 U.S.C. § 314(a)

to deny institution. This Order authorizes the parties to file supplemental

briefing addressing facts in this case relevant to these factors.

II. DISCRETIONARY DENIAL UNDER NHK

In NHK, the patent owner argued the Board should deny institution

under 35 U.S.C. § 314(a) because institution of a trial at the PTAB would be

an inefficient use of Board resources in light of the “advanced state” of the

parallel district court litigation in which the petitioner had raised the same

invalidity challenges. IPR2018-00752, Paper 8. The Board denied

IPR2020-00019

Patent 8,843,125 B2

3

institution, relying in part on § 314(a). Specifically, under § 314(a) the

Board considered the fact that the parallel district court proceeding was

scheduled to finish before the Board reached a final decision as a factor

favoring denial.1 The Board found that the earlier district court trial date

presented efficiency considerations that provided an additional basis,

separate from the independent concerns under 35 U.S.C. § 325(d),2 for

denying institution. Thus, NHK applies to the situation where the district

court has set a trial date to occur earlier than the Board’s deadline to issue a

final written decision in an instituted proceeding. In a case where, in

contrast to the facts present in NHK, the district court has set a trial date

after the Board’s deadline to issue a final written decision in an instituted

proceeding, the Board may be less likely to deny institution under 35 U.S.C.

§ 314(a) based on district court trial timing depending on other factors as set

forth below.3

1 See 35 U.S.C. § 316(a)(11) (2018) (requiring issuance of a final written

decision within one year of institution, absent extension up to six months for

good cause).

2 Section 325(d) provides that the Director may elect not to institute a

proceeding if the challenge to the patent is based on the same or

substantially the same prior art or arguments previously presented to the

Office.

3 See Polycom, Inc. v. directPacket Research, Inc., IPR2019-01233, Paper

21 at 13 (PTAB Jan. 13, 2020) (declining to apply discretion to deny

institution when district court trial is scheduled to occur months after the

statutory deadline for completion of the IPR); Iconex, LLC v. MAXStick

Products Ltd., IPR2019-01119, Paper 9 at 10 (PTAB Dec. 6, 2019) (same).

IPR2020-00019

Patent 8,843,125 B2

4

A. The Parties’ Arguments

In the Petition, Petitioner argues that although a parallel district court

proceeding is ongoing involving the challenged patent, the Board should not

exercise authority to deny institution under NHK because, at the time of the

Petition filing, “no preliminary injunction motion has been filed, the district

court has not been presented with or invested any time in the analysis of

prior art invalidity issues, and no trial date has been set.” Pet. 7. Petitioner

also argues that it timely filed its petition within the statutorily prescribed

one-year window, and that declining to institute IPR here would “essentially

render nugatory” the one-year filing period of § 315(b). Id. Petitioner also

argues that declining to institute an IPR based on a parallel district court

litigation “ignores the common scenario, contemplated by Congress, of

obtaining a district court stay based on institution.” Id.

In its Preliminary Response, Patent Owner has raised several factors

that it contends weigh in favor of exercising authority to deny institution

under NHK, including an earlier trial date (six months prior to the projected

deadline for a final written decision if the Board institutes a proceeding),4

significant overlap between issues raised in the Petition and in the district

court proceeding (identical claims and arguments), and investment in the

district court trial (claim construction already issued). See Prelim. Resp. 23‒

27.

4 After the filing of the Petition, the district court entered a scheduling order

setting a trial date to occur prior to projected deadline for a final written

decision in this matter. Ex. 2009 (setting trial date of November 16, 2020).

IPR2020-00019

Patent 8,843,125 B2

5

B. Factors Related to a Parallel, Co-Pending Proceeding in

Determining Whether to Exercise Discretionary Institution or

Denial

As with other non-dispositive factors considered for institution under

35 U.S.C. § 314(a), an early trial date should be weighed as part of a

“balanced assessment of all relevant circumstances of the case, including the

merits.” 5 Consolidated Trial Practice Guide November 2019 (“TPG”)6 at

58. Indeed, the Board’s cases addressing earlier trial dates as a basis for

denial under NHK have sought to balance considerations such as system

efficiency, fairness, and patent quality.7 When the patent owner raises an

argument for discretionary denial under NHK due to an earlier trial date,8 the

Board’s decisions have balanced the following factors:

5 See Abbott Vascular, Inc. v. FlexStent, LLC, IPR2019-00882, Paper 11 at

31 (PTAB Oct. 7, 2019) (declining to adopt a bright-line rule that an early

trial date alone requires denial in every case).

6 Available at https://www.uspto.gov/TrialPracticeGuideConsolidated.

7 See Magellan Midstream Partners L.P. v. Sunoco Partners Marketing &

Terminals L.P., IPR2019-01445, Paper 12 at 10 (PTAB Jan. 22, 2020)

(citing “unnecessary and counterproductive litigation costs” where district

court would most likely have issued a decision before the Board issues a

final decision); Intel Corp. v. VLSI Tech. LLC, IPR2019-01192, Paper 15 at

11 (PTAB Jan. 9, 2020) (“When considering the impact of parallel litigation

in a decision to institute, the Board seeks, among other things, to minimize

the duplication of work by two tribunals to resolve the same issue.”);

Illumina, Inc. v. Natera, Inc., IPR2019-01201, Paper 19 at 6 (PTAB Dec. 18,

2019) (“We have considered the positions of the parties and find that, on this

record, considerations of efficiency, fairness, and the merits of the grounds

in the Petition do not weigh in favor of denying the Petition.”).

8 To the extent we refer to such a denial of institution as a “denial under

NHK,” we refer to NHK’s § 314(a) denial due to the earlier trial date in the

district court and not the independent basis for denial under § 325(d).

IPR2020-00019

Patent 8,843,125 B2

6

1. whether the court granted a stay or evidence exists that

one may be granted if a proceeding is instituted;

2. proximity of the court’s trial date to the Board’s

projected statutory deadline for a final written decision;

3. investment in the parallel proceeding by the court and the

parties;

4. overlap between issues raised in the petition and in the

parallel proceeding;

5. whether the petitioner and the defendant in the parallel

proceeding are the same party; and

6. other circumstances that impact the Board’s exercise of

discretion, including the merits.

These factors relate to whether efficiency, fairness, and the merits

support the exercise of authority to deny institution in view of an earlier trial

date in the parallel proceeding. As explained below, there is some overlap

among these factors. Some facts may be relevant to more than one factor.

Therefore, in evaluating the factors, the Board takes a holistic view of

whether efficiency and integrity of the system are best served by denying or

instituting review. See TPG at 58 (quoting 35 U.S.C. § 316(b)).

1. whether a stay exists or is likely to be granted if a

proceeding is instituted

A district court stay of the litigation pending resolution of the PTAB

trial allays concerns about inefficiency and duplication of efforts. This fact

has strongly weighed against exercising the authority to deny institution

under NHK.9 In some cases, there is no stay, but the district court has denied

9 See Precision Planting, LLC v. Deere & Co., IPR2019-01052, Paper 19 at

10 (PTAB Jan. 7, 2020) (finding that the district court stay of the parallel

district court case rendered moot the patent owner’s argument for

discretionary denial of the petition); Apotex Inc. v. UCB Biopharma Sprl,

IPR2020-00019

Patent 8,843,125 B2

7

a motion for stay without prejudice and indicated to the parties that it will

consider a renewed motion or reconsider a motion to stay if a PTAB trial is

instituted. Such guidance from the district court, if made of record, suggests

the district court may be willing to avoid duplicative efforts and await the

PTAB’s final resolution of the patentability issues raised in the petition

before proceeding with the parallel litigation. This fact has usually weighed

against exercising authority to deny institution under NHK,10 but, for reasons

discussed below, proximity of the court’s trial date and investment of time

are relevant to how much weight to give to the court’s willingness to

reconsider a stay.11, 12 If a court has denied a defendant’s motion for a stay

IPR2019-00400, Paper 17 at 31‒32 (PTAB July 15, 2019) (finding that the

district court stay of the parallel district court case predicated on the inter

partes review means that the trial will not occur before the Board renders a

final decision).

10 See Abbott Vascular, IPR2019-00882, Paper 11 at 30‒31 (noting district

court’s willingness to revisit request for stay if Board institutes an inter

partes review proceeding).

11 See DMF, Inc. v. AMP Plus, Inc., Case No. 2-18-cv-07090 (C.D. Cal. July

12, 2019) (denying defendants’ initial motion to stay without prejudice to

their renewing the motion should PTAB grant their IPR petition); id. (Dec.

13, 2019) (denying renewed motion to stay after PTAB instituted, in part,

because in the interim claim construction order had issued, trial date was fast

approaching, and discovery was in an advanced stage).

12 It is worth noting that the district court, in considering a motion for stay,

may consider similar factors related to the amount of time already invested

by the district court and proximity of the trial date to the Board’s deadline

for a final written decision. See Space Data Corp. v. Alphabet Inc., Case

No. 16-cv-03260, slip op. at 3 (N.D. Cal. Mar. 12, 2019) (denying motion to

stay where the court had ruled on a motion for partial summary judgment

and issued a Markman order, and fact and expert discovery are closed, and

thus “much work has been completed”); Intellectual Ventures I LLC v. T-

IPR2020-00019

Patent 8,843,125 B2

8

pending resolution of a PTAB proceeding, and has not indicated to the

parties that it will consider a renewed motion or reconsider a motion to stay

if a PTAB trial is instituted, this fact has sometimes weighed in favor of

exercising authority to deny institution under NHK.

One particular situation in which stays arise frequently is during a

parallel district court and ITC investigation involving the challenged patent.

In such cases, the district court litigation is often stayed under 28 U.S.C.

§ 1659 pending the resolution of the ITC investigation. Regardless, even

though the Office and the district court would not be bound by the ITC’s

decision, an earlier ITC trial date may favor exercising authority to deny

institution under NHK if the ITC is going to decide the same or substantially

similar issues to those presented in the petition. The parties should indicate

whether there is a parallel district court case that is ongoing or stayed under

28 U.S.C. § 1659 pending the resolution of the ITC investigation. We

Mobile USA, Inc., Case No. 2-17-cv-00577 (E. D. Tex. Dec. 13, 2018)

(denying motion to stay after dispositive and Daubert motions had been filed

and the court had expended material judicial resources to prepare for the

pretrial in three weeks); Plastic Omnium Advanced Innovation and Research

v. Donghee Am., Inc., Case No. 1-16-cv-00187 (D. Del. Mar. 9, 2018)

(denying motion for stay after PTAB’s institution of inter partes reviews

because the court “has construed the parties’ disputed claim terms, handled

additional discovery-related disputes, begun reviewing the parties’ summary

judgment and Daubert motions . . . and generally proceeded toward trial”

and “[d]elaying the progress of this litigation . . . would risk wasting the

Court’s resources”); Dentsply Int’l, Inc. v. US Endodontics, LLC, Case

No. 2-14-cv-00196, slip op. at 5 (E.D. Tenn. Dec. 1, 2015) (denying motion

for stay pending inter partes review because a stay at this point in the

proceedings “would waste a significant amount of the time and resources

already committed to this case by the parties and the Court”).

IPR2020-00019

Patent 8,843,125 B2

9

recognize that ITC final invalidity determinations do not have preclusive

effect,13 but, as a practical matter, it is difficult to maintain a district court

proceeding on patent claims determined to be invalid at the ITC.

Accordingly, the parties should also indicate whether the patentability

disputes before the ITC will resolve all or substantially all of the

patentability disputes between the parties, regardless of the stay.14

2. proximity of the court’s trial date to the Board’s

projected statutory deadline

If the court’s trial date is earlier than the projected statutory deadline,

the Board generally has weighed this fact in favor of exercising authority to

deny institution under NHK. If the court’s trial date is at or around the same

time as the projected statutory deadline or even significantly after the

projected statutory deadline, the decision whether to institute will likely

implicate other factors discussed herein, such as the resources that have been

invested in the parallel proceeding.15

3. investment in the parallel proceeding by the court and

parties

The Board also has considered the amount and type of work already

completed in the parallel litigation by the court and the parties at the time of

the institution decision. Specifically, if, at the time of the institution

decision, the district court has issued substantive orders related to the patent

13 See Texas Instruments v. Cypress Semiconductor Corp., 90 F.3d 1558

(Fed. Cir. 1996) (holding that an invalidity determination in an ITC section

337 action does not have preclusive effect).

14 See infra § II.A.4.

15 See, e.g., infra § II.A.3, § II.A.4.

IPR2020-00019

Patent 8,843,125 B2

10

at issue in the petition, this fact favors denial.16 Likewise, district court

claim construction orders may indicate that the court and parties have

invested sufficient time in the parallel proceeding to favor denial.17 If, at the

time of the institution decision, the district court has not issued orders related

to the patent at issue in the petition, this fact weighs against exercising

discretion to deny institution under NHK.18 This investment factor is related

to the trial date factor, in that more work completed by the parties and court

in the parallel proceeding tends to support the arguments that the parallel

proceeding is more advanced, a stay may be less likely, and instituting

would lead to duplicative costs.

16 See E-One, Inc. v. Oshkosh Corp., IPR2019-00162, Paper 16 at 8, 13, 20

(PTAB June 5, 2019) (district court issued preliminary injunction order after

finding petitioner’s invalidity contentions unlikely to succeed on the merits).

17 See Next Caller, Inc. v. TRUSTID, Inc., IPR2019-00963, Paper 8 at 13

(PTAB Oct. 28, 2019) (district court issued claim construction order);

Thermo Fisher Scientific, Inc. v. Regents of the Univ. of Cal., IPR2018-

01370, Paper 11 at 26 (PTAB Feb. 7, 2019) (district court issued claim

construction order). We note that the weight to give claim construction

orders may vary depending upon a particular district court’s practices. For

example, some district courts may postpone significant discovery until after

it issues a claim construction order, while others may not.

18 See Facebook, Inc. v. Search and Social Media Partners, LLC, IPR2018-

01620, Paper 8 at 24 (PTAB Mar. 1, 2019) (district court proceeding in its

early stages, with no claim constructions having been determined);

Amazon.com, Inc. v. CustomPlay, LLC, IPR2018-01496, Paper 12 at 8‒9

(PTAB Mar. 7, 2019) (district court proceeding in its early stages, with no

claim construction hearing held and district court having granted extensions

of various deadlines in the schedule).

IPR2020-00019

Patent 8,843,125 B2

11

As a matter of petition timing, notwithstanding that a defendant has

one year to file a petition,19 it may impose unfair costs to a patent owner if

the petitioner, faced with the prospect of a looming trial date, waits until the

district court trial has progressed significantly before filing a petition at the

Office. The Board recognizes, however, that it is often reasonable for a

petitioner to wait to file its petition until it learns which claims are being

asserted against it in the parallel proceeding.20 Thus, the parties should

explain facts relevant to timing. If the evidence shows that the petitioner

filed the petition expeditiously, such as promptly after becoming aware of

the claims being asserted, this fact has weighed against exercising the

authority to deny institution under NHK.21 If, however, the evidence shows

19 See 35 U.S.C. § 315(b) (2018) (setting a one-year window from the date

on which the petitioner, real party in interest, or privy of the petitioner is

served with a complaint alleging infringement of the patent in which to file a

petition).

20 See 157 Cong. Rec. S5429 (Sept. 8, 2011) (S. Kyl) (explaining that in

light of the House bill’s enhanced estoppels, it is important to extend the

deadline for allowing an accused infringer to seek inter partes review from 6

months, as proposed in the Senate bill, to one year to afford defendants a

reasonable opportunity to identify and understand the patent claims that are

relevant to the litigation). Our discussion of this factor focuses on the

situation where the petitioner also is a defendant in the parallel litigation. If

the parallel litigation involves a party different than the petitioner, this fact

weighs against exercising authority to deny institution under NHK. See infra

§ II.A.5.

21 See Intel Corp., IPR2019-01192, Paper 15 at 12‒13 (finding petitioner

was diligent in filing the petition within two months of patent owner

narrowing the asserted claims in the district court proceeding); Illumina,

IPR2019-01201, Paper 19 at 8 (finding petitioner was diligent in filing the

IPR2020-00019

Patent 8,843,125 B2

12

that the petitioner did not file the petition expeditiously, such as at or around

the same time that the patent owner responds to the petitioner’s invalidity

contentions, or even if the petitioner cannot explain the delay in filing its

petition, these facts have favored denial.22


parallel proceeding

In NHK, the Board was presented with substantially identical prior art

arguments that were at issue in the district court (as well as those previously

addressed by the Office under § 325(d)). IPR2018-00752, Paper 8 at 20.

Thus, concerns of inefficiency and the possibility of conflicting decisions

were particularly strong. Accordingly, if the petition includes the same or

substantially the same claims, grounds, arguments, and evidence as

presented in the parallel proceeding, this fact has favored denial.23

Conversely, if the petition includes materially different grounds, arguments,

petition several months before the statutory deadline and in response to the

patent being added to the litigation in an amended complaint).

22 See Next Caller, Inc. v. TRUSTID, Inc., IPR2019-00961, Paper 10 at 16

(PTAB Oct. 16, 2019) (weighing the petitioner’s unexplained delay in filing

the petition in favor of denial of the petition and noting that had the

petitioner filed the petition around the same time as the service of its initial

invalidity contentions, the PTAB proceeding may have resolved the issues

prior to the district court).

23 See Next Caller, IPR2019-00963, Paper 8 at 11‒12 (same grounds

asserted in both cases); ZTE (USA) Inc. v. Fractus, S.A., IPR2018-01451,

Paper 12 at 20 (PTAB Feb. 19, 2019) (same prior art and identical evidence

and arguments in both cases).

IPR2020-00019

Patent 8,843,125 B2

13

and/or evidence than those presented in the district court, this fact has tended

to weigh against exercising discretion to deny institution under NHK.24

In many cases, weighing the degree of overlap is highly fact

dependent. For example, if a petition involves the same prior art challenges

but challenges claims in addition to those that are challenged in the district

court, it may still be inefficient to proceed because the district court may

resolve validity of enough overlapping claims to resolve key issues in the

petition. The parties should indicate whether all or some of the claims

challenged in the petition are also at issue in district court. The existence of

non-overlapping claim challenges will weigh for or against exercising

discretion to deny institution under NHK depending on the similarity of the

claims challenged in the petition to those at issue in the district court.25

5. whether the petitioner and the defendant in the parallel

proceeding are the same party

If a petitioner is unrelated to a defendant in an earlier court

proceeding, the Board has weighed this fact against exercising discretion to

24 See Facebook, Inc. v. BlackBerry Limited, IPR2019-00899, Paper 15 at 12

(PTAB Oct. 8, 2019) (different prior art relied on in the petition than in the

district court); Chegg, Inc. v. NetSoc, LLC, IPR2019-01165, Paper 14 at 11–

12 (PTAB Dec. 5, 2019) (different statutory grounds of unpatentability

relied on in the petition and in the district court).

25 See Next Caller, IPR2019-00961, Paper 10 at 14 (denying institution even

though two petitions jointly involve all claims of patent and district court

involves only a subset of claims because the claims all are directed to the

same subject matter and petitioner does not argue that the non-overlapping

claims differ significantly in some way or argue that it would be harmed if

institution of the non-overlapping claims is denied).

IPR2020-00019

Patent 8,843,125 B2

14

deny institution under NHK.26 Even when a petitioner is unrelated to a

defendant, however, if the issues are the same as, or substantially similar to,

those already or about to be litigated, or other circumstances weigh against

redoing the work of another tribunal, the Board may, nonetheless, exercise

the authority to deny institution.27 An unrelated petitioner should, therefore,

address any other district court or Federal Circuit proceedings involving the

challenged patent to discuss why addressing the same or substantially the

same issues would not be duplicative of the prior case even if the petition is

brought by a different party.

6. other circumstances that impact the Board’s exercise of

discretion, including the merits

As noted above, the factors considered in the exercise of discretion are

part of a balanced assessment of all the relevant circumstances in the case,

including the merits.28 For example, if the merits of a ground raised in the

petition seem particularly strong on the preliminary record, this fact has

26 See Nalox-1 Pharms., LLC. v. Opiant Pharms., Inc., IPR2019-00685,

Paper 11 at 6 (PTAB Aug. 27, 2019) (distinguishing NHK because in NHK,

“the Board considered ‘the status of the district court proceeding between the

parties’” and, in the Nalox-1 case, the petitioner was not a party to the

parallel district court litigations).

27 See Stryker Corp. v. KFx Medical, LLC, IPR2019-00817, Paper 10 at 27‒

28 (PTAB Sept. 16, 2019) (considering a jury verdict of no invalidity, based

in part on evidence of secondary considerations, weighed in favor of

denying institution where the unrelated petitioner failed to address this

evidence in the petition).

28 TPG at 58.

IPR2020-00019

Patent 8,843,125 B2

15

favored institution.29 In such cases, the institution of a trial may serve the

interest of overall system efficiency and integrity because it allows the

proceeding to continue in the event that the parallel proceeding settles or

fails to resolve the patentability question presented in the PTAB

proceeding.30 By contrast, if the merits of the grounds raised in the petition

are a closer call, then that fact has favored denying institution when other

factors favoring denial are present.31 This is not to suggest that a full merits

analysis is necessary to evaluate this factor.32 Rather, there may be strengths

29 Illumina, IPR2019-01201, Paper 19 at 8 (PTAB Dec. 18, 2019)

(instituting when “the strength of the merits outweigh relatively weaker

countervailing considerations of efficiency”); Facebook, Inc. v. BlackBerry

Ltd., IPR2019-00925, Paper 15 at 27 (PTAB Oct. 16, 2019) (same); Abbott

Vascular, IPR2019-00882, Paper 11 at 29‒30 (same); Comcast Cable

Commnc’ns., LLC v. Rovi Guides, Inc., IPR2019-00231, Paper 14 at 11

(PTAB May 20, 2019) (instituting because the proposed grounds are

“sufficiently strong to weigh in favor of not denying institution based on

§ 314(a)”).

30 Were a final judgment entered on the patentability issues in the parallel

proceeding, the parties may jointly request to terminate the PTAB

proceeding in light of the fully resolved parallel proceeding. See 37 C.F.R.

§ 42.72.

31 E-One, IPR2019-00162, Paper 16 at 8, 13, 20 (denying institution based

on earlier district court trial date, weakness on the merits, and the district

court’s substantial investment of resources considering the invalidity of the

challenged patent).

32 Of course, if a petitioner fails to present a reasonable likelihood of

prevailing as to unpatentability of at least one challenged claim, then the

Board may deny the petition on the merits and may choose not to reach a

patent owner’s discretionary denial arguments.

IPR2020-00019

Patent 8,843,125 B2

16

or weaknesses regarding the merits that the Board considers as part of its

balanced assessment.33

C. Other Considerations

Other facts and circumstances may also impact the Board’s discretion

to deny institution. For example, factors unrelated to parallel proceedings

that bear on discretion to deny institution include the filing of serial

petitions,34 parallel petitions challenging the same patent,35 and

considerations implicated by 35 U.S.C. § 325(d).36 The parties should

explain whether these or other facts and circumstances exist in their

proceeding and the impact of those facts and circumstances on efficiency

and integrity of the patent system.

III. ORDER

The panel requests that the parties submit supplemental briefing, as

set forth below, to present on the record facts in this case relevant to the

factors discussed above. The supplemental briefing may be accompanied by

33 See id. at 13–20 (finding weaknesses in aspects of petitioner’s challenges).

34 See Valve Corp. v. Elec. Scripting Prods., Inc., IPR2019-00064, Paper 10

(PTAB May 1, 2019) (precedential); Valve Corp. v. Elec. Scripting Prods.,

Inc., IPR2018-00752, Paper 8 (PTAB Sept. 12, 2018); Gen. Plastic Indus.

Co. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6,

2017) (precedential as to § II.B.4.i).

35 TPG at 59‒61.

36 See Advanced Bionics, LLC v. MED-EL Elektromedizinische Geräte

GmbH, IPR2019-01469, Paper 6 (PTAB Feb. 13, 2020) (discussing two-part

framework for applying discretion to deny institution under 35 U.S.C.

§ 325(d)).

IPR2020-00019

Patent 8,843,125 B2

17

documentary evidence in support of any facts asserted in the supplemental

briefing, but may not be accompanied by declaratory evidence.

Accordingly, it is

ORDERED that Petitioner is authorized to file a reply to the

Preliminary Response, no more than ten (10) pages and limited to addressing

the issue of discretionary denial under 35 U.S.C. § 314(a), by March 27,

2020; and it is

FURTHER ORDERED that Patent Owner is authorized to file a

sur-reply to Petitioner’s reply, no more than ten (10) pages and limited to the

issue of discretionary denial under 35 U.S.C. § 314(a), by April 3, 2020.

IPR2020-00019

Patent 8,843,125 B2

18

For PETITIONER:

Travis Jensen

K. Patrick Herman

ORRICK, HERRINGTON & SUTCLIFFE LLP

[email protected]

[email protected]

[email protected]

For PATENT OWNER:

Jonathan K. Waldrop

Rodney R. Miller

John W. Downing

KASOWITZ BENSON TORRES LLP

[email protected]

[email protected]

[email protected]

NOTE: This order is nonprecedential.


______________________

In re: ADOBE INC., Petitioner

______________________

2020-126 ______________________



______________________

ON PETITION ______________________

Before PROST, Chief Judge, MOORE and HUGHES, Circuit

Judges. PROST, Chief Judge.

O R D E R Adobe Inc. petitions for a writ of mandamus asking this

court to direct the United States District Court for the Western District of Texas to grant its motion to transfer pursuant to 28 U.S.C. § 1404(a) to the United States Dis-trict Court for the Northern District of California. Syn-Kloud Technologies, LLC opposes. Adobe replies.


IN RE: ADOBE INC. 2

BACKGROUND SynKloud brought this suit against Adobe, a company

headquartered in San Jose, California, alleging infringe-ment of six patents by various Adobe products related to cloud storage. The complaint stated that SynKloud is a company organized under the laws of Delaware, with its principal place of business in Milton, Delaware.

Adobe moved the district court to transfer the case to the Northern District of California where it is headquar-tered pursuant to § 1404(a), which authorizes transfer “[f]or the convenience of parties and witnesses, in the in-terest of justice.” Adobe argued that “[o]ther than this lit-igation, SynKloud does not appear to have any connection whatsoever to Texas,” noting that SynKloud’s President re-sides in New York, SynKloud was not registered to do busi-ness in Texas, and it did not appear to have any operations, employees, or customers in Texas. A.198.

Adobe further urged that the Northern District of Cal-ifornia would be clearly more convenient. In support, Adobe submitted sworn declarations attesting to the fact that the teams responsible for the development, marketing, and sales of the accused services are primarily based in the Northern District of California. See, e.g., A.264–68, 405–08. Adobe noted that its own witnesses who would likely testify about the design, marketing, and sales of the ac-cused products overwhelmingly reside in the transferee fo-rum. Adobe further argued that, while it has two offices in Austin, Texas, those offices “have nothing to do with the design, development, or operation of the Accused Products” that were at issue in the case. A.199.

Adobe additionally noted that the inventor of the as-serted patents, Sheng Tai Tsao, and his company, STT WebOS, Inc., which had assigned the patents to SynKloud, are located in the Northern District of California, and hence were only subject to the subpoena power of the trans-feree court. Adobe argued that “Mr. Tsao and STT WebOS


IN RE: ADOBE INC. 3

have advertised that they had ‘demonstratable’ products ‘protected by’ most, if not all, of the patents-in-suit prior to the earliest filing date of the asserted patents, potentially invalidating them by violating the statutory on-sale bar,” and thus “have highly relevant information related to the validity issues in this case.” A.197.

After a hearing, the district court denied Adobe’s mo-tion from the bench. With regard to the relative ease of access to sources of proof factor, the district court found that the convenience of having Adobe’s, the inventor’s, and STT WebOS’s documents in the Northern District of Cali-fornia outweighed SynKloud’s purported convenience in the location of SynKloud’s documents in New York and Vir-ginia. The district court acknowledged a disagreement be-tween the parties as to whether any Adobe employee in Austin, Texas had relevant knowledge. However, the court found that “even if I conclude and resolve this factual con-flict in favor of SynKloud,” it would still find “that this fac-tor slightly favors transfer.” A.1112.

The district court also concluded that the compulsory process factor “slightly favors transfer,” noting that while “[w]itnesses related to the power of assignment and prior art rarely testify,” “it [is] almost certain that one party or the other would want the inventor to testify.” A.1113. The court noted a disagreement between the parties as to whether former Adobe employees in Austin, Texas had rel-evant information. But the court again explained that even if it resolved that conflict in SynKloud’s favor, it seemed unlikely that all four identified individuals would testify and did not ultimately sway the court to weigh this factor in favor of retaining the case. The court also found that the local interest factor “is neutral to slightly favors transfer,” given that “Adobe has facilities in both districts,” and “Syn-Kloud does not.” A.1114.

The single factor that the court weighed in favor of re-taining the case was the court congestion factor. The court


IN RE: ADOBE INC. 4

noted that it “had a year and a half of experience in terms of setting schedules and timing of cases and trials” and had “an order governing proceedings that I use in virtually every case that specifies that the trial will occur within roughly 44 to 47 weeks after a Markman hearing,” and that “[t]o the best of my recollection,” the court had no difficulty “setting a trial within that anticipated window.” A.1114. While the court acknowledged that the Northern District of California “might be more convenient,” it still decided to deny Adobe’s motion. A.1115.

DISCUSSION Applying Fifth Circuit law in cases from district courts

in that circuit, this court has held that mandamus may be granted to direct transfer for convenience upon a showing that the transferee forum is clearly more convenient, and the district court’s contrary ruling was a clear abuse of dis-cretion. See In re Genentech, Inc., 566 F.3d 1338, 1348 (Fed. Cir. 2009); In re TS Tech USA Corp., 551 F.3d 1315, 1318–19 (Fed. Cir. 2008); see also In re Radmax, Ltd., 720 F.3d 285, 287 (5th Cir. 2013); In re Volkswagen of Am., Inc., 545 F.3d 304, 311 (5th Cir. 2008) (en banc).

“A motion to transfer venue pursuant to § 1404(a) should be granted if ‘the movant demonstrates that the transferee venue is clearly more convenient,’ taking into consideration” the relevant private and public forum non conveniens factors. Radmax, 720 F.3d at 288 (quoting Volkswagen, 545 F.3d at 315); see also In re Nintendo Co., Ltd., 589 F.3d 1194, 1198 (Fed. Cir. 2009) (holding that “in a case featuring most witnesses and evidence closer to the transferee venue with few or no convenience factors favor-ing the venue chosen by the plaintiff, the trial court should grant a motion to transfer”).

In denying Adobe’s motion to transfer here, the district court committed several errors. First, the district court failed to accord the full weight of the convenience factors it considered and weighed in favor of transfer. Second, the


IN RE: ADOBE INC. 5

court overlooked that the willing witness factor also fa-vored transferring the case. Third, the court ran afoul of governing precedent in giving dispositive weight to its abil-ity to more quickly schedule a trial. Taken together, we agree that the district court’s denial of transfer here was a clear abuse of discretion.

First, the district court failed to accord proper weight to the convenience of the transferee venue. The court, by its own assessment, found that no private convenience fac-tor here favored retaining the case in the Western District of Texas and several such factors favored transfer. In par-ticular, the court noted that in addition to Adobe, the in-ventor and his company were in Northern California, and hence transfer would make providing testimony or docu-mentary evidence more convenient or allow a party to sub-poena such information. The court also declined to credit any potential witness or location in the Western District of Texas as having relevant evidence. Clearly, “[w]hen fairly weighed,” here, the compulsory process and sources of proof factors together tip “significantly in” favor of transferring the case. In re Google Inc., No. 2017-107, 2017 WL 977038, at *3 (Fed. Cir. Feb. 23, 2017); see also In re Acer Am. Corp., 626 F.3d 1252, 1255 (Fed. Cir. 2010) (determining that sub-poena power of the transferee court “surely tips in favor of transfer” notwithstanding the possibility that some poten-tial witnesses were within subpoena range of the transferor court). However, the district court only weighed those fac-tors as “slightly” favoring the transferee forum.

Second, and relatedly, the district court failed to weigh the cost of attendance for willing witnesses factor in its dis-cussion, yet this factor also favors transfer. Adobe identi-fied a significant number of its own employees as potential witnesses who reside in the Northern District of California. On the other hand, SynKloud’s own employees will be com-ing from outside both districts. See In re Toyota Motor Corp., 747 F.3d 1338, 1340 (Fed. Cir. 2014) (“The compari-son between the transferor and transferee forums is not


IN RE: ADOBE INC. 6

altered by the presence of other witnesses and documents in places outside both forums.”). Although SynKloud in-sisted that there may be Adobe employees working from its Austin, Texas office that may have relevant information, the district court found elsewhere in its analysis that, even if it could give SynKloud the benefit of the doubt here with regard to those sources of evidence, Northern California would still be more convenient.

Third, the district court erred in denying transfer based solely on its perceived ability to more quickly sched-ule a trial. In Genentech, we granted mandamus where, like here, there was a stark contrast in convenience be-tween the two forums. 566 F.3d at 1348. There, the dis-trict court found that the court congestion factor weighed against transfer based solely on its assessment of the aver-age rate of disposition of cases between the two forums. Id. at 1347. We questioned whether the court congestion fac-tor was relevant under the circumstances and held that even without disturbing the court’s suggestion that it could dispose of this case more quickly than the transferee venue, where “several relevant factors weigh in favor of transfer and others are neutral, then the speed of the transferee dis-trict court should not alone outweigh all of those other fac-tors.” Id.

The same conclusion follows here. Like the district court’s analysis in Genentech, the district court’s assess-ment of the court congestion factor here does not withstand scrutiny. The factor concerns whether there is an appre-ciable difference in docket congestion between the two fo-rums. See Parsons v. Chesapeake & Ohio Ry. Co., 375 U.S. 71, 73 (1963); Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1337 (9th Cir. 1984) (“The real issue is . . . whether a trial may be speedier in another court because of its less crowded docket.”). Nothing about the court’s general abil-ity to set a schedule directly speaks to that issue. Nor does the record demonstrate an appreciable difference in docket congestion between the forums that could legitimately be


IN RE: ADOBE INC. 7

worthy of consideration under this factor.* Yet even with-out disturbing the court’s suggestion that it could more quickly resolve this case based on its scheduling order, with several factors favoring transfer and nothing else favoring retaining this case in Western Texas, the district court erred in giving this factor dispositive weight.

In short, retaining this case in the Western District of Texas is not convenient for the parties and witnesses. It is not in the interest of justice or proper administration. And the district court’s contrary determination amounted to a clear abuse of discretion. We therefore grant Adobe’s peti-tion for a writ of mandamus to direct transfer.

Accordingly, IT IS ORDERED THAT:

The petition is granted. FOR THE COURT July 28, 2020 /s/ Peter R. Marksteiner

Date Peter R. Marksteiner Clerk of Court

s35

* SynKloud merely referred to the district court’s

own statement in another case, Fintiv, Inc. v. Apple Inc., No. 6:18-cv-00372-ADA, 2019 WL 4743678, at *7 (W.D. Tex. Sept. 13, 2019), in which the court relied on the same scheduling order to state that it averaged a 25% faster time to trial when compared to the Northern District of Califor-nia.


[email protected] Paper 15 571-272-7822 Date: May 13, 2020

UNITED STATES PATENT AND TRADEMARK OFFICE

BEFORE THE PATENT TRIAL AND APPEAL BOARD

APPLE INC.,

Petitioner,

v.

FINTIV, INC., Patent Owner.

IPR2020-00019 Patent 8,843,125 B2

Before WILLIAM M. FINK, Vice Chief Administrative Patent Judge, and LINDA E. HORNER and LYNNE E. PETTIGREW, Administrative Patent Judges.

HORNER, Administrative Patent Judge.

DECISION Denying Institution of Inter Partes Review

35 U.S.C. § 314, 37 C.F.R. § 42.4

I. INTRODUCTION

Petitioner, Apple Inc., filed a Petition requesting inter partes review

of claims 11, 13, 14, 16‒18, and 20‒25 of U.S. Patent No. 8,843,125 B2

(Ex. 1001, “the ’125 patent”). Paper 1 (“Pet.”). Patent Owner, Fintiv, Inc.,

filed a Preliminary Response. Paper 10 (“Prelim. Resp.”). In its Preliminary


IPR2020-00019 Patent 8,843,125 B2

2

Response, Patent Owner requests that the Board apply its discretion under

35 U.S.C. § 314(a) to deny institution of the requested proceeding due to the

advanced state of a parallel district court litigation, in which the same issues

have been presented and trial has been set for November 16, 2020. Prelim.

Resp. 22‒26 (citing NHK Spring Co. v. Intri-Plex Techs., Inc., IPR2018-

00752, Paper 8 (PTAB Sept. 12, 2018) (precedential, designated May 7,

2019)). Although Petitioner addressed the issue briefly in the Petition, at

that time no trial date had been set. See Pet. 7. In light of the change in

status of the parallel proceeding, the Board ordered supplemental briefing on

the issue of discretionary denial under 35 U.S.C. § 314(a) to give Petitioner

an opportunity to respond. Paper 11. This Order, which is now

precedential, discussed the factors relevant to the Board’s decision on

whether to apply its discretion under 35 U.S.C. § 314(a) to deny institution.

Id. (“Order” or “Precedential Order”). Petitioner filed a Reply to Patent

Owner’s Preliminary Response to address the issue of discretionary denial.

Paper 12 (“Reply”). Patent Owner filed a Sur-Reply to Petitioner’s Reply.

Paper 13 (“Sur-Reply”).

Upon consideration of the parties’ briefing, and for the reasons

explained below, we exercise our discretion under 35 U.S.C. § 314(a) and

deny institution of inter partes review.

II. BACKGROUND

A. Real Parties in Interest

Apple Inc. identifies itself as the real party-in-interest. Paper 1, 4.

Fintiv, Inc. identifies itself as the real party-in-interest. Paper 4, 1.

B. Related Matter

Petitioner and Patent Owner identify the following related matter:

Fintiv, Inc. v. Apple Inc., Case No. 6:18-cv-00372, filed in the United States

IPR2020-00019 Patent 8,843,125 B2

3

District Court for the Western District of Texas on December 21, 2018.

Paper 1, 4; Paper 4, 1.

C. The ’125 Patent

The ’125 patent relates to management of virtual cards stored on

mobile devices. Ex. 1001, 1:25‒26. Specifically, the ’125 patent “provides

a mobile device to store a mobile wallet application and a wallet

management system to store corresponding wallet application information.”

Id. at 2:55‒58. The patent also provides a method for provisioning a wallet

application, a contactless card applet, a wallet management applet, and a

widget, and a method for synchronizing a mobile wallet application with the

wallet management system. Id. at 2:58‒63.

Figure 1 below shows a mobile wallet system according to the ’125

patent.

IPR2020-00019 Patent 8,843,125 B2

4

Figure 1 is a system diagram of a mobile wallet system and associated

integration. Ex. 1001, 4:44‒45. As shown in Figure 1, the mobile wallet

system includes mobile device 100 and wallet management system (WMS)

110. Id. at 4:48‒49. WMS 110 is supported by trusted service manager

(TSM) system 120, mobile network operator 130, and service provider 140.

Id. at 4:48‒51.

Figure 2 below shows installation of a wallet application on a mobile

device.

Figure 2 is a system diagram illustrating a system and method for

installing a mobile wallet application on the mobile device and correlating

wallet management applet in the secure element (SE) of the mobile device.

Id. at 5:49‒52.

IPR2020-00019 Patent 8,843,125 B2

5

The ’125 patent also describes that the system can dynamically filter a

list of mobile widget applications that are available for installation based on

corresponding mobile device attributes. Id. at 10:9‒12, Fig. 4. Specifically,

rule engine 116 of WMS 110 may be used to display to mobile device 100 a

filtered list of downloadable applications. Id. at 10:18‒26. Downloadable

applications include contactless card applets 23 housed in TSM system 120.

Id. at 10:35‒36. The ’125 patent describes that “by providing an active

dynamic filtering mechanism at the TSM system 120 level, all of the parties

involved in such transaction need to make only a general request to the TSM

system 120 to access and to provide customer specific services.” Id. at

10:63‒67.

The ’125 patent also describes that the system synchronizes mobile

wallet application 24 in mobile device 100 with TSM 120. Id. at 11:5‒7,

Fig. 5. Specifically, TSM system 120 stores the master configuration of

mobile wallet application 24, which may be changed by service providers

from time-to-time. Id. at 11:13‒18. When the user logs into mobile wallet

application 24, the application checks with TSM system 120 for any

modifications to the wallet configuration since the last login by the user. Id.

at 11:35‒39. If updates are needed, the user will be prompted to make the

update. Id. at 11:48‒50. While mobile wallet application 24 is active, any

modifications made in the application itself will be updated in WMS 110.

Id. at 11:54‒57.

IPR2020-00019 Patent 8,843,125 B2

6

D. Challenged Claims

The Petition challenges claims 11, 13, 14, 16‒18, and 20‒25. Of

these, claims 11, 18, and 23 are independent. Claim 11, which is illustrative

of the subject matter at issue, is directed to a method of provisioning a

contactless card applet and is reproduced below.

11. A method for provisioning a contactless card applet in a mobile device comprising a mobile wallet application, the method comprising:

activating the mobile wallet application;

connecting to a Trusted Service Manager (TSM) system;

synchronizing the mobile wallet application with the TSM

system;

displaying a contactless card applet based on attributes of the mobile device;

receiving a selection of a contactless card applet;

retrieving a widget and a wallet management applet (WMA) corresponding to the contactless card applet; and

provisioning the selected contactless card applet, the widget, and the WMA.

Ex. 1001, 13:16‒30. Independent claim 18 is directed to a wallet

management system. Id. at 14:7‒23. Independent claim 23 is directed to a

mobile device. Id. at 14:38‒53.

IPR2020-00019 Patent 8,843,125 B2

7

E. Asserted Grounds of Unpatentability

Petitioner contends that the challenged claims are unpatentable based

on the following grounds:

Claim(s) Challenged 35 U.S.C. § Reference(s)/Basis

11, 13, 14, 16, 17, 23‒25 103(a)1 Aiglstorfer2, Buhot3, Wang4 18, 20‒22 103(a) Aiglstorfer, Wang

III. DISCRETIONARY DENIAL

A. Legal Standards

In exercising the Director’s discretion under 35 U.S.C. § 314(a), the

Board may consider “events in other proceedings related to the same patent,

either at the Office, in district courts, or the ITC.” Consolidated Trial

Practice Guide November 20195 (“TPG”) at 58. The recent Precedential

Order in this case sets forth factors that balance considerations of system

efficiency, fairness, and patent quality when a patent owner raises an

argument for discretionary denial due to the advanced state of a parallel

proceeding. Order 5‒6. These factors include:

1. whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;

1 The Leahy-Smith America Invents Act (“AIA”), Pub. L. No. 112-29, 125 Stat. 284, 285–88 (2011), revised 35 U.S.C. §§ 102, 103 effective March 16, 2013. Because the challenged patent was filed before March 16, 2013, we refer to the pre-AIA version of §§ 102, 103. 2 U.S. Patent Application Publication No. US 2010/0138518 A1, published June 3, 2010. Ex. 1004.

3 U.S. Patent Application Publication No. US 2010/0190437 A1, published July 29, 2010. Ex. 1005. 4 Chinese Patent Application Publication No. CN 101459902A, published June 17, 2009. Ex. 1008. We refer to the English language translation provided by Petitioner, and submitted as Exhibit 1009.

5 Available at https://www.uspto.gov/TrialPracticeGuideConsolidated.

IPR2020-00019 Patent 8,843,125 B2

8

2. proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision;

3. investment in the parallel proceeding by the court and the parties;


parallel proceeding;

5. whether the petitioner and the defendant in the parallel proceeding are the same party; and

6. other circumstances that impact the Board’s exercise of discretion, including the merits.

Id. See also NHK, Paper 8 at 20 (considering an earlier trial date as a factor

in favor of discretionary denial).

As explained in detail in the Order, the Board examines these factors,

which relate to whether efficiency, fairness, and the merits support the

exercise of authority to deny institution. Id. at 6, 9. In evaluating the

factors, the Board takes a holistic view of whether efficiency and integrity of

the system are best served by denying or instituting review. Id.

B. Facts

Fintiv filed its original complaint in the Western District of Texas on

December 21, 2018, and served Apple with the complaint on January 4,

2019. Ex. 3002 (docket #1, 8). Fintiv served its initial asserted claims and

infringement contentions on Apple on May 20, 2019. Ex. 2029. Shortly

thereafter, the District Court held a case management conference, and

subsequently issued a scheduling order. Ex. 2023. The scheduling order set,

among other things, a due date for Apple to serve preliminary invalidity

contentions on July 25, 2019 and a Markman Hearing for November 8,

2019. Id. at 1‒2.

IPR2020-00019 Patent 8,843,125 B2

9

Between the time of the case management conference and the

scheduled Markman Hearing, Apple filed the present Petition on October 28,

2019.6 Paper 1. This Petition was filed five months after Apple received

Fintiv’s Initial Infringement Contentions and ten months after Apple was

served with Fintiv’s complaint. At the time of filing the Petition, the parties

were in the midst of preparations for the Markman hearing, and initial

contentions had been exchanged, but fact discovery had not yet begun, and

the District Court had not yet set a trial date. Ex. 2023.

Shortly thereafter, the District Court held a Markman hearing and, a

few weeks later, issued a claim construction order. Exs. 2009, 1027. At the

Markman hearing, the District Court also set a trial date of November 16,

2020. Ex. 2009. Fact discovery then began on November 14, 2019.

Ex. 2023, 2.

Meanwhile, Apple served Fintiv with its final invalidity contentions.

Ex. 1045 (filed Jan. 17, 2020). The parties are currently in the midst of

ongoing discovery. Exs. 1034, 1039, 1040, 1041, 1043, 2028. Many of the

documents and witnesses involved in this case are located in the Northern

District of California, which has been under a shelter-in-place order since

March 16, 2020. Ex. 1042.

6 During this time, Apple sought to transfer venue. Ex. 2037 (seeking, in part, to transfer the case to the Northern District of California). The District Court denied Apple’s motion to transfer the case to California. Ex. 3002 (docket # 65, 73) (denying, in part, motion on September 13, 2019).

The U.S. Court of Appeals for the Federal Circuit denied Apple’s petition for a writ of mandamus. Ex. 2026 (denying petition on Dec. 20, 2019). See also Ex. 2027 (denying Apple’s petition for rehearing en banc on March 30, 2020).

IPR2020-00019 Patent 8,843,125 B2

10

The District Court recently issued several orders related to the

COVID-19 pandemic. Among others, the District Court issued a Standing

Order Regarding Post-Markman Patent Cases, in which the Court indicated

its willingness to “consider all reasonable adjustments to the current

scheduling orders to allow the parties to complete discovery, and have

adequate time to complete expert reports, take expert depositions, and file

appropriate motions.” Ex. 3002 (docket #122).

On April 23, 2020, the District Court granted a joint motion to extend

the schedule, resetting the jury trial to begin on March 8, 2021, and

postponing the due dates to complete fact and expert discovery and the

deadline for filing dispositive motions. Ex. 1049 (Agreed Amended

Scheduling Order).

C. Policy Considerations

1. Policy Arguments

Before turning to the factors, Petitioner argues, as an overall matter of

policy, that we should not deny institution based on the state of a parallel

district court proceeding. Reply 1‒5. Petitioner argues that taking into

account the state of a parallel district court proceeding in a decision on

institution negates the statutorily provided one-year filing period, encourages

forum shopping, improperly bases the decision on trial dates that are often

moving targets,7 and contravenes Congressional intent of the America

Invents Act, which was based on district courts granting stays. Id.

7 In addition to its policy arguments, Petitioner argues that the Board should take judicial notice of effect of the COVID-19 pandemic and the disruption

it is causing to trial schedules. Reply 4. Since the filing of Petitioner’s supplemental brief, the parties have agreed to an amended scheduling order that renders moot this argument. We address the amended scheduling order below in our analysis of the factors.

IPR2020-00019 Patent 8,843,125 B2

11

Relatedly, Petitioner also argues that NHK did not hold that the advanced

state of a parallel case, alone, is sufficient reason to deny. Id. at 5.

Patent Owner argues that the district court trial date is not dispositive,

and is used in conjunction with other factors to assess and promote

efficiency and fairness in inter partes review proceedings. Sur-Reply 7.

Patent Owner asserts that the factors in this case demonstrate that

discretionary denial will promote efficiency and fairness. Id. Patent Owner

also argues that forum shopping is not an issue in this case, noting that the

District Court denied Apple’s motion to transfer the case to another district.

Id. at 9‒10.

2. Analysis

We have addressed Petitioner’s policy arguments in our Precedential

Order. As discussed there, a parallel proceeding in an advanced state

implicates considerations of efficiency and fairness, which can serve as an

independent reason to apply discretion to deny institution. See Order 3. As

to Petitioner’s concern about forum shopping, it always has been the case

that some district courts move faster than others, and patent owners seeking

to enforce patents may be inclined to file suit in a district that moves

relatively quickly. It is up to a district court to determine whether adequate

ties exist between the defendant and the selected district. As noted by Patent

Owner, in this case, the District Court determined that venue was proper. To

Petitioner’s point regarding the time-bar of 35 U.S.C. § 315(b), we recognize

that, under certain circumstances, considerations of the state of a parallel

proceeding may require petitioners to act more quickly than the maximum

amount of time permitted by Congress. Nonetheless, Congress also gave the

Director discretion to deny institution. See Cuozzo Speed Techs., LLC v.

Lee, 579 U.S. __, 136 S. Ct. 2131, 2140 (2016) (citing 35 U.S.C. § 314(a)).

IPR2020-00019 Patent 8,843,125 B2

12

Thus, considerations of efficiency and fairness require a holistic look at the

facts surrounding the parallel proceeding in each case. See id. at 6.

D. Analysis of Factors

We turn to each of the factors set forth in our Order and briefed by the

parties.

1. Factor 1: whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted

Neither party has requested a stay of the District Court case pending

this proceeding. Thus, the District Court has not ruled on this issue.

Petitioner argues that there is no reason that a stay should be denied in

the District Court case because Congress intended for district courts to be

liberal in granting stays pending AIA post-grant proceedings. Reply 6‒7.

Patent Owner argues that Petitioner does not provide specific facts or cases

that indicate the District Court would be inclined to stay this case.

Sur-Reply 2. Patent Owner also argues that a stay is unlikely under the

three-factor analysis employed by the District Court. Id. at 2‒4 (citing Exs.

2024, 2025).

A judge determines whether to grant a stay based on the facts of each

specific case as presented in the briefs by the parties. We decline to infer,

based on actions taken in different cases with different facts, how the

District Court would rule should a stay be requested by the parties in the

parallel case here. This factor does not weigh for or against discretionary

denial in this case.

2. Factor 2: proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision

The parties’ supplemental briefs presented arguments addressing

uncertainty about the November 16, 2020, trial date due to the COVID-19

IPR2020-00019 Patent 8,843,125 B2

13

pandemic. Reply 7; Sur-Reply 4‒5. After filing of these briefs, the parties

agreed to an amended scheduling order. Ex. 1049. In the amended

scheduling order, the District Court set the jury trial to begin on March 8,

2021, approximately two months before a final written decision would be

due in this proceeding. Id. at 3. We generally take courts’ trial schedules at

face value absent some strong evidence to the contrary. We have no reason

to believe that the jointly agreed-upon trial date, which already has been

postponed by several months due to complications stemming from the

COVID-19 pandemic, will be postponed again. Because the currently

scheduled District Court trial is scheduled to begin two months before our

deadline to reach a final decision, this factor weighs somewhat in favor of

discretionary denial in this case.

3. Factor 3: investment in the parallel proceeding by the court and the parties

Petitioner argues that apart from a Markman Hearing conducted early

in the district court litigation, no other efforts have been expended by the

court on the parties’ claims and defenses (e.g., no preliminary injunction has

been sought, summary judgment motions are months away, fact discovery is

ongoing, Patent Owner has taken only two depositions, and Petitioner has

taken no depositions). Reply 7‒8. Patent Owner argues that substantial

investment in the district court case has been made because claim

construction is complete, the parties have served final infringement and

invalidity contentions and exchanged multiple rounds of written discovery,

depositions have been taken, and venue issues have been briefed and

appealed. Sur-Reply 5‒6.

The parties each filed three briefs addressing claim construction issues

in this case in the District Court, i.e., opening, responsive, and reply briefs,

IPR2020-00019 Patent 8,843,125 B2

14

the District Court held a claim construction hearing on November 7, 2019,

and a few weeks after the hearing, the District Court issued a detailed

34-page claim construction order construing seven claim terms. Ex. 1027.

The parties also exchanged both initial and final infringement and invalidity

contentions, including detailed invalidity claim charts addressing the prior

art cited in this Petition. Exs. 2010, 2023, 2029, 2031‒2036. We recognize

that much work remains in this case as it relates to invalidity: fact discovery

is in its early stages, with document production ongoing and depositions just

getting underway, expert reports are not yet due, and substantive motion

practice is yet to come. Thus, although the parties and the Court have

invested effort in the District Court case to date, further effort remains to be

expended in this case before trial. Based on the level of investment and

effort already expended on claim construction and invalidity contentions in

the District Court, this factor weighs somewhat in favor of discretionary


4. Factor 4: overlap between issues raised in the petition and in the parallel proceeding

Petitioner admits that the same claims are challenged in the Petition

and in the district court, but Petitioner argues that its invalidity contentions

in district court contain more prior art than the art presented in the Petition.

Reply 9‒10. Petitioner also states that it has not decided whether to pursue

the art presented in its Petition in expert discovery or at trial in the district

court. Id. at 9. Patent Owner argues that Petitioner challenges the same

claims and presents the same grounds in both the Petition and in the District

Court and the fact that Petitioner raises additional contentions in the District

Court is irrelevant. Sur-Reply 6‒7 (citing Exs. 2010, 2031‒2036).

IPR2020-00019 Patent 8,843,125 B2

15

We agree with Patent Owner that Petitioner’s assertion of additional

invalidity contentions in the District Court is not relevant to the question of

the degree of overlap for this factor. Further, the fact that Petitioner has not

decided whether to pursue the art from this proceeding in its expert

discovery or at trial in the District Court is not persuasive. The same art is

presented in Petitioner’s final invalidity contentions, which are extremely

detailed and developed. See Exs. 2010, 2031‒2036. Thus, because the

identical claims are challenged based on the same prior art in both the

Petition and in the District Court, this factor weighs in favor of discretionary


5. Factor 5: whether the petitioner and the defendant in the parallel proceeding are the same party

The parties agree that the Petitioner here, and the defendant in District

Court, are the same party. Reply 10; Sur-Reply 7. Because the petitioner

and the defendant in the parallel proceeding are the same party, this factor

weighs in favor of discretionary denial.

6. Factor 6: other circumstances that impact the Board’s exercise of discretion, including the merits

As noted in our Order, a balanced assessment of factors may include

consideration of the merits. Order 14‒15. Each party argues that the merits

tip the balance in its favor. Reply 10; Sur-Reply 10. A full merits analysis

is not necessary as part of deciding whether to exercise discretion not to

institute, but rather the parties may point out, as part of the factor-based

analysis, particular “strengths or weaknesses” to aid the Board in deciding

whether the merits tip the balance one way or another. See Order 15–16. As

an example, a petitioner can use the opportunity to draw attention to

particular grounds that it believes are particularly persuasive of

IPR2020-00019 Patent 8,843,125 B2

16

unpatentability. Conversely, a patent owner can use the opportunity to call

attention to particular arguments that, on balance, make the petitioner’s case

a close call.

Here, our initial inspection of the merits on the record before us

suggests some of Petitioner’s challenges contain certain weaknesses and,

taken as a whole, the strengths of the merits do not outweigh other factors in

favor of discretionary denial. For example, Patent Owner identifies a

weakness in Petitioner’s challenge to claim 11 in explaining where the prior

art discloses the claimed synchronizing step. Prelim. Resp. 31‒32. We

agree that the Petition does not propose an interpretation of “synchronizing,”

in light of how that term is used in the context of the ’125 patent, to explain

how Aiglstorfer’s download of banking card information from the Trusted

Service Manager to a Trusted Secure Agent of the electronic device

synchronizes the first moblet software module with the Trusted Service

Manager.

Also, Patent Owner identifies a weakness in Petitioner’s challenges to

claims 11 and 18 in explaining where the prior art discloses the filtering

aspect of these claims. Prelim. Resp. 32‒35, 58. The Petition relies on

Aiglstorfer, as modified by Wang, to disclose these filtering aspects of

claims 11 and 18. Pet. 32‒33. Patent Owner argues that the Petition fails to

explain why it would have been obvious to modify Aiglstorfer to filter the

moblet software modules based on attributes of the mobile device “given

that [Aiglstorfer’s] applets are typically device-independent.” Prelim.

Resp. 35. We find that neither Petitioner nor Dr. Neuman explains

sufficiently why one of ordinary skill in the art would have modified

Aiglstorfer’s system to filter device-independent moblet software modules

based on attributes of the mobile device, or to modify Aiglstorfer’s

IPR2020-00019 Patent 8,843,125 B2

17

device-independent moblet software modules to make them device-

dependent.

As noted in our Order, a full analysis of the merits is not necessary to

evaluate this factor. Order 15. It is sufficient that Patent Owner has pointed

out that Petitioner’s case, at least as to two of three independent claims, is a

close call. As to claim 23, we express no opinion. The merits, taken as a

whole, do not tip the balance in favor of Petitioner and instead also weigh in

favor discretionary denial in a balanced assessment of all the circumstances.

IV. CONCLUSION

Based on the circumstances discussed above, we agree with Patent

Owner that instituting a trial would be an inefficient use of Board resources.

As discussed above, the District Court case is ongoing, trial is scheduled to

begin two months before we would reach a final decision in this proceeding,

the District Court has expended effort resolving substantive issues in the

case, the identical claims are challenged based on the same prior art in both

the Petition and in the District Court, and the defendant in District Court and

the Petitioner here are the same party. Further, based on our own

preliminary assessment of the merits of some challenges presented in the

Petition, we view Petitioner’s arguments as containing some weaknesses.

On balance, these facts, when viewed holistically, lead us to determine that

efficiency is best served by denying institution. Thus, we exercise our

discretion to deny institution under § 314(a).

V. ORDER

In consideration of the foregoing, it is hereby:

ORDERED that that Petition is denied; and

FURTHER ORDERED that no inter partes review is instituted.

IPR2020-00019 Patent 8,843,125 B2

18

FOR PETITIONER:

Travis Jensen K. Patrick Herman ORRICK, HERRINGTON & SUTCLIFFE LLP [email protected] [email protected] [email protected]

FOR PATENT OWNER:

Jonathan K. Waldrop Rodney R. Miller John W. Downing

KASOWITZ BENSON TORRES LLP [email protected] [email protected] [email protected]







[email protected] Paper 24 571.272.7822 Date: June 16, 2020

UNITED STATES PATENT AND TRADEMARK OFFICE ____________

BEFORE THE PATENT TRIAL AND APPEAL BOARD ____________

SAND REVOLUTION II, LLC, Petitioner,

v.

CONTINENTAL INTERMODAL GROUP – TRUCKING LLC, Patent Owner. ____________

IPR2019-01393 Patent 8,944,740 B2

____________

Before SCOTT C. WEIDENFELLER, Vice Chief Administrative Patent Judge, SCOTT C. MOORE, and RYAN H. FLAX, Administrative Patent Judges.

FLAX, Administrative Patent Judge.

DECISION Granting Request For Rehearing

and Instituting Inter Partes Review 35 U.S.C. § 314; 37 C.F.R. § 42.71(d)

7/13/2020

IPR2019-01393 Patent 8,944,740 B2

2

I. INTRODUCTION A. STATUS OF THE PROCEEDING

Sand Revolution II, LLC (“Petitioner”) filed a Petition for an inter

partes review of claims 1, 2, 4, 6–14, and 16–20 of U.S. Patent

8,944,740 B2 (“the ’740 patent,” Ex. 1001). Paper 7 (“Pet.”). Continental

Intermodal Group-Trucking LLC (“Patent Owner”) timely filed a

Preliminary Response. Paper 8 (“Prelim. Resp.”).

In a divided decision, the Board denied institution pursuant to

35 U.S.C. § 314(a), reasoning that this case, as evidenced by the preliminary

record, was controlled by the Board’s precedential decision in NHK Spring

Co., Ltd. v. Intri-Plex Techs., Inc., IPR2018-00752, Paper 8 (PTAB Sept. 12,

2018) (precedential). Paper 12 (“Denial Decision”).

Petitioner filed a Request for Rehearing of the Denial Decision. Paper

15 (“Req. Reh’g” or “Request for Rehearing”). Concurrently therewith,

Petitioner requested that the Board’s Precedential Opinion Panel (“POP”)

reconsider the Denial Decision. Paper 17; Ex. 3002 (“POP Request”). The

POP declined to review the issue raised in Petitioner’s POP Request. Paper

18. Thus, we proceed to the rehearing. Before rendering a decision, we

determined that further briefing was warranted on the application of NHK to

the evolving facts of this case and authorized supplemental briefing by the

parties. Paper 19. Each of the parties filed such supplemental briefing.

Papers 20, 22.

As discussed further below, we conclude that, in light of new

evidence of record submitted by the parties with the aforementioned

supplemental briefing, the circumstances of this proceeding are

distinguishable from those in NHK and that the application of discretion to

IPR2019-01393 Patent 8,944,740 B2

3

deny under 35 U.S.C. § 314(a) is not warranted when we apply the factors

set forth in Apple Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (March 20,

2020) (precedential) (“Fintiv”). We, therefore, grant Petitioner’s Request

for Rehearing.

Under 37 C.F.R. § 42.4(a), we have authority to determine whether to

institute an inter partes review. We may institute an inter partes review if

the information presented in the petition filed under 35 U.S.C. § 311, and

any response filed under § 313, shows that there is a reasonable likelihood

that Petitioner would prevail with respect to at least one of the claims

challenged in the petition. 35 U.S.C. § 314. After reviewing the parties’

submissions, we conclude that on the preliminary record Petitioner

demonstrates a reasonable likelihood that it would prevail in showing that

certain claims of the ’740 patent are unpatentable under at least one ground.

Therefore, we institute inter partes review of all challenged claims (1, 2, 4,

6–14, and 16–20) on Grounds 1 and 2 raised in the Petition, pursuant to

35 U.S.C. § 314. See SAS Inst., Inc. v. Iancu, 138 S. Ct. 1348, 1359–60

(2018).

B. REAL PARTIES-IN-INTEREST Petitioner identifies itself, “Sand Revolution II, LLC,” and also “Sand

Revolution LLC,” as real parties-in-interest. Pet. 87. Patent Owner

identifies itself, “Continental Intermodal Group – Trucking LLC,” as the real

party-in-interest. Paper 6, 1.

C. RELATED MATTERS Petitioner states “[t]he ’740 patent is at issue in Continental

Intermodal Group – Trucking LLC v. Sand Revolution LLC, No. 7:18-cv-

00147-ADA (W.D. Tex. Aug. 21, 2018).” Pet. 87. Patent Owner also notes

IPR2019-01393 Patent 8,944,740 B2

4

that this same case is a related matter pursuant to 37 C.F.R. § 42.8(b)(2).

Paper 6, 1. We refer to this matter as the “related district court litigation.”

II. REQUEST FOR REHEARING AND BOARD’S DISCRETION TO DENY INSTITUTION UNDER 35 U.S.C. § 314(A)

A. STANDARD OF REVIEW A party requesting rehearing of a Board decision has the burden to

show that the decision should be modified. Pursuant to 37 C.F.R.

§ 42.71(d), the rehearing request must identify, specifically, all matters the

party believes the Board misapprehended or overlooked and the place where

each matter was previously addressed in a motion, an opposition, or a reply.

When rehearing a decision on a petition, we review the decision for an abuse

of discretion. 37 C.F.R. § 42.71(c) (2019). An abuse of discretion may arise

if a decision is based on an erroneous interpretation of law, if a factual

finding is not supported by substantial evidence, or if an unreasonable

judgment is made in weighing relevant factors. In re Gartside, 203 F.3d

1305, 1315–16 (Fed. Cir. 2000).

We review Petitioner’s Request for Rehearing in view of these

standards of law and the evidence of record.

B. DISCUSSION ON REHEARING In our Denial Decision, entered February 5, 2020, we held that NHK

compelled the exercise of discretion under 35 U.S.C. § 314(a) because, upon

comparing the facts of NHK to the circumstances of this proceeding, we

found that, as in NHK, here: (1) the related district court litigation involves

the same parties as this proceeding (see Pet. 87; Paper 6, 1; see also supra

Section I.C); (2) the jury trial would begin before our final written decision

would come due (Ex. 2004); (3) as in the district court, here Petitioner

asserted that the claim language “integrated actuating system” and

IPR2019-01393 Patent 8,944,740 B2

5

“reconfigurable” warranted express interpretation and this language was

similarly interpreted in both proceedings (Ex. 2002, 14, 19, 20, 21;

Ex. 2003; Ex. 2007; Ex. 1011; Pet. 10–12);1 and (4) the grounds for

unpatentability asserted here were also asserted for invalidity in the related

district court litigation (see Ex. 2005; compare Pet. 12–86, with Ex. 2006 1–

41).2 Denial Decision 15–18.

In its Request for Rehearing, Petitioner asserts that the majority

“denied institution under 35 U.S.C. § 314(a) based solely on the allegedly

advanced stage of the parallel district court proceeding with one invalidity

dispute similar to that in the instant IPR petition.” Reh’g Req. 1. Petitioner

asserts that the Denial Decision was premised on the mistake that the district

court’s schedule for its jury trial was certain, but such a schedule was

actually merely tentative. Id. at 2. On this point, Petitioner argues that “a

district court trial schedule is inherently unpredictable and the court will

often ‘extend or accelerate deadlines and modify case schedules for myriad

reasons.’” Id. at 8 (citing Precision Planting, LLC v. Deere & Co.,

IPR2019-01044, Paper 17 at 15 (PTAB Dec. 2, 2019)). Petitioner notes,

without specific citation to evidence, that “after the [Denial] Decision, the

jury trial in the parallel proceeding was delayed by another two months, until

1 The district court concluded that the disputed claim language should be accorded its “plain and ordinary meaning,” without substantive elaboration; however, we provided substantive reasoning for our construction of this language and illuminated how such a skilled artisan would understand such ordinary meanings, where the district court did not. Compare Denial Decision 10–15 with Ex. 1011, 1–2; see also infra Section IV.B (maintaining our earlier claim construction analysis). 2 There are, however, many additional prior art bases for invalidity asserted in the related district court litigation.

IPR2019-01393 Patent 8,944,740 B2

6

September 2020, with further delays possible.” Id. at 9. Petitioner also

asserts that “[d]enying an IPR petition simply because a parallel district

court action could theoretically resolve invalidity before a final decision by

the Board also undercuts § 315(b)’s one-year safe-harbor provision for filing

an IPR.” Id. at 5.

Since our Denial Decision on February 2, 2020, the Board issued an

order in Fintiv, designated as precedential, involving the application of

NHK.3 There, the Board ordered supplemental briefing on a nonexclusive

list of factors for consideration in analyzing whether the circumstances of a

parallel district court action are a basis for discretionary denial of trial

institution under NHK. Fintiv, Paper 11 at 5–16. Those factors are:

1. whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted; 2. proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision; 3. investment in the parallel proceeding by the court and the parties; 4. overlap between issues raised in the petition and in the parallel proceeding; 5. whether the petitioner and the defendant in the parallel proceeding are the same party; and 6. other circumstances that impact the Board’s exercise of discretion, including the merits.

3 General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6, 2017) (precedential as to § II.B.4.i), provides seven, non-exhaustive factors informing an analysis under 35 U.S.C. § 314(a) when more than one petition are filed. Here, to our knowledge, no other petitions for inter partes review have been filed over the ’740 patent by Petitioner. Therefore, General Plastic does not apply.

IPR2019-01393 Patent 8,944,740 B2

7

Id. at 5–6.

In consideration of Petitioner’s assertion in the Request for

Reconsideration that the nature of the related district court litigation’s trial

schedule is uncertain and changing, we authorized additional briefing and

evidence by the parties regarding these Fintiv factors, which we find helpful

in evaluating the current circumstances. Paper 19. As noted above, both

parties have submitted supplemental briefing directed to the Fintiv factors.

Papers 20, 22. Based on the parties’ supplemental briefing, we analyze the

Fintiv factors below.

1. WHETHER THE COURT GRANTED A STAY OR EVIDENCE EXISTS THAT ONE MAY BE GRANTED IF A PROCEEDING IS INSTITUTED

The parties’ supplemental briefing and evidence here explains that no

stay has been requested or ordered in the related district court litigation.

Paper 20, 4–5; Paper 22, 2–4; Ex. 2009 (copy of civil docket reflecting no

motion or order for a stay of proceedings). Petitioner argues that district

courts routinely grant stays pending resolution of inter partes review, and

Patent Owner argues that district courts routinely deny them, in particular,

the district court having jurisdiction over the related case. Paper 20, 4–5;

Paper 22, 2–4.

In the absence of specific evidence, we will not attempt to predict how

the district court in the related district court litigation will proceed because

the court may determine whether or not to stay any individual case,

including the related one, based on a variety of circumstances and facts

beyond our control and to which the Board is not privy. Therefore, we do

not find that this factor weighs in favor of either exercising or not exercising

discretion to deny institution under 35 U.S.C. § 314(a).

IPR2019-01393 Patent 8,944,740 B2

8

2. PROXIMITY OF THE TRIAL DATE TO THE BOARD’S PROJECTED STATUTORY DEADLINE FOR A FINAL WRITTEN DECISION

Petitioner’s assertions in its Request for Rehearing and supplemental

briefing, in view of the additional evidence submitted as authorized,

establish that the trial date of the related district court litigation is uncertain.

Req. Reh’g 3, 8–9, 13–14; Paper 22, 4–6 (citing Ex. 1013); see also

Ex. 1012; Ex. 1013; Ex. 2004; Ex. 2009; Ex. 2021; Ex. 3003. Patent Owner

does not directly contest this assertion, but identifies that “the district court

trial is scheduled to occur on November 9, 2020, at least five months (and

more realistically six to seven months) before any final decision from the

Board would be due.” Paper 20, 6; but see Ex. 3003 (new scheduling order

indicating “February 8, 2021 (or as available)” as the trail date). Patent

Owner also argues that the extensions of the schedule ordered by the court in

the related district court litigation were “initially proposed” by the

Petitioner; however, Patent Owner’s own evidence shows that the motions to

amend the schedule were jointly filed. Paper 20, 6; Ex. 2009 (docket entries

86, 94).

Since our Denial Decision on February 5, 2020, the parties have

jointly moved the district court to extend schedule deadlines twice; these

motions were granted.4 Ex. 2009 (docket entries 86, 87, 94, 95); but see

Paper 20, 6 (asserting it was Petitioner that initially proposed the schedule

extensions, citing Ex. 2025 and Ex. 2026, which are emails between the

parties’ respective counsels). Furthermore, the district court’s express

inclusion of the qualifier “or as available” for each calendared trial date of

4 Before our Denial Decision, it appears that the district court also amended its scheduling order at least two times. Ex. 2009 (docket entries 69, 80).

IPR2019-01393 Patent 8,944,740 B2

9

its evolving schedule, which indicates a continuing degree of recognized

uncertainty of the court’s schedule by the court. Ex. 2004 (original trial date

was Apr. 27, 2020, changed to July 20, 2020 (or as available)); Ex. 1012

(updated trial date of Sept. 28, 2020 (or as available) changed to Nov. 9,

2020 (or as available)). Since the parties’ supplemental briefing and

evidence was submitted on April 13, 2020, the district court again amended

its scheduling order in the related litigation; the jury trial is now indicated as

scheduled to begin “February 8, 2021 (or as available).” Ex. 3003 (“Order

Amending Scheduling Order” responding to a joint motion by the parties).

Accordingly, at this point it is unclear that the court in the related

district court litigation will adhere to any currently scheduled jury trial date

or, if it is changed, when such a trial will be held.

Moreover, generally, barring exceptional circumstances, the Board

adheres to a one-year statutory deadline prescribed by 35 U.S.C.

§ 316(a)(11) for entry of final decisions in instituted inter partes reviews.

And, even in the extraordinary circumstances under which the entire country

is currently operating because of the COVID-19 pandemic, the Board

continues to be fully operational. See Ex. 1013. The Board’s judges and

staff continue to operate on their normal schedules, albeit remotely, and

Board oral hearings continue to be conducted on schedule.

For the reasons above, particularly because of the number of times the

parties have jointly moved for and the district court agreed to extend the

scheduling order dates, the inclusion of the qualifier “or as available” for

each calendared trial date, that the currently scheduled trial date is in

relatively close proximity to the expected final decision in this matter, and

the uncertainty that continues to surround the scheduled trial date, we find

IPR2019-01393 Patent 8,944,740 B2

10

that this factor weighs marginally in favor of not exercising discretion to

deny institution under 35 U.S.C. § 314(a).

3. INVESTMENT IN THE PARALLEL PROCEEDING BY THE COURT AND THE PARTIES

Patent Owner asserts that its investment in the related district court

litigation has been “substantial,” including most facets of discovery and

expert reports. Paper 20, 7. Petitioner asserts that, “[a]side from a Markman

hearing,” which resulted in “a two-page Markman Order, stating that for

each disputed claim term, ‘the proper construction . . . is the plain and

ordinary meaning,” the district court “has invested little time into

considering the merits of any invalidity positions.” Paper 22, 6.

We agree with Petitioner that the district court and the parties have not

invested substantially in the merits of the invalidity positions. See Fintiv,

Paper 15 (May 13, 2020) (non-precedential) at 14 (denying institution;

analyzing the district court’s and parties’ investment in the invalidity

contentions) (“Fintiv DI”). In the Fintiv DI, the Board found that the

completed Markman hearing and order, completed contention discovery, but

incomplete expert discovery and substantive motion practice, weighed

“somewhat” in favor of denying institution. Id. at 13–14. This case is

similar in some respects. Here, the parties have exchanged infringement and

invalidity contentions, and the district court has conducted a Markman

hearing and entered a related Order, repeatedly set and amended the case’s

schedule, granted several pro hac vice motions, heard and denied a motion

to dismiss, and transferred the case from one judge to another. See

Ex. 2004; Ex. 2009; Ex. 3003. But aside from the district court’s Markman

Order, much of the district court’s investment relates to ancillary matters

untethered to the validity issue itself. And the district court’s two-page

IPR2019-01393 Patent 8,944,740 B2

11

Markman Order in this case does not demonstrate the same high level of

investment of time and resources as the detailed Markman Order in Fintiv.

See Fintiv, Paper 15 at 14 (noting that the district court issued a detailed

34-page claim construction order construing seven claim terms). Also, we

recognize that much work remains in the district court case as it relates to

invalidity: fact discovery is still ongoing, expert reports are not yet due, and

substantive motion practice is yet to come. See Ex. 3003. Thus, although

the parties and the district court have invested effort in the related district

court litigation to date, further effort remains to be expended in this case

before trial.

For the reasons above, we find that this factor weighs only marginally,

if at all, in favor of exercising discretion to deny institution under 35 U.S.C.

§ 314(a).

4. OVERLAP BETWEEN ISSUES RAISED IN THE PETITION AND IN THE PARALLEL PROCEEDING

This factor evaluates “concerns of inefficiency and the possibility of

conflicting decisions” when substantially identical prior art is submitted in

both the district court and the inter partes review proceedings. Fintiv, Paper

11 at 12. Patent Owner asserts that this proceeding and the related district

court litigation “involve[] the same patent, same claims, same invalidity

references, and nearly identical invalidity arguments.” Paper 20, 8.

Petitioner asserts that “Petitioner’s district court invalidity contentions

contain various prior-art references not at issue in the IPR, including several

prior-art systems in use or on sale during the relevant time period. See

EX1014 at 4-8. The overlap is therefore minimal.” Paper 22, 7. Also, in

order “[t]o eliminate any doubt as to overlap between the proceedings,

Petitioner has stipulated to counsel for Patent Owner that, if the IPR is

IPR2019-01393 Patent 8,944,740 B2

12

instituted, Petitioner will not pursue the same grounds in the district court

litigation.” Paper 22, 7 (citing Ex. 1015).

As the majority noted in the Denial Decision, “although the issues on

patentability here are more focused than the invalidity contentions in the

district court litigation, the patentability issues presented here are

nevertheless a subset of the issues in the district court case.” Denial

Decision 17–18. Petitioner’s stipulation, however, mitigates to some degree

the concerns of duplicative efforts between the district court and the Board,

as well as concerns of potentially conflicting decisions.5

Thus, we find that this factor weighs marginally in favor of not

exercising discretion to deny institution under 35 U.S.C. § 314(a).

5. WHETHER PETITIONER AND THE DEFENDANT IN THE PARALLEL PROCEEDING ARE THE SAME PARTY

The parties to this proceeding are the same as those of the related

district court litigation. Paper 22, 7; Paper 20, 8 (Patent Owner asserts only

that Petitioner is the defendant in the parallel action). Although it is far from

an unusual circumstance that a petitioner in inter partes review and a

5 Notably, Petitioner stipulates only that it will not pursue, in district court, the “same grounds” presented in the Petition in this case. Ex. 1015. Petitioner could have stipulated that it would not pursue any ground raised or that could have been reasonably raised in an IPR, i.e., any ground that could be raised under §§ 102 or 103 on the basis of prior art patents or printed publications. A broader stipulation of that nature, not at issue here, might better address concerns regarding duplicative efforts and potentially conflicting decisions in a much more substantial way. Likewise, such a stipulation might help ensure that an IPR functions as a true alternative to litigation in relation to grounds that could be at issue in an IPR. Further still, Petitioner could have expressly waived in the district court any overlapping patentability/invalidity defenses. Doing so might have tipped this factor more conclusively in its favor.

IPR2019-01393 Patent 8,944,740 B2

13

defendant in a parallel district court proceeding are the same, or where a

district court is scheduled to go to trial before the Board’s final decision

would be due in a related inter partes review, this factor weighs in favor of

discretionary denial. Fintiv, Paper 11 at 13–14.

6. OTHER CIRCUMSTANCES THAT IMPACT THE BOARD’S EXERCISE OF DISCRETION, INCLUDING THE MERITS

Patent Owner asserts that “[n]o other circumstances warrant upsetting

the Denial Decision.” Paper 20, 8–10. Petitioner asserts that “[a]dditional

circumstances strongly favor institution,” and raises several policy-based

arguments. Paper 22, 8–10. We need not consider Petitioner’s policy

arguments given that the balance of previously discussed factors weigh in

favor of Petitioner.

Moreover, as discussed below, Petitioner has met its burden of

demonstrating a reasonable likelihood that it would prevail in showing that

claims of the ’740 patent are unpatentable. At this preliminary stage of the

proceeding and on the record before us, Petitioner’s case is strong on most

challenged claims. Fintiv, Paper 11 at 14–15 (“[I]f the merits of a ground

raised in the petition seem particularly strong on the preliminary record, this

fact has favored institution.”). Although we recognize the record can change

during trial, as discussed in detail below, Petitioner has made a sufficiently

persuasive showing, on the record presently before us, that the prior art

references cited in the Petition teach or suggest all limitations of most

challenged claims.

We determine, on this preliminary record, that Petitioner has set forth

a reasonably strong case for the obviousness of most challenged claims.

Thus, this factor weighs in favor of not exercising discretion to deny

institution under 35 U.S.C. § 314(a).

IPR2019-01393 Patent 8,944,740 B2

14

C. CONCLUSION ON REHEARING AND DISCRETIONARY DENIAL OF INSTITUTION As noted in Fintiv, we consider six factors when taking “a holistic

view of whether efficiency and integrity of the system are best served by

denying or instituting review.” Fintiv, Paper 11 at 6. For the reasons

discussed above, the Fintiv factors weigh against invoking our discretion to

deny institution. Considering the Fintiv factors as part of a holistic analysis,

we are not persuaded that the interests of the efficiency and integrity of the

system would be best served by invoking our authority under 35 U.S.C.

§ 314(a) to deny institution of a potentially meritorious Petition.

For the reasons discussed above, we modify our initial decision

denying institution. On rehearing, after considering the factors outlined in

the precedential order in Fintiv, we decline to deny institution under

§ 314(a). Accordingly, we grant Petitioner’s Request for Rehearing. We

consider the merits of the Petition with respect to the threshold for institution

below.

III. BACKGROUND OF PROCEEDING A. THE ’740 PATENT

The ’740 patent issued on February 3, 2015, from application serial

number 12/909,357, which was filed on October 21, 2010. Ex. 1001, codes

(45), (21), (22). The ’740 patent identifies its inventors as Gary Teichrob,

Scott Mason, Dave Keck, and James Easden. Id. at code (75).

The ’740 patent’s Abstract indicates the invention is directed to:

A method and system for handling granular material, such as proppant used in hydraulic fracturing in well drilling, is provided. In an operational configuration, a delivery module having conveyors receives and conveys granular material to a delivery location, and one or more mobile storage modules

IPR2019-01393 Patent 8,944,740 B2

15

receive, hold and dispense granular material downward to the delivery module. The mobile storage modules comprise a raised, angular container portion for holding granular material. Each module may comprise a rock-over chassis for support against ground. In a transportation configuration, each of the delivery modules and mobile storage modules are separately transportable as semi-trailers. System redundancy features such as hydraulic power packs are also provided for.

Id. at Abstract (57).

As indicated in its Abstract, the ’740 patent is directed to a two-

module-based system, where a storage module (or several) is oriented

adjacent a delivery module such that the storage module(s) delivers granular

material to the delivery module, which can then convey the material to some

delivery location. Such a system is illustrated at the ’740 patent’s Figure 1,

which is reproduced below:

Ex. 1001, Fig. 1. Figure 1, above, shows system 100 for handling granular

material, having two sets of five mobile storage modules 110, 115 arranged

on either side of delivery module 120. Id. at 4:4–12. The mobile storage

modules 110, 115 are pivoted upward, with their pivot points being on frame

sections thereof nearest the delivery module so that each is sloped towards

IPR2019-01393 Patent 8,944,740 B2

16

the delivery module. The delivery module has discharge conveyors 130 for

moving granular material discharged from the mobile storage modules to

some desired location and height. Id. 4:21–23.

The ’740 patent describes that each of the mobile storage module and

delivery module is reconfigurable between transportation and operational

configurations. Id. at 5:13–16. As their identified configurations suggest,

one is for transporting the module and one is for using the module for

storing or conveying granular material. Id. at 5:16–20.

In its transportation configuration, the mobile storage module is

disclosed to be a trailer towable by a truck. This is illustrated by Figure 2 of

the ’740 patent, reproduced below:

Id. at Fig. 2. Figure 2 shows a side view of mobile storage module 200 in its

transportation configuration, as a trailer hitched to truck 210 and having

container portion 225 and frame 235, which supports the container portion

225 and is connected thereto at hinge 230. Id. at 6:34–8:48. The container

portion 225 also includes discharge chute 250 positioned to discharge

granular material when container portion 225 is pivoted at hinge 230 to be in

its operational configuration, which is shown in Figure 1, above. Id. at

8:49–56.

IPR2019-01393 Patent 8,944,740 B2

17

A more detailed illustration of the mobile storage module in its

operational configuration is shown by the ’740 patent at its Figure 3,

reproduced below:

Id. at Fig. 3. Figure 3, above, shows a perspective view of mobile storage

module 200 it its operational configuration, detached from the truck of

Figure 2, pivoted at hinge 230, and arranged as an erected silo. Id. at 6:48–

54. Figure 3 shows that container portion 225 of mobile storage module 200

is raised into this operational position with an actuating system in the form

of hydraulic actuator 350 coupled to container portion 225 and frame 235.

Id. at 6:60–7:2. Figure 3 also shows input port 320 on the elevated end of

container portion 225 where granular material may be loaded thereinto. Id.

at 8:40–43.

The configurability of the delivery module is illustrated in the ’740

patent’s Figure 11, reproduced below:

IPR2019-01393 Patent 8,944,740 B2

18

Id. at Fig. 11. Figure 11, above, shows two views of a portion of a delivery

module, one in transportation configuration 1100 (top) and one in

operational configuration 1110 (bottom). Id. at 12:53–56. In its

transportation configuration 1100 the delivery module has wheeled portion

1130 extending from chassis 1120 such that the wheels are lowered to

engage the ground. Id. at 12:59–61. As shown in the bottom illustration

above, in its operational configuration 1100, wheeled portion 1130 is

pivoted upward by hydraulic cylinders 1140 so that wheeled portion 1130 is

raised and chassis 1120 is respectfully lowered to engage the ground for load

distribution. Id. at 12:60–13:4.

Independent claim 1 of the ’740 patent reads as follows:

1. A system for handling granular material, the system comprising:

a. a delivery module configured, in a delivery module operational configuration, to receive said granular material and to convey said granular material to a predetermined delivery location via a continuous belt conveyor;

IPR2019-01393 Patent 8,944,740 B2

19

b. one or more mobile storage modules adjacent to the delivery module, each of the one or more mobile storage modules configured, in a mobile storage module operational configuration, to hold and dispense said granular material downward to the delivery module and to receive said granular material for holding via a continuous belt loading system operatively coupled to an input port, the continuous belt loading system being separated from the continuous belt conveyor by the mobile storage module;

wherein the delivery module is mobile and reconfigurable between said delivery module operational configuration and a delivery module transportation configuration and wherein each of the one or more mobile storage modules comprises an integrated actuating system for moving a container portion thereof between a lowered position and a raised position, the raised position corresponding to the mobile storage module operational configuration, and

wherein each of the one or more mobile storage modules further comprises:

a. a frame; b. the container portion supported by the frame and pivotably coupled thereto, the container portion configured to store said granular material and comprising the input port for receiving said granular material and an output port for dispensing said granular material; and c. the integrated actuating system configured to pivot the container portion between the lowered position and a the raised position, wherein, in the raised position, the input port is located above the output port.

Ex. 1001, 14:62–15:32. Independent claim 13 is directed to a mobile storage

module, similar to the one or more mobile storage modules recited by claim

1, and, although there are some differences, recites essentially the same

claim elements with respect to those of claim 1 directed to its mobile storage

module(s). Id. at 16:24–45. Independent claim 19 is directed to a method

IPR2019-01393 Patent 8,944,740 B2

20

for handling granular material, which includes providing the structures

recited by claim 1. Id. at 17:5–18:15.

B. PETITIONER’S ASSERTED GROUNDS FOR UNPATENTABILITY Petitioner asserts two grounds for the unpatentability of claims 1, 2, 4,

6–14, and 16–20 of the ’973 patent, as follows:

GROUNDS CLAIMS CHALLENGED 35 U.S.C. § REFERENCES

1 1, 2, 4, 6–9,

11–14, 16, 17, 19, 20

103 Forsyth,6 Haskins,7 Blackman8

2 10, 18 103 Forsyth, Haskins, Blackman, Grotte9

In support of these grounds for unpatentability, Petitioner submits, inter alia,

the Declaration of Robert Schaaf. Ex. 1003 (“Schaaf Declaration”). We

discuss the asserted referenced below.

C. FORSYTH Forsyth issued on February 17, 1998, from application serial number

668,523, which was filed on June 28, 1996; it claims priority as a

continuation-in-part application to application serial number 427,807, filed

April 26, 1995. Ex. 1005, codes [45], [21], [22], [63]. Forsyth is prior art to

the ’740 patent’s claims.

6 US 5,718,556 (issued Feb. 17, 1998) (Ex. 1005, “Forsyth”). 7 US 3,208,616 (issued Sept. 28, 1965) (Ex. 1006, “Haskins”). 8 US 2,753,979 (issued July 10, 1956) (Ex. 1007), “Blackman”). 9 US 4,621,972 (issued Nov. 11, 1986) (Ex. 1008, “Grotte”).

IPR2019-01393 Patent 8,944,740 B2

21

In its Abstract, Forsyth states that it is directed to

[a] bulk granular material transport system having multiple compartments with a detachable elevating conveyor to permit the conveyor to assist with unloading as well as loading of the transport device. Each compartment may be individually discharged onto a horizontal conveyor which delivers the seed to the elevating conveyor when the elevating conveyor is in its first position. The elevating conveyor is suspended from an adjustable crane which is pivotable on the frame of the transport system. The elevating conveyor may be released from its first position such that the discharge of the elevating conveyor may be positioned over a compartment of the transport device. All mechanisms are individually actu[at]able through a remote control device.

Id. at code [57]. Forsyth illustrates such a bulk granular material transport

system at its Figure 1, reproduced below:

Id. at Fig. 1. Figure 1 shows a perspective view of Forsyth’s “invention 2,”

which is shown in use for holding seed grain and transporting it to fill an

adjacent planter 50 attached to tractor 40. Id. at 4:15–17. Forsyth discloses

the configuration of the system 2 to be a deployed, off-loading position. Id.

IPR2019-01393 Patent 8,944,740 B2

22

at 3:47–52, 4:22. The system invention 2 is shown to have a compartment

assembly 4 with three compartments 6, shown open at their tops, arranged

for holding granular material, e.g., seed. Id. at 4:15–47; see also id. at Fig.

2. In Figure 1, system 2 is supported on frame 18, which is mounted on a

suitable trailer 14 so that it may be transported. Id. at 4:33–35. The system

2 is shown having first conveyor 8 below the compartments 6 for receiving

granular material therefrom and then delivering it to chute 12, which directs

the material to intake hopper 76 on the end 11 of elevating conveyor 10. Id.

at 4:26–32. The first conveyor 8 operates via endless belt 130 and is fixed

below the compartments. Id.; see also id. at 5:40–42, Fig. 6. The elevating

conveyor 10 is not fixed, but is movable, and is shown configured by crane

16 of system 2 to receive granular material from first conveyor 8 and

transport it to planter 50 attached to tractor 40. Id. at 4:26–32.

Another view of the system 2 of Forsyth is shown in its Figure 3,

reproduced below:

Id. at Fig. 3. As in Figure 1, Figure 3 shows a side view of system 2

mounted to trailer 14. “In FIG. 3, elevating conveyor 10 is shown in its

storage position alongside compartment assembly 4 and resting on support

IPR2019-01393 Patent 8,944,740 B2

23

19. Intake end 11 of elevating conveyor 10 is retained to frame 18 by

turntable 78.” Id. at 6:42–45.

D. HASKINS Haskins issued on September 28, 1965, from application serial

number 296,278, filed July 19, 1963. Ex. 1006 1:1–4. Haskins is prior art

with respect to the ’740 patent’s claims.

As an introduction, Haskins discloses that its

invention relates to a novel portable storage bin for the storage of dry materials such as grain, fertilizer, seed, or other flowable materials.

The present invention is concerned with a storage bin which is portable and fully automatic, capable of acting as a grain elevator or storage bin in the field. The bin is movable from a horizontal transport position on a mobile framework to a vertical storage position in which it is capable of storing a day’s supply of grain, seed, fertilizer, peas, beans, or other dry flowable material. The bin features a top compartment which is used to load highway trucks for transport purposes and a lower overflow compartment to which excess material is automatically shunted for selective transfer to the upper compartment at a later time. The apparatus also features delivery and elevating means for transferring materials from a field truck to the upper compartment of the storage bin.

Id. at 1:7–23. An illustration of such a portable storage bin is provided by

Haskins at Figure 1, reproduced below:

IPR2019-01393 Patent 8,944,740 B2

24

Id. at Fig. 1. Haskins’s Figure 1 shows a side view of its storage bin

apparatus having container 9 mounted to supporting framework 10 on

wheels 15; thereby, container 9 can be pulled by a vehicle. Id. at 2:30–45.

The container 9 is illustrated to have 2 configurations, one where it is

positioned upright on frame 10, as indicated by the solid-line drawing, and

one where it is laid down horizontally on frame 10, indicated by the dashed-

line of the drawing. Container 9 is shown to be connected to framework 10

at pivot shaft 42, and its raising and lowering is controlled by hydraulic

cylinder assemblies 44 mounted to the container’s sides and to framework

10. Id. at 3:40–51.

The interior workings of container 9 are shown in Haskins’s Figure 9,

reproduced with Figure 8 below:

IPR2019-01393 Patent 8,944,740 B2

25

Id. at Fig. 9. Figure 9 shows a cross-section side view through a portion of

the image shown at Figure 1, having the same container 9 and framework

10, but showing the inside of container 9. As shown, container 9 has two

main compartments: an upper compartment with sloped floor 23 that

terminates in spout 21 on exterior wall 16 of container 9; and a lower

compartment that also has a sloped floor 57, which terminates in interior

opening 58. Id. at 2:53–60, 3:66–67. The upper compartment holds 900

bushels of grain above spout 21, which is 14 feet above the ground line in

the container’s raised position; the grain from the upper compartment flows

to and out this spout 21 under the force of gravity into, e.g., a trailer. Id. at

2:66–69, 5:45–49. Once the material resource is depleted from the upper

container it may be replenished from additional grain, seed, fertilizer, peas,

beans, or other dry flowable material stored in the lower compartment,

IPR2019-01393 Patent 8,944,740 B2

26

which flows to opening 58 and therethrough to a bucket-and-chain conveyor

device 24, 28, 30, 31 that transports the material to the upper compartment.

Id. at 2:70–3:10, 5:3–15.

Haskins explains that, in operation, framework 10 is moved to the

desired location and driven into a trench 59 such that framework 10 rests on

the ground. Id. at 4:31–44, Fig. 3. Thereafter, hydraulic cylinder assemblies

44 shift container 9 about its pivot shaft 41 from its horizontal to its vertical

configuration and “provides complete control over the erection of the

container.” Id. at 4:44–48. “When the storage of material from a particular

location has been completed, the empty tank is returned to its horizontal

position and pulled from the trench 59 by the tractor . . . .” Id. at 5:11–15.

E. BLACKMAN Blackman issued on July 10, 1956, from application serial number

236,256, filed July 11, 1951. Ex. 1007, 1:3–10. Blackman is prior art with

respect to the ’740 patent’s claims.

Blackman states that its “invention relates to an elevating conveyor

and has for one object to provide a conveyor adapted to convey relatively

finely divided and easily broken material.” Ex. 1007, 1:15–17. Blackman

further states that “[a]mong the types of material which may be readily

handled by the conveyor of the present invention are seeds, nutmeats, coffee

beans, brittle pellets, and brittle articles of small size and generally frangible

and friable materials.” Id. at 1:25–29.

An image of this conveyor is illustrated by Blackman’s Figure 1,

reproduced below:

IPR2019-01393 Patent 8,944,740 B2

27

Id. at Fig. 1. Although Figure 1 is somewhat complex and is endowed with

extensive reference labeling, in general, it shows a side view of Blackman’s

conveyor device, having an endless belt 1 positioned about pulleys 4 and

carrying buckets (bottom portions 8, sides 10). Id. at 1:61–2:24. Blackman

states that “it will be recognized that many changes in the form, shape and

arrangement of parts may be made without departing from the spirit of the

invention, and our showing is, therefore, to be taken as, in a sense,

diagrammatic. In particular, the buckets might, if desired, be carried by a

chain rather than by a belt.” Id. at 4:5–11. Further, “[t]he conveyor

IPR2019-01393 Patent 8,944,740 B2

28

comprises a chain or a belt and to this are secured a plurality of buckets.”

Id. at 4:17–18.

F. GROTTE Grotte issued on November 11, 1986, from application serial number

702,478, filed on February 19, 1985. Ex. 1008, codes [45], [21], [22].

Grotte is prior art with respect to the ’740 patent’s claims.

Grotte’s abstract states that its invention is directed to

[a] silo mover apparatus comprising a main frame that is movable across the ground on a plurality of support wheels, and which has a subframe pivotally mounted thereon adjacent one end. The subframe can be raised about the pivot to a substantially vertical position through the use of hydraulic cylinders, stabilized in position adjacent to a silo to be moved, clamped to the silo by straps, after the silo has been suitably reinforced, and then the silo can be lifted and tilted downwardly with the subframe to rest on the main frame for transport to a new location.

Id. at code [57]. An image of such a silo mover apparatus is shown by

Grotte’s Figure 1, reproduced below:

IPR2019-01393 Patent 8,944,740 B2

29

Id. at Fig. 1. Figure 1 is a side view of silo mover 20, which has a

semitrailer with main frame 21 and wheels 40, which is hitched to truck 26.

Id. at 1:24–28. The silo mover 20 is vertically holding silo 140 with the

mover’s subframe 80, which has large pivot bracket 81 positioned at the rear

of frame 21 and at the lower end of silo 140. Id. at 6:25–29; 9:12–15. The

pivoting of subframe 80 and silo 140 is accomplished with a pair of

hydraulic cylinders 125 connected between main frame 21 and subframe 80.

Id. at 8:35–39. For transport of silo 140, subframe 80 is pivoted about pivot

bracket 81 and lowered to mainframe 21 with silo 140 so that silo 140 rests

on silo mover 20. Id. at 2:54–56, Fig. 2.

Grotte further discloses that its silo mover has “six pivot support

sleeves or tubes 36 and 37 for supporting [its] wheel assemblies.” Id. at

3:50–51. Grotte teaches that the wheels can be raised or lowered relative to

main frame 21 by operating cylinders 45 for the wheel assemblies and they

can be operated to level the frame or maintain it at any desired height. Id. at

4:66–5:8.

IV. DISCUSSION A. ORDINARY LEVEL OF SKILL IN THE ART Petitioner states “[a] person of ordinary skill in the art (“POSITA”) of

the ’740 Patent in October 2010 would have had a bachelor’s degree in an

engineering or logistics discipline plus 1–2 years of experience in hydraulic

fracturing and logistical support thereof, or 4–5 years of experience in

hydraulic fracturing and logistical support thereof.” Pet. 9 (citing Ex. 1003

¶ 30).

IPR2019-01393 Patent 8,944,740 B2

30

Patent Owner neither contests Petitioner’s proposed definition of the

ordinary skilled artisan nor offers its own definition thereof. See generally

Prelim. Resp.

For purposes of this Decision, we accept Petitioner’s proposed

definition, which is consistent with the level of skill in the art reflected in the

prior art of record, including the Specification (Ex. 1001). See Okajima v.

Bourdeau, 261 F.3d 1350, 1355 (Fed. Cir. 2001) (“[T]he prior art itself

[may] reflect[] an appropriate level” as evidence of the ordinary level of skill

in the art. (quoting Litton Indus. Prods., Inc. v. Solid State Sys. Corp., 755

F.2d 158, 163 (Fed. Cir. 1985))).

B. CLAIM CONSTRUCTION The Board interprets claim terms in an inter partes review using the

same claim construction standard that is used to construe claims in a civil

action in federal district court. 37 C.F.R. § 42.100(b) (2019). In construing

claims, district courts give claim terms their ordinary and customary

meaning, which is “the meaning that the term would have to a person of

ordinary skill in the art in question at the time of the invention.” Phillips v.

AWH Corp., 415 F.3d 1303, 1312–13 (Fed. Cir. 2005) (en banc).

Sources for claim interpretation include “the words of the claims

themselves, the remainder of the specification, the prosecution history [i.e.,

the intrinsic evidence], and extrinsic evidence concerning relevant scientific

principles, the meaning of technical terms, and the state of the art.” Id. at

1314 (quoting Innova/Pure Water, Inc. v. Safari Water Filtration Sys., Inc.,

381 F.3d 1111, 1116 (Fed. Cir. 2004)). “[T]he claims themselves [may]

provide substantial guidance as to the meaning of particular claim terms.”

Id. However, the claims “do not stand alone,” but are part of “‘a fully

IPR2019-01393 Patent 8,944,740 B2

31

integrated written instrument,’ . . . consisting principally of a specification

that concludes with the claims,” and therefore, the claims are “read in view

of the specification.” Id. at 1315 (quoting Markman v. Westview

Instruments, Inc., 52 F.3d 967, 978–79 (Fed. Cir. 1995)).

We analyze the parties’ positions on claim interpretation in view of

these standards of law and our Trial Practice Guide. Except as set forth

below, no other claim language is interpreted at this stage of the

proceedings. Vivid Techs., Inc. v. Am. Sci. & Eng’g, Inc., 200 F.3d 795, 803

(Fed. Cir. 1999) (“[O]nly those terms need be construed that are in

controversy, and only to the extent necessary to resolve the controversy.”).

This claim construction is the same as that set forth in the Denial Decision

(Paper 12, 10–15).

1. “INTEGRATED ACTUATING SYSTEM” Parties’ Positions

Petitioner argues that the claim term “integrated actuating system,”

which is recited by claims 1, 12, 13, and 19, means “a built-in, self-

deployment system.” Pet. 10. Petitioner argues this definition “reflect[s] the

plain and ordinary meaning[] of the term[].” Id. n.2. Petitioner argues that

the Specification supports this definition and the ’740 patent’s prosecution

history is consistent with this definition. Pet. 10–11 (citing Ex. 1001, 5:38–

43, 6:63–67, 7:2–9, 8:35–39, 13:34–37; Ex. 1002, 75, 76, 78–80; Ex. 1003

¶¶ 44–46). Relating to the word “integrated,” Petitioner also cites a

dictionary definition of the word. Pet. 11 (citing Ex. 1009).

Patent Owner argues that no claim terms, including this term, require

construction. Prelim. Resp. 5–7. Patent Owner cites the claim interpretation

(Markman) order in the related district court litigation, wherein the district

IPR2019-01393 Patent 8,944,740 B2

32

court concluded that all contested claim terms, including this term, did not

require express construction and each would be accorded its “plain and

ordinary meaning that a person of ordinary skill in the art would ascribe to

it.” Ex. 1011, 1. The district court’s order does not elaborate on its rationale

for according the plain meaning to this (or any) term. However, Patent

Owner also cites the related portions of the transcript of the hearing on claim

construction in the related district court litigation. Prelim. Resp. 5–7 (citing

Ex. 2007, 57, 60, 61, 63–65, 70–71).

Analysis The claim term “integrated actuating system” is recited in claim 1, for

example, as a component of the claimed mobile storage module(s), and is

recited to be “for moving a container portion thereof between a lowered

position and a raised position.” Ex. 1001, 15:13–16. Further, claim 1 also

recites that “the integrated actuating system [is] configured to pivot the

container portion between the lowered position and a [sic] the raised

position.” Id. at 15:28–30.

Each of the individual words of the claim term “integrated actuating

system” would have been readily understandable to the skilled artisan on its

face, and the combination of these words into the recited phrase does not

introduce any different meaning or ambiguity. The fact that the mobile

storage module comprises the “integrated actuating system,” as well as the

inclusion of the word “integrated” in this disputed term, each supports that

such a system is a part of the module; in other words, it is built into the

module as proposed by Petitioner. Because the fact that the actuating system

is built into the mobile storage module is evident from the claim language

itself, defining the claim term expressly to include this concept is

IPR2019-01393 Patent 8,944,740 B2

33

unnecessary, as it would be redundant of the term’s plain meaning as

understood by the skilled artisan. Nothing in the intrinsic record, or other

evidence submitted by Petitioner, is inconsistent with this conclusion.

Furthermore, regarding the proposed self-deployment concept, we also

conclude it is unnecessary to add this concept to define the claim term in

view of the plain meaning of “integrated actuating system.” Per the plain

language of the claim term, the system that actuates the mobile storage

module, i.e., moves it between a lowered and raised position, is integrated

into the mobile storage module. The mobile storage module’s integrated

components move, or actuate, the mobile storage module, per the plain

meaning of the claim language. Thus, the system that is expressly recited as

being a part of the module (integrated), actuates the module; the module

actuates itself. Therefore, adding “self-deploying” to specially define the

term “integrated actuating system” is unnecessary. Nothing in the intrinsic

record is inconsistent with this conclusion. See Ex. 1002, 83–91 (arguing

the characteristic of “self-deploying” invokes the inclusion of “an integrated

actuating system,” but not the converse).

Because Petitioner’s proposed construction of “integrated actuating

system” would add unnecessary and undesirable redundancy to the claims,

we determine that it is unnecessary to expressly construe this claim term at

this stage of the proceedings.

2. “RECONFIGURABLE” Parties’ Positions

Petitioner argues the claim term “reconfigurable,” as recited by claims

1, 13, and 19, means “self-deployable.” Pet. 12. Again, Petitioner argues

that this definition “reflect[s] the plain and ordinary meaning[] of the

IPR2019-01393 Patent 8,944,740 B2

34

term[].” Id. at 10 n.2. Petitioner argues that the Specification supports this

definition and the ’740 patent’s prosecution history is consistent with this

definition. Id. at 12 (citing Ex. 1001, 11:52–65; Ex. 1002, 88; Ex. 1003

¶ 47).

Again, Patent Owner argues that no claim terms, including this term,

require construction. Prelim. Resp. 5–7. Patent Owner cites the claim

interpretation (Markman) order in the related district court litigation,

wherein the district court concluded that all contested claim terms, including

this term, did not require express construction and would be accorded its

“plain and ordinary meaning that a person of ordinary skill in the art would

ascribe to it.” Ex. 1011, 1. Patent Owner also cites the related portions of

the transcript of the hearing on claim construction in the related district court

litigation. Prelim. Resp. 5–7 (citing Ex. 2007, 57, 60, 61, 63–65, 70–71).

Analysis Upon review of the Specification and prosecution history, we

conclude the claim term “reconfigurable” needs no express construction

because the meaning of the claim term is clear on its face. For example,

claim 1 recites that the claimed delivery module is “reconfigurable between

said delivery module operational configuration and a delivery module

transportation configuration.” Ex. 1001, 15:10–13; see also Ex. 1002, 83–91

(arguing characteristic of “self-deploying” invokes the characteristic of

“reconfigurable,” but not the converse).

It is clear that “reconfigurable,” in this context, would have been

understood by the skilled artisan to mean the configuration of the delivery

module can be changed. Moreover, the claim is also clear that such a

configuration change in the delivery module is between an “operational

IPR2019-01393 Patent 8,944,740 B2

35

configuration, to receive said granular material and to convey granular

material to a predetermined delivery location via a continuous belt

conveyer” and a “transportation configuration,” the delivery module being

reconfigurable between the two. Id. at 14:64–15:13. Such reconfigurability,

as claimed, is also described in the Specification as a changeable

configuration. See, e.g., Ex. 1001, 5:13–20, 11:4–65, 12:53–13:8. The

concept of “self-deployable” is not a part of “reconfigurable.” Even if a

module can be self-deployable because it is reconfigurable, that does not

mean that such a module is reconfigurable because it is self-deployable. See

Ex. 1002, 83–91.

Therefore, aside from our observations above as to how the skilled

artisan would have understood “reconfigurable,” we determine that it is

unnecessary to expressly construe this claim term further at this preliminary

stage of the proceedings.

C. APPLICABLE LEGAL STANDARDS “In an IPR, the petitioner has the burden from the onset to show with

particularity why the patent it challenges is unpatentable.” Harmonic Inc. v.

Avid Tech., Inc., 815 F.3d 1356, 1363 (Fed. Cir. 2016) (citing 35 U.S.C.

§ 312(a)(3) (requiring inter partes review petitions to identify “with

particularity . . . the evidence that supports the grounds for the challenge to

each claim”)). This burden of persuasion never shifts to Patent Owner. See

Dynamic Drinkware, LLC v. Nat’l Graphics, Inc., 800 F.3d 1375, 1378

(Fed. Cir. 2015) (discussing the burden of proof in inter partes review).

Regarding obviousness, the Supreme Court in KSR International Co.

v. Teleflex Inc., 550 U.S. 398 (2007), reaffirmed the framework for

determining obviousness as set forth in Graham v. John Deere Co., 383 U.S.

IPR2019-01393 Patent 8,944,740 B2

36

1 (1966). The KSR Court summarized the four factual inquiries set forth in

Graham (383 U.S. at 17–18) that are applied in determining whether a claim

is unpatentable as obvious under 35 U.S.C. § 103(a) as follows:

(1) determining the scope and content of the prior art; (2) ascertaining the

differences between the prior art and the claims at issue; (3) resolving the

level of ordinary skill in the pertinent art; and (4) considering objective

evidence indicating obviousness or non-obviousness.10 KSR, 550 U.S. at

406.

“The combination of familiar elements according to known methods

is likely to be obvious when it does no more than yield predictable results.”

Id. at 416. “[W]hen the question is whether a patent claiming the

combination of elements of prior art is obvious,” the answer depends on

“whether the improvement is more than the predictable use of prior art

elements according to their established functions.” Id. at 417.

With these standards in mind, and in view of the definition of the

skilled artisan and claim interpretation discussed above, we address

Petitioner’s challenges below.

D. GROUND 1 – CLAIMS 1, 2, 4, 6–9, 11–14, 16, 17, 19, AND 20 OBVIOUSNESS OVER FORSYTH, HASKINS, AND BLACKMAN Petitioner argues that claims 1, 2, 4, 6–9, 11–14, 16, 17, 19, and 20

would have been obvious under 35 U.S.C. § 103 over the prior art

combination of Forsyth, Haskins, and Blackman. Pet. 12–73. In response,

Patent Owner states only “the Office need not consider the merits of this

10 At this stage of the proceeding, neither party has directed us to objective evidence indicating obviousness or non-obviousness.

IPR2019-01393 Patent 8,944,740 B2

37

case,” and, thus, presented no substantive arguments against Petitioner’s

positions under Ground 1. Prelim. Resp. 3.

Relevant to each of these claims, Petitioner provided an annotated

image as a combination of Forsyth’s and Haskins’s respective Figures 1 to

illustrate how a skilled artisan would have been motivated to combine or use

the apparatuses of each reference in a system, as claimed. Because it is

useful for understanding Petitioner’s positions on how this prior art

combination renders the ’740 patent’s claims obvious, we reproduce this

image below:

Pet. 24. Petitioner’s image shows the storage bin apparatus with container 9

of Haskins (above-left) positioned adjacent to the apparatus 2 of Forsyth

(above-right) where granular material is dispensing (grey stream) from spout

21 of Haskins’s vertically oriented container 9 into compartments 6 of

Forsyth’s apparatus 2, which has its elevating conveyor 10 extended to

dispense the granular material to planter 50 hitched to tractor 40.

IPR2019-01393 Patent 8,944,740 B2

38

Petitioner’s Positions: Claim 1 Regarding claim 1, Petitioner discusses its preamble, “[a] system for

handling granular material, the system comprising,”11 asserting that, if it is

considered a limitation, both Haskins’s bin and Forsyth’s apparatus are for

handling granular material, such as seeds, beans, fertilizer, or cement. Id. at

12–15 (citing Ex. 1003 ¶¶ 48, 49, 51; Ex. 1005, Abstract, 4:41–45, Fig. 1;

Ex. 1006, 1:7–21, Fig. 1).

Continuing with the discussion of claim 1, Petitioner discusses its first

element, “a. a delivery module configured, in a delivery module operational

configuration, to receive said granular material,” contending that it is taught

by Forsyth. Pet. 15–17 (citing Ex. 1003 ¶¶ 54–56; Ex. 1005, 3:53–56, 4:24–

32, 4:48–53, 6:36–41, 6:53–60, 8:31–37, Fig. 1). Petitioner argues that

Forsyth’s granular material transport system, e.g., the apparatus 2 of

Forsyth’s Figure 1, is the claimed “delivery module.” Id. Petitioner argues

that the configuration of this apparatus 2 shown in Forsyth’s Figure 1 is its

operational configuration because it is configured to receive granular

material and convey it to a desired location. Id.

Petitioner next discusses the next element of claim 1, “[the] delivery

module configured, in a delivery module operational configuration, . . . to

convey said granular material to a predetermined delivery location via a

continuous belt conveyor,” asserting that Forsyth’s conveyor 10 as shown in

Forsyth’s Figure 1 is configured so that it is extended to convey granular

material using a continuous belt conveyer 74. Pet. 17–19 (citing Ex. 1003

¶¶ 57, 59; Ex. 1005, 4:26–32, 7:18–37, Figs. 1, 4).

11 Emphasis added here and below to highlight claim language.

IPR2019-01393 Patent 8,944,740 B2

39

Petitioner next discusses the next element of claim 1, “b. one or more

mobile storage modules adjacent to the delivery module, each of the one or

more mobile storage modules configured, in a mobile storage module

operational configuration, to hold and dispense said granular material

downward to the delivery module,” asserting Haskins’s portable storage bin

9 teaches the claimed mobile storage module and, when vertically oriented,

is configured to hold and dispense granular material downward via spout 21,

therefore, being in an operational configuration, as claimed. Pet. 20–23

(citing Ex. 1003 ¶¶ 60–65; Ex. 1006 1:7–21, 1:49–50, 2:38–43, 2:53–69,

5:3–5, Fig. 1). Petitioner argues Haskins’s bin 9, like the apparatus of

Forsyth, is for storing granular material such as grain, beans, fertilizer, seed,

or cement, and that the bin 9 is mobile as it is designed to be pulled by a

vehicle, e.g., a tractor. Id. at 20–21 (citing Ex. 1003 ¶¶ 61–65; Ex. 1006,

1:7–21, 2:38–43). Petitioner argues the Haskins bin has two configurations:

(1) a horizontal position for transport and (2) a vertical position for

supplying, e.g., grain. Pet. 21–22 (citing Ex. 1006, 1:10–16, 1:49–50,

Fig. 1). Petitioner argues that if the Forsyth apparatus was placed alongside

the Haskins bin, the bin’s spout would direct stored granular material

downward to it. Pet. 23.

Petitioner also provides a rationale for combining Forsyth’s and

Haskins’s teachings. Pet. 23–28. Petitioner contends that each of the

devices of Forsyth and Haskins is mobile and can be towed as a trailer by a

vehicle such that the two devices may be placed adjacent one another. Pet.

24–25 (citing, e.g., Ex. 1006, 5:3–5, Ex. 1005, 4:65–66; Ex. 1003 ¶¶ 66–68).

Further, Petitioner argues the method disclosed by Forsyth for loading its

apparatus with, e.g., seed, is slow and labor-intensive — it requires using a

IPR2019-01393 Patent 8,944,740 B2

40

forklift to pour one bag of material at a time onto Forsyth’s conveyor 10. Id.

at 25–26 (citing Ex. 1003 ¶¶ 69–70; Ex. 1005, 2:36–54, 3:53–57, 4:48–53,

6:53–60, 8:15–23, Fig. 4). As such, Petitioner argues that using Haskins’s

container device for filling Forsyth’s apparatus 2 would have been a

recognized solution to the understood drawbacks of Forsyth’s method; the

skilled artisan would have sought the prior art combination to improve

logistical efficiency. Id. at 26–27. Petitioner further argues the proposed

combination of Forsyth and Haskins merely uses their taught devices

predictably, in the same fashion taught by the references themselves;

Petitioner alleges no real modification is required other than putting

Haskins’s storage bin container 9 next to Forsyth’s apparatus 2. Id. at 27–

28.

Petitioner then discusses the next element of claim 1, “the one or

more storage modules ‘configured . . . to receive said granular material for

holding via a continuous belt loading system operatively coupled to an input

port’,” arguing that Haskins’s bin 9 receives granular material via a

continuous chain conveyor coupled to a receiving chute that is the claimed

input port. Pet. 28–32 (citing Ex. 1003 ¶¶ 76–78, 80–83; Ex. 1006, 1:16–23,

2:21–27, 2:60–62, 3:1–10, 3:68–70, 4:3–23, 4:67–5:15, 5:39–52, Figs. 5, 9).

Petitioner acknowledges that Haskins teaches a continuous chain driven

loading system rather than a continuous belt loading system, as claimed. Id.

at 32. Petitioner cites Blackman as teaching that continuous belt and

continuous chain conveyors were well-known alternatives that may be

substituted for one another and, therefore, argues it would have been obvious

to the skilled artisan to substitute a belt for Haskins’s chain for moving

granular material. Id. at 32–34 (citing Ex. 1003 ¶¶ 79, 80–83; Ex. 1007,

IPR2019-01393 Patent 8,944,740 B2

41

1:27–29, 1:54–55, 1:61–65, 1:68–71, 2:9–11, 2:16–17, 4:10–11, 4:17–50,

Fig. 1). Petitioner also argues a belt would provide certain advantages over

a chain, for example, tighter fit and adjustability. Id. at 37 (citing Ex. 1003

¶ 83).

Petitioner continues to address the next element of claim 1, “the

continuous belt loading system being separated from the continuous belt

conveyor by the mobile storage module,” and argues that in the way the

skilled artisan would have been motivated to arrange the apparatuses of

Haskins and Forsyth together, the elevating conveyor of Haskins (the

claimed continuous belt loading system) would be separated from the

conveyor 10 of Forsyth (the claimed continuous belt conveyor) by Haskins’s

bin. Pet. 38–39 (citing Ex. 1003 ¶ 85).

Petitioner then addresses the next element of claim 1, “wherein the

delivery module is mobile and reconfigurable between said delivery module

operational configuration and a delivery module transportation

configuration,” and argues Forsyth’s apparatus 2 (the claimed delivery

module) is reconfigurable between an operational configuration where its

conveyor 10 is positioned to deliver granular material to a desired location,

as shown in its Figure 1, and a transportation configuration where its

conveyor 10 is stowed so that the apparatus can be towed, as shown in its

Figure 3. Pet. 39–42 (citing Ex. 1003 ¶¶ 87–90; Ex. 1005, 2:21–54, 3:7–18,

3:48–52, 3:58–60, 4:15–35, 4:65–5:2, 6:33–41, 6:66–7:18, 7:47–8:8, 8:31–

33, 8:37–44, Figs. 1, 3, 4, 8).

Petitioner addresses the next element of claim 1, “wherein each of the

one or more mobile storage modules comprises an integrated actuating

system for moving a container portion thereof between a lowered position

IPR2019-01393 Patent 8,944,740 B2

42

and a raised position, the raised position corresponding to the mobile

storage module operational configuration,” and argues that the hydraulic

actuation system 41–46 of Haskins’s container 9 apparatus is such an

integrated actuation system because it is a part of the storage module and

pivots the container 9 between raised and lowered positions. Pet. 42–44

(citing Ex. 1003 ¶¶ 91–93; Ex. 1006, 1:10–16, 3:40–44, 3:47–55, Fig. 1).

Addressing the next element of claim 1, “wherein each of the one or

more mobile storage modules further comprises: a. a frame; b. the

container portion supported by the frame and pivotably coupled thereto,”

Petitioner argues that the bin and container 9 of Haskins has a supporting

framework 10 that supports the container 9, and that the container 9 is

attached to the framework 10 by pivot supports 41 and a pivot shaft 42.

Pet. 45–47 (citing Ex. 1003 ¶¶ 94, 96, 97; Ex. 1006, 2:30–43, 3:40–44,

3:51–57, 4:44–56, 5:63–6:9, 6:28–29, Fig. 1). As shown in Haskins’s

Figure 1, the container pivots about this pivot shaft.

Petitioner moves on to address the next element of claim 1, “the

container portion configured to store said granular material,” and argues

Forsyth and Haskins teach containers for granular material and Haskin’s

container 9 is for storing granular material. Pet. 47–48 (citing Ex. 1003

¶ 98; Ex. 1006, 1:16–23, 2:21–27, 3:68–70, 4:3–20, 4:22–23, 4:73–5:15,

5:39–52, Fig. 9).

Petitioner then addresses the next element of claim 1, the container

portion “comprising the input port for receiving said granular material and

an output port for dispensing said granular material,” and argues that

Haskins’s Figure 9 shows such an input port in receiving chute 31 and an

output port in spout 21. Pet. 48 (citing Ex. 1003 ¶ 100; Ex. 1006, Fig. 9).

IPR2019-01393 Patent 8,944,740 B2

43

Addressing the next element of claim 1, “c. the integrated actuating

system configured to pivot the container portion between the lowered

position and [] the raised position,” Petitioner argues that Haskins’s

hydraulic cylinder assemblies 44 move its container 9 between a

horizontal/lowered position and a vertical/raised position by pivoting about

pivot shaft 42. Pet. 49 (citing Ex. 1006, 3:40–44, 3:47–57).

Finally, Petitioner addresses the last element of claim 1, “wherein, in

the raised position, the input port is located above the output port,” and

argues that Haskins’s Figure 9 shows its container 9 in its raised position and

that its receiving chute 31, the claim’s input port, is above its spout 21, the

claim’s output port. Pet. 49–50 (citing Ex. 1003 ¶ 103; Ex. 1006, 2:53–58,

5:3–5, Fig. 9).

Analysis We find that, in view of the above, Petitioner has reasonably

accounted for every element of independent claim 1 as taught or suggested

by Forsyth, Haskins, and Blackman. Further, Petitioner’s rationale for

combining these references is sufficiently persuasive at this stage of the

proceeding. Petitioner has also made a sufficient showing that the skilled

artisan would have had a reasonable expectation of successfully combining

Forsyth, Haskins, and Blackman in the fashion proposed by Petitioner. As

noted above, at this stage of the proceedings, Patent Owner has not

substantively responded to Petitioner’s arguments and evidence for

obviousness.

Based on the preliminary record, we find Petitioner demonstrates a

reasonable likelihood that it would prevail in showing that claim 1 of the

’740 patent is unpatentable under Ground 1.

IPR2019-01393 Patent 8,944,740 B2

44

Petitioner’s Positions: Claims 2 and 4 Claims 2 and 4 depend from claim 1, which is discussed above.

Claim 2 further requires “each of the one or more mobile storage modules

are reconfigurable between said mobile storage module operational

configuration and a mobile storage module transportation configuration, the

one or more mobile storage modules towable as separately transportable

trailers in the mobile storage module transportation configuration,” and

claim 4 further requires “the delivery module is towable as a separately

transportable trailer in the delivery module transportation configuration.”

Ex. 1001, 15:33–39, 15:43–45. Petitioner asserts that Forsyth’s and

Haskins’s apparatuses, i.e., the claimed delivery module and mobile storage

module, respectively, as discussed above, have first configurations where

they are operated and second configurations where they can be towed as

trailers, as required by claims 2 and 4. Pet. 51–52 (Ex 1003 ¶¶ 104–107;

Ex. 1005, 2:3–6, 4:33–35, 4:65–5:8, 8:12–14; Ex. 1006, 1:10–16, 1:49–50,

2:30–43, 3:47–55, 4:41–46, 5:11–16, Fig. 1).


accounted for every element of claims 2 and 4 as taught or suggested by

Forsyth, Haskins, and Blackman. As noted above, at this stage of the

proceedings, Patent Owner has not substantively responded to Petitioner’s

arguments and evidence for obviousness.


reasonable likelihood that it would prevail in showing that claims 2 and 4 of

the ’740 patent are unpatentable under Ground 1.

IPR2019-01393 Patent 8,944,740 B2

45

Petitioner’s Positions: Claim 6 Claim 6 depends from independent claim 1, discussed above. Claim 6

further requires “the one or more storage modules includes two or more

mobile storage modules stationed along one or more sides of the delivery

module in the mobile storage module operational configurations.”

Ex. 1001, 15:51–54. Petitioner argues that, as it would have been obvious to

have one of Haskins’s containers 9 alongside Forsyth’s apparatus 2 to

deliver granular material thereto, it would likewise have been obvious to use

more than one of Haskins’s containers. Pet. 54–58 (citing Ex. 1002 ¶¶ 109–

115; Ex. 1005, 3:23–25, 4:33–35, 4:41–43, 5:12–18, Fig. 1; Ex. 1006, 1:15–

16, Fig. 1). Petitioner argues “[c]ompared to only one bin, two bins reduce

the time and labor required to reposition the truck to fill additional

compartments on Forsyth’s apparatus” and, “[a]s another benefit, the added

bin allows for holding more granular material on the worksite than one bin

alone.” Pet. 57 (citing Ex. 1003 ¶ 112). Petitioner also argues “[t]he

proposed combination involves mere duplication of Haskins’ bin. ‘It is well

settled that the mere duplication of parts has no patentable significance

unless a new and unexpected result is produced.’ In re Harza, 274 F.2d 669,

671 (CCPA 1960).” Pet. 58.


accounted for every element of claim 6 as taught or suggested by Forsyth,

Haskins, and Blackman. We also find that Petitioner has set forth a rationale

that is sufficiently persuasive at this stage of the proceeding for why it would

have been obvious to use more than one of Haskins’s containers in the

allegedly obvious system described by Petitioner. As noted above, at this

IPR2019-01393 Patent 8,944,740 B2

46

stage of the proceedings, Patent Owner has not substantively responded to

Petitioner’s arguments and evidence for obviousness.




Petitioner’s Positions: Claim 7 Claim 7 depends from independent claim 1 and further requires “the

one or more mobile storage modules includes two or more mobile storage

modules which comprise interchangeable components.” Ex. 1001, 15:55–

57. Petitioner argues claim 7 is like claim 6 and the addition of more of

Haskins’s storage bins would have been an obvious duplication of

components. Pet. 58–59. Further, as claim 7 also requires “interchangeable

components,” Petitioner argues that identical Haskins storage bins would

include interchangeable components because the components of one bin

could be removed and used on the other. Id. at 59–61 (citing, inter alia,

Ex. 1003 ¶¶ 116–119).



Haskins, and Blackman. As noted above, at this stage of the proceedings,

Patent Owner has not substantively responded to Petitioner’s arguments and

evidence for obviousness.




IPR2019-01393 Patent 8,944,740 B2

47

Petitioner’s Positions: Claim 8 Claim 8 depends from claim 1 and further requires “at least one of the

delivery module and the one or more mobile storage modules comprises a

chassis, the chassis reconfigurable between a semi-trailer chassis for

transportation and a bearing surface for support against ground during

operation.” Ex. 1001, 15:58–62. Petitioner argues Haskins’s bin (the

claimed mobile storage module) has framework 10, which is the claimed

chassis as it is the structural support of the bin structure. Pet. 61–63 (citing

Ex. 1003 ¶ 121; Ex. 1006, 2:32–40, 2:50–52, 3:58–60, Figs. 1, 2). Petitioner

further argues that this structure of Haskins is reconfigurable between an

orientation where the container 9 is horizontal and the framework 10 is to be

hitched to and transported by a vehicle and an orientation where the

framework 10 is a bearing surface against the ground when the container 9 is

vertical and in operation. Id. at 64–65 (citing Ex. 1003 ¶¶ 123–125;

Ex. 1006, 1:12–14, 1:26–28, 1:48–50, 2:30–36, 3:60–65, 4:41–43, 5:12–15,

Figs. 1, 3). Petitioner argues framework 10 bares against the ground when it

is drawn into a trench prepared for the structure on-site, as illustrated in

Haskins’s Figure 3. Id. at 64–65.






IPR2019-01393 Patent 8,944,740 B2

48




Petitioner’s Positions: Claim 9 Claim 9 depends from claim 8, which depends from claim 1 as noted

above, and further requires “reconfiguration of the chassis comprises

lowering of a front portion of the chassis to contact the ground.” Ex. 1001,

15:63–65. Petitioner argues that when the Haskins apparatus is configured

for operation, i.e., its container 9 is upright and framework 10 is drawn into

a trench in the ground, its wheels are in the trench and part of framework 10

sits on the ground. Pet. 65–66 (citing Ex. 1003 ¶ 126). Petitioner further

argues Haskins discloses “‘[w]hen the framework 10 has been released from

the tractor (not shown) and the lower surfaces of the side members 10 and

11 are resting on a flat ground surface, the apparatus is ready to be erected

for storage use.’ [Ex. 1006], 4:41-43, FIG. 3 (emphasis added). Thus, when

the ‘lower surfaces of the side members 10 and 11 are resting on a flat

ground surface,’ id., 4:41-43, at least a ‘front portion’ of the framework 10

(the claimed chassis) contacts the ground,” as claimed. Id. at 66–67 (citing

Ex. 1003 ¶ 128).






IPR2019-01393 Patent 8,944,740 B2

49




Petitioner’s Positions: Claim 11 Claim 11 depends from independent claim 1 and further requires “said

granular material flows continuously downward from the input port to the

output port, wherein each of the one or more mobile storage modules are

reconfigurable between said mobile storage module operational

configuration and a mobile storage module transportation configuration,

said reconfiguring including said pivoting of the container portion between

the lowered position and the raised position, and wherein reconfiguration of

the mobile storage module from the transportation configuration to the

operational configuration refrains from elevation of the output port.”

Ex. 1001, 16:6–16. Petitioner argues that because, as shown in Haskins’s

Figure 9, its spout 21 is at the end of an inclined floor and below the chute

31 feeding granular material to the container 9, the granular material is

taught to flow continuously downward from the input port, as claimed.

Pet. 68 (citing Ex. 1003 ¶ 129, Ex. 1006, 2:54–69, 4:17–18, 4:71–72, Fig. 9).

Regarding the claim’s requirement that the output port not be elevated

when the module is reconfigured from transportation to operational

configuration, Petitioner points to a publication of the U.S. Department of

Transportation’s Federal Highway Administration entitled “Federal Size

Regulations for Commercial Motor Vehicles [(“CMV’s”)] as evidence that

when the Haskins container 9 is resting horizontally on the trailer framework

10, as a semi-trailer or fifth-wheel trailer, its spout 21 would be required to

be “from 13 feet, 6 inches (4.11 meters) to 14 feed (4.27 meters)” high

IPR2019-01393 Patent 8,944,740 B2

50

above road/ground height. Id. at 69 (citing Ex. 1010, 5; Ex. 1003 ¶ 131).

Petitioner also argues that Haskins teaches that “[i]n the operational

configuration, the ‘spout … is 14 feet above the ground line’.” Id. (citing

Ex. 1006, 5:44–46).

Analysis Petitioner’s Exhibit 1010 states: “[t]here is no Federal vehicle height

requirement for CMVs. Thus, States may set their own height restrictions.

Most height limits range from 13 feet, 6 inches (4.11 meters) to 14 feet (4.27

meters), with exceptions granted for lower clearance on particular roads.”

Ex. 1010, 5. At least preliminarily, we are not persuaded by Petitioner’s

argument that just because U.S. or state regulations may limit the height of a

road-going trailer to 14 feet, spout 21 of Haskins would likewise be 14 feet

high when the container 9 is laid down horizontally on its framework 10.

Haskins’s Figure 1 (see above) illustrates its storage bin in a way that makes

it appear that the spout 21 is elevated when the container 9 is raised to its

vertical position. Although it is well established that patent drawings do not

define precise proportions of the elements illustrated therein, we are not

persuaded at this time by Petitioner’s arguments about this claim element in

view of Haskins’s Figure 1, which shows the raised height of its spout 21

above the upper-most surface of its container 9 in its reclined position, and

considering Petitioner’s Exhibit 1010. Cf. Hockerson-Halberstadt, Inc. v.

Avia Group Intern., Inc., 222 F.3d 951, 956 (2000) (“well established that

patent drawings do not define the precise proportions of the elements and

may not be relied on to show particular sizes if the specification is

completely silent on the issue”).

IPR2019-01393 Patent 8,944,740 B2

51

Based on the preliminary record, we do not find Petitioner

demonstrates a reasonable likelihood that it would prevail in showing that

claim 11 of the ’740 patent is unpatentable under Ground 1.

Petitioner’s Positions: Claim 12 Claim 12 depends from independent claim 1 and further requires “the

integrated actuating system comprises a hydraulic cylinder coupled at a first

end to the frame and at a second end to the container portion at a location

distal from the frame, thereby orienting the hydraulic cylinder at an angle

away from horizontal in both the lowered position and the raised position of

the container portion.” Ex. 1001, 16:17–23. Petitioner argues Haskins

teaches a pair of hydraulic cylinder assemblies 44 that are pivotally

connected to the container 9 and framework 10, as shown in Haskins’s

Figure 1. Pet. 70–71 (citing Ex. 1003 ¶¶ 133–134; Ex. 1006, 3:47–54).

Petitioner argues this is the arrangement as claimed, with these cylinders

being oriented at angles away from horizontal if either raised or lowered. Id.









IPR2019-01393 Patent 8,944,740 B2

52

Petitioner’s Positions: Claims 13, 14, 16, 17, and 19 Claim 13 is an independent claim and claims 14, 16, and 17 depend

therefrom, directly or indirectly. Ex. 1001, 16:24–63. Claim 13 is directed

to a mobile storage module and a delivery module, as also recited by claim

1. Id. at 16:24–47. Petitioner notes that claim 13 does not add any further

limitations or elements not included in claim 1, discussed above, and does

not recite the detailed elements of the delivery module as does claim 1.

Compare id. at 16:24–47, with id. at 14:62–15:32; see Pet. 71–72. Petitioner

further argues claims 14, 16, and 17 are otherwise identical to claims 2, 8,

and 9, discussed above. Id. at 72; compare Ex. 1001, 16:48–53, 16: 57–63,

with id. at 15:33–39, 15:58–65.

Claim 19 is an independent claim with claim 20 depending therefrom.

Ex. 1001 17:5–18:27. Claim 19 is a method claim, that method requiring

providing a delivery module and a mobile storage module(s), as these

structures are defined by claim 1. Compare id. at 17:5–18:15, with id. at

14:62–15:32. Petitioner makes this argument, also. Pet. 72.

Petitioner argues that the same evidence discussed above regarding

claim 1 and its dependent claims teaches or suggests the elements of claims

12, 14, 16, 17, and 19. Pet. 71–72.

Analysis At this stage of the proceeding, we agree with Petitioner’s view of the

similarities of claims 13, 14, 16, 17, and 19 to claims 1, 2, 8, and 9. We find

that, in view of the above, Petitioner has reasonably accounted for every

element of claims 13, 14, 16, 17, and 19 as taught or suggested by Forsyth,

Haskins, and Blackman and has set forth sufficient rationale for combining

these references. As noted above, at this stage of the proceedings, Patent

IPR2019-01393 Patent 8,944,740 B2

53

Owner has not substantively responded to Petitioner’s arguments and



reasonable likelihood that it would prevail in showing that claims 13, 14, 16,

17, and 19 of the ’740 patent are unpatentable under Ground 1.

Petitioner’s Positions: Claim 20 Claim 20 depends from independent claim 19, which we noted above

is a method claim directed to providing the structures of claim 1; it further

requires “each of the one or more mobile storage modules are

reconfigurable between a mobile storage module operational configuration

and a mobile storage module transportation configuration, the one or more

mobile storage modules towable as separately transportable trailers in the

mobile storage module transportation configuration, the method further

comprising: a. transporting the one or more mobile storage modules to

positions adjacent to the delivery module in the mobile storage module

transportation configuration; and b. reconfiguring the one or more mobile

storage modules to the mobile storage module operational configurations.”

Petitioner argues that these elements are similar to and essentially the same

as those discussed above in relation to other claims (e.g., claims 1, 2, 4).

Pet. 72–73.

Analysis At this stage of the proceeding, we agree with Petitioner’s view of the

similarities of 20 to above-discussed claims, e.g., 1, 2, and 4, but requiring

some action (transporting the transportable structure and reconfiguring the

reconfigurable structure) with the structures otherwise defined by other

claims. We find that, in view of the above, Petitioner has reasonably

IPR2019-01393 Patent 8,944,740 B2

54








E. GROUND 2 – CLAIMS 10 AND 18 OBVIOUSNESS OVER FORSYTH, HASKINS, BLACKMAN, AND GROTTE Claim 10 depends from claim 8, and thus, from independent claim 1,

and further requires “the chassis comprises a wheeled portion movable

relative to a bearing surface portion between a first position and a second

position, the wheeled portion configured to engage the ground in the first

position for transportation, the wheeled portion configured to retract from

the ground in the second position to facilitate engagement of the ground by

the bearing surface portion.” Ex. 1001, 15:66–16:5.

Claim 18 depends from claim 16 and, thus, from independent claim

13. Similar to claim 10, claim 18 further requires “the chassis comprises a

wheeled portion movable relative to a bearing surface portion between a

first position and a second position, the wheeled portion configured to

engage the ground in the first position for transportation, the wheeled

portion configured to retract from the ground in the second position to

facilitate engagement of the ground by the bearing surface portion.”

Ex. 1001, 16:64–17:4. As noted above, claim 16 is the same as or

substantially similar to claim 8, and claim 13 recites the same elements as

claim 1, minus those specially defining the delivery module.

IPR2019-01393 Patent 8,944,740 B2

55

Petitioner’s Positions Petitioner notes that none of Forsyth, Haskins, or Blackman teaches

the specific elements of claims 10 and 18, i.e., the retractable wheels to

allow frame engagement with the ground. Pet. 73–74. Petitioner argues that

“[a]lthough the Forsyth-Haskins-Blackman combination lacks the features of

claims 10 and 18, Grotte discloses a system with a height-adjustable wheel

assembly having the features. Additionally, it would have been obvious to

combine Grotte with Forsyth/Haskins/Blackman with respect to the subject

matter of claims 10 and 18.” Pet. 74 (citing Ex. 1003, ¶ 140; Ex. 1008).

Petitioner argues Grotte’s apparatus is similar in many respects to Haskins’s,

incorporating a silo on a trailer that can lower and raise the silo by pivoting.

Id. at 74–75 (citing Ex. 1008, 1:58–63, 3:24–37, 4:1–8, 6:25–29, 10:14–34,

Fig. 1). Petitioner argues that Grotte’s wheel assemblies, taught as having

controllable movement with respect to the frame such that the wheels, can be

retracted so the Grotte’s frame, or Haskins’s frame if Grotte’s system were

mounted thereto, would engage the ground. Pet. 76–77, 85–86 (citing

Ex. 1003 ¶¶ 146–159; Ex. 1008, 3:24–37, 3:60–64, 4:1–33, 4:49–5:8, 10:14–

34, Figs. 1, 2; Ex. 1006, 2:30–43, 3:40–57, 4:31–40, Figs. 1, 3). Petitioner

argues that Grotte’s movable wheel assembly would be combined with

Haskins’s storage bin by the skilled artisan because Grotte’s and Haskins’s

apparatuses are so similar (both being trailer-based, wheeled container

movers) and because Grotte’s controllable wheel assemblies would make it

unnecessary to provide a trench to use Haskins’s storage bin, saving labor,

time, and resources, and providing finer control when placing Haskins’s bin.

Pet. 77–83. Petitioner argues that such a modification to Haskins’s device

would involve only conventional parts and the substitution of one element

IPR2019-01393 Patent 8,944,740 B2

56

for another similar one. Pet. 83–85. Petitioner argues that because the

devices of Grotte and Haskins are used so similarly, e.g., bearing similar

loads and being of similar sizes, such a modification would be expected to

succeed. Id. at 83–86.


accounted for every element of claims 10 and 18 as taught or suggested by

Forsyth, Haskins, Blackman, and Grotte. Further, Petitioner’s rationale for

combining these references is also reasonable. Petitioner also has made a

sufficient showing at this stage in the proceeding that an ordinary skilled

artisan would have had a reasonable expectation of successfully combining

Forsyth, Haskins, Blackman, and Grotte in the fashion proposed by

Petitioner. As noted above, at this stage of the proceedings, Patent Owner

has not substantively responded to Petitioner’s arguments and evidence for

obviousness.


reasonable likelihood that it would prevail in showing that claims 10 and 18

of the ’740 patent are unpatentable under Ground 2.

V. CONCLUSION Petitioner demonstrates a reasonable likelihood of prevailing at trial in

demonstrating that claims 1, 2, 4, 6–10, 12–14, and 16–20 of the ’740 patent

would have been obvious over the prior art combinations set forth in

Grounds 1 and 2. Our decision at this stage derives from our review of the

preliminary record before us. This decision does not reflect a final

determination on the patentability of the claims.

IPR2019-01393 Patent 8,944,740 B2

57

ORDER Accordingly, it is hereby:

ORDERED that, Petitioner’s Request for Reconsideration is granted;

FURTHER ORDERED that, pursuant to 35 U.S.C. § 314, an inter

partes review of claims 1, 2, 4, 6–14, and 16–20 of the ’740 patent, in

accordance with Grounds 1 and 2 in the Petition, is hereby instituted; and

FURTHER ORDERED that, pursuant to 35 U.S.C. § 314(c) and

37 C.F.R. § 42.4(b), inter partes review of the ’740 patent will commence

on the entry date of this Order, and notice is hereby given of the institution

of a trial.

IPR2019-01393 Patent 8,944,740 B2

58

For PETITIONER: James D. Stein LEE & HAYES P.C. [email protected] Armon B. Shahdadi Ben D. Bailey Brannon C. McKay Leonard J. Weinstein CLAYTON, MCKAY & BAILEY, PC [email protected] [email protected] [email protected] [email protected] For PATENT OWNER: Anna Quinn A. Justin Poplin LATHROP GAGE LLP [email protected] [email protected]

Power Integrations, Inc. v. Fairchild Semiconductor International, Inc., 904 F.3d 965 (2018)128 U.S.P.Q.2d 1121

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 1

904 F.3d 965United States Court of Appeals, Federal Circuit.

POWER INTEGRATIONS, INC., Plaintiff-Appelleev.

FAIRCHILD SEMICONDUCTORINTERNATIONAL, INC., Fairchild

Semiconductor Corporation, Fairchild(Taiwan) Corporation, Defendants-Appellants

2016-2691, 2017-1875|

Opinion Issued: July 3, 2018|

Opinion Modified: September 20, 2018 *

* This opinion has been modified and reissuedfollowing a petition for rehearing filed byAppellee.

SynopsisBackground: Owner of patents covering switchingregulators and a power supply controller broughtinfringement action against competitor. Following jury trial,the United States District Court for the Northern District ofCalifornia, No. 3:09-cv-05235-MMC, Maxine M. Chesney,J., 2017 WL 950992, denied competitor's motion forjudgment as a matter of law and found literal infringement ofpatents, and after second trial, awarded damages in amount of$140 million. Competitor appealed.

Holdings: The Court of Appeals, Dyk, Circuit Judge, heldthat:

[1] substantial evidence supported finding that accusedproducts had a “fixed” or “non-varying” frequency despiteslight variance due to operating conditions;

[2] substantial evidence supported finding that accusedproducts operated with a “fixed switching frequency” for acertain range of feedback signals;

[3] prosecution history estoppel did not apply to finding ofinfringement of patent covering power supply controller; and

[4] remand was warranted for new trial on issue of damages.

Affirmed in part, vacated in part, and remanded.

Opinion, 894 F.3d 1258, superseded.

Procedural Posture(s): On Appeal; Judgment; Motion forJudgment as a Matter of Law (JMOL)/Directed Verdict.

West Headnotes (26)

[1] Patents Plain, ordinary, or customarymeaning in general

Patents State of the art

Claim terms are given their ordinary andcustomary meaning, which is the meaning theterm would have to a person of ordinary skill inthe art at the time of the invention.

1 Cases that cite this headnote

[2] Patents Construction and Operation ofPatents

The Court of Appeals reviews claim constructionde novo, except for subsidiary facts based onextrinsic evidence, which it reviews for clearerror.

[3] Patents Power generation and transmission

Substantial evidence supported finding thataccused products had a “fixed” or “non-varying” frequency despite slight variance dueto operating conditions, as required to infringepatent covering switching regulators; experttestimony demonstrated that no real-worldpower supply controllers could operate with anabsolutely fixed, or non-varying, frequency.


[4] Patents Presentation and Reservation inLower Court of Grounds of Review

Competitor failed either to request thatdistrict court modify or clarify its claimconstruction earlier in patent infringementlitigation proceedings or to object to the jury

http://www.westlaw.com/Search/Results.html?query=advanced%3a+OAID(4295892447)&saveJuris=False&contentType=BUSINESS-INVESTIGATOR&startIndex=1&contextData=(sc.Default)&categoryPageUrl=Home%2fCompanyInvestigator&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem


http://www.westlaw.com/Link/Document/FullText?findType=h&pubNum=176284&cite=0240983001&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=RQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2041202055&pubNum=0000999&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=RP&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)



http://www.westlaw.com/Browse/Home/KeyNumber/291/View.html?docGuid=Ie16ded40bcf411e8afcec29e181e0751&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Browse/Home/KeyNumber/291k1317/View.html?docGuid=Ie16ded40bcf411e8afcec29e181e0751&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)




http://www.westlaw.com/Link/RelatedInformation/DocHeadnoteLink?docGuid=Ie16ded40bcf411e8afcec29e181e0751&headnoteId=204555036400120200602143027&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=CitingReferences&contextData=(sc.FindAndPrintPortal)


http://www.westlaw.com/Browse/Home/KeyNumber/291k1970(12)/View.html?docGuid=Ie16ded40bcf411e8afcec29e181e0751&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)










instructions at trial, and thus competitor waivedargument that district court erred in construing“fixed switching frequency” in patent coveringswitching regulators as a non-varying number ofswitching cycles per second rather than lookingto overall variation.


[5] Patents Presentation and Reservation inLower Court of Grounds of Review

For purpose of preserving issue for appeal, whenthe claim construction is resolved pre-trial, andthe patentee presented the same position in theMarkman proceeding, a further objection at trialto the district court’s pre-trial ruling may be notonly futile, but unnecessary; however, this ruleonly applies when issues were fully litigated anddecided at the Markman stage of the litigation.

[6] Patents Relief from Judgment

A party cannot reserve a new claim-constructionargument for the post-trial motion stage oflitigation.



Substantial evidence supported finding thataccused products operated with a “fixedswitching frequency” for a certain rangeof feedback signals under district court’sconstruction of claim in patent coveringswitching regulators, as required to infringepatent; expert testified that accused productsoperated with a non-varying number of cyclesper second for a range of operation, and thatfrequency-hopping products met limitation ofa “non-varying number of switching cyclesper second” because even though frequencyvaried over microsecond intervals, the aggregatenumber of pulses would not vary over each one-second interval.



Prosecution history estoppel did not bar findingof infringement of patent covering power supplycontroller under doctrine of equivalents; claimlanguage on its face was different than thelanguage of the claims in parent patent, parentpatent claimed receiving a signal that directlyturned the power supply on and off, andspecifically distinguished voltage from current,claiming “a current representative of an inputvoltage,” while claim at issue did not distinguishbetween current and voltage within the claim,and merely described a “signal” to adjust thecurrent limit.

[9] Patents Prosecution history estoppel aslimiting range of equivalents

Prosecution-history estoppel limits theapplication of the doctrine of equivalents in apatent infringement action.


[10] Patents Prosecution history estoppel aslimiting range of equivalents

If a patentee surrenders certain subject matterduring prosecution, the patentee is then barredfrom using the doctrine of equivalents to recoverfor infringement based on that same subjectmatter.


[11] Patents Estoppel in general; prosecutionhistory estoppel

Prosecution-history estoppel can occur eitherwhen the patentee makes a narrowingamendment to the claim or surrenders claimscope through argument to the patent examiner.


To invoke argument-based estoppel, theprosecution history must evince a clear andunmistakable surrender of the subject matter.
































[13] Patents Prosecution history estoppel

The application of prosecution-history estoppelis a question of law that the Court of Appealsreviews de novo.


To determine whether prosecution-historyestoppel applies, the relevant inquiry is whethera competitor would reasonably believe that theapplicant surrendered the relevant subject matter.

[15] Patents Rejection and Amendment ofClaims; Prosecution History

When considering the prosecution history of aparent application to construe claim terms, theCourt of Appeals considers differences in thelanguage and context of different claims.

[16] Patents Entire market value

Patents Remand; mandate

Evidence presented by patent owner wasinsufficient as a matter of law to invokeentire market value rule, warranting remandfor new trial on damages for infringement ofpatent covering switching regulators; althoughpatent owner provided evidence that patentedfrequency reduction feature was essential tomany customers, as it allowed products tomeet federal government's energy efficiencyprogram, that some customers asked for patentedfeature, that products with feature outsold otherproducts, and that technical marketing materialspromoted feature, accused products containedother valuable features as well, and patent ownerpresented no evidence about effect of thosefeatures on consumer demand or extent to whichthose features were responsible for products’value. 35 U.S.C.A. § 284.


[17] Patents Reasonable royalty; hypotheticalnegotiation

A patentee is only entitled to a reasonable royaltyattributable to the infringing features.


[18] Patents Elements, measure, and amount ingeneral

Patents Elements, measure, and amount

The patentee must in every case give evidencetending to separate or apportion the defendant’sprofits and the patentee’s damages between thepatented feature and the unpatented features.



As a substantive matter, it is the value of whatwas taken that measures a reasonable royaltyfor patent infringement purposes. 35 U.S.C.A. §284.

[20] Patents Elements, measure, and amount

In the context of a utility patent, it is only thepatented technology that is taken from the owner,so the value to be determined is only the valuethat the infringing features contribute to the valueof an accused product. 35 U.S.C.A. § 284.



Undertaking an apportionment analysis wherereasonable royalties are sought generallyrequires a determination of the royalty baseto which the royalty rate will be applied. 35U.S.C.A. § 284.
















http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=35USCAS284&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=LQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)
































Even when a damages theory relies on thesmallest salable unit as the basis for calculatingthe royalty, the patentee must estimate whatportion of that smallest salable unit is attributableto the patented technology when the smallestsalable unit itself contains several non-infringingfeatures. 35 U.S.C.A. § 284.



The entire market value rule allows for therecovery of damages based on the value ofan entire apparatus containing several features,when the feature patented constitutes the basisfor consumer demand. 35 U.S.C.A. § 284.



For purposes of calculating damages in a patentinfringement action, if the product has othervaluable features that also contribute to drivingconsumer demand—patented or unpatented—then the damages for patent infringement mustbe apportioned to reflect only the value of thepatented feature. 35 U.S.C.A. § 284.


[25] Patents Profits and damages

Patents Elements, measure, and amount

For purposes of calculating damages in a patentinfringement action, the entire market valuerule is appropriate only when the patentedfeature is the sole driver of customer demand orsubstantially creates the value of the componentparts; the burden of proof in this respect is on thepatent holder. 35 U.S.C.A. § 284.


[26] Patents In general; utility

US Patent 5,747,977, US Patent 6,212,079, USPatent 6,462,971, US Patent 6,538,908. Cited.

*968 Appeals from the United States District Court for theNorthern District of California in No. 3:09-cv-05235-MMC,Judge Maxine M. Chesney.

Attorneys and Law Firms

Frank Scherkenbach, Fish & Richardson, PC, Boston, MA,argued for plaintiff-appellee. Also represented by Craig E.Countryman, John Winston Thornburgh, San Diego, CA;Michael R. Headley, Howard G. Pollack, Redwood City, CA.

Kathleen M. Sullivan, Quinn Emanuel Urquhart & Sullivan,LLP, New York, NY, argued for defendants-appellants. Alsorepresented by Kevin Alexander Smith, San Francisco, CA;Blair Martin Jacobs, Stephen Blake Kinnaird, Christina AnnOndrick, Patrick Stafford, Paul Hastings LLP, Washington,DC.

Before Dyk, Clevenger, and Chen, Circuit Judges.

Opinion

Dyk, Circuit Judge.

*969 Power Integrations, Inc. owns U.S. Patent Nos.6,212,079 (“the ’079 patent”) and 6,538,908 (“the ’908patent”). Power Integrations sued Fairchild SemiconductorCorporation and Fairchild (Taiwan) Corporation (collectively“Fairchild”) for infringement. A jury found Fairchild literallyinfringed claims 31, 34, 38, and 42 of the ’079 patentand infringed claims 26 and 27 of the ’908 patent underthe doctrine of equivalents. In a second trial, a juryawarded damages of roughly $140 million, finding that theentire market value rule applied in calculating damages forinfringement of the ’079 patent. The district court deniedFairchild’s motions for judgment as a matter of law. Fairchildappeals.

We affirm the district court’s judgments of infringement. Weconclude that the entire market value rule cannot be usedhere to calculate damages. We vacate the damages award andremand for further proceedings.

BACKGROUND

I



















http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=1998356148&pubNum=0004074&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=PA&docFamilyGuid=Icde7bc10722d11d7a07084608af77b15&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2001274597&pubNum=0004074&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=PA&docFamilyGuid=Id43e24a072d211d796fabc35f7796f7a&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2002661601&pubNum=0004074&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=PA&docFamilyGuid=Ied583ac072d211d7ab54daa4035d65fa&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2003242464&pubNum=0004074&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=PA&docFamilyGuid=I4f594fc0745e11d797e5f7f2fcbea176&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)




























Power Integrations and Fairchild are both manufacturersof power supply controller chips. Power supply controllerchips are integrated circuits used in power supplies, suchas chargers for electronic devices. These power suppliestransform alternating current (“AC”) electricity, which comesfrom an AC outlet, into direct current (“DC”) electricity,which is needed to power cell phones, laptops, and otherelectronic devices.

After AC electricity has been converted to DC electricity, aswitching regulator directs the transistor in the circuit whento turn on and off in order to provide the desired amountof power to the electronic device. The electronic device isreferred to as the “DC output” because it receives the DCcurrent. The transistor turns on and off at defined intervals.For example, if there is a need for power at the DC output,the switching regulator will direct the transistor to stay “on”for a longer period of time so more power will flow to the DCoutput.

The controversy here involves the ’079 and ’908 patentsowned by Power Integrations. The asserted claims of the’079 patent cover switching regulators. Prior-art switchingregulators were inefficient during periods when the DC outputrequired little power. During these low power periods, prior-art switching regulators would skip on/off cycles to decreasethe DC power provided; the power remained off during theskipped cycle. However, skipping cycles created loud noiseand delivered power in an intermittent fashion. The ’079patent addressed this problem by reducing the frequency ofon/off cycles rather than by skipping cycles altogether. Thefrequency of on/off cycles is determined by feedback signals.Thus, the switching frequency varies based on the feedbacksignal. However, for a certain range of feedback signals, thefrequency of the on/off cycles does not change. Each of theasserted claims requires a “fixed switching frequency for afirst range of feedback signals.”

The ’908 patent covers a “power supply controller,” whichis an integrated circuit that can perform a variety of power-regulation functions. ’908 pat., col. 1, ll. 32–33, 52–60. Eachof the asserted claims requires a power supply controllercomprising “a multi-function circuit coupled to receive asignal at a multi-function terminal for adjusting a current limitof a power switch.” Id., col. 25, l. 63–col. 26, l. 14. The currentlimit is a value of current that can *970 be used by thecircuit to turn off the power switch when the amount of currentpassing through the power switch reaches the threshold value.

II

Power Integrations filed suit against Fairchild, alleginginfringement of various claims of the ’079 patent and the

’908 patent. 1 In February and March 2014, the districtcourt held a sixteen-day jury trial. The jury found Fairchildliterally infringed claims 31, 34, 38, and 42 of the ’079patent and infringed claims 26 and 27 of the ’908 patent

under the doctrine of equivalents. 2 The jury awarded PowerIntegrations $105 million in reasonable royalty damages.Fairchild sought judgment as a matter of law that it did notinfringe claims of the ’079 or ’908 patents, or in the alternativea new trial, which the district court denied.

1 Fairchild counterclaimed for infringement of U.S.Patent No. 5,747,977. The jury found that PowerIntegrations did not infringe this patent, and thedistrict court entered judgment consistent with thejury verdict. This aspect of the judgment has notbeen appealed.

2 All of the asserted claims in this proceeding havebeen found unpatentable in two IPR proceedings.Those proceedings are currently pending on appealto this court. See Semiconductor ComponentsIndus., LLC v. Power Integrations, Inc., IPR No.2016-00809, 2017 WL 6550895 (P.T.A.B. Dec.22, 2017), appeal filed No. 18-1607, 2018 WL4503365 (Fed. Cir. Feb. 26, 2018); SemiconductorComponents Indus., LLC v. Power Integrations,Inc., IPR No. 2016-00995, 2017 WL 6550613(P.T.A.B. Dec. 21, 2017), appeal filed No. 18-1602(Fed. Cir. Feb. 23, 2018).

Six months after the jury verdict, and while the case was stillpending in the district court, our court decided VirnetX, Inc.v. Cisco Systems, Inc., 767 F.3d 1308, 1329 (Fed. Cir. 2014),which concerned the general rule that a patentee seekingdamages based on an infringing product with both patentedand unpatented features must “apportion damages only to thepatented features.” VirnetX explained that simply identifyingthe smallest salable unit is not necessarily sufficient to satisfya patentee’s obligation to apportion for multi-componentproducts with significant unpatented features. Id. BecausePower Integrations’ royalty calculation in the first trial didnot apportion beyond the “smallest salable unit” and PowerIntegrations had disclaimed reliance on the entire market



























http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2034333117&pubNum=0000506&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=RP&fi=co_pp_sp_506_1329&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_sp_506_1329






value rule, the district court granted a new trial on the issueof damages in light of VirnetX.

The district court held a second damages trial in December2015. The district court granted a Daubert motion toexclude Power Integrations’ expert testimony based onapportionment, but allowed its expert to present testimonybased on the entire market value rule. The jury awarded$139.8 million in damages, based on damages testimony thatrelied solely on the entire market value rule. Fairchild thenmoved for judgment as a matter of law, or in the alternative anew trial, arguing that the damages award was not supportedby substantial evidence and that the use of the entire marketvalue rule was improper. The district court denied this motion.

Fairchild now appeals the determination of literalinfringement of the ’079 patent, the determination ofinfringement under doctrine of equivalents of the ’908 patent,and the damages award. We have jurisdiction pursuant to 28U.S.C. § 1295(a)(1).

DISCUSSION

I

We first address infringement of the ’079 patent. The keyissue here is *971 whether the accused products have a“fixed switching frequency for a first range of feedback

signal values.” 3 On appeal, Fairchild does not dispute thatthe other claim limitations were satisfied. The jury foundthat all accused products infringed the asserted claims, andthe district court denied judgment as a matter of law of noinfringement. We review the denial of a motion for judgmentas a matter of law de novo. We review a jury determinationof infringement for substantial evidence.

3 Claim 31, which is representative, reads in full:31. A switching regulator, comprising: a powerswitch coupled between first and secondterminals, the first terminal to be coupled to anenergy transfer element of a power supply andthe second terminal to be coupled to a supply railof the power supply, anda control circuit coupled to a third terminaland the power Switch, the third terminal to becoupled to an output of the power supply, thecontrol circuit coupled to generate a feedback

signal responsive to the output of the powersupply, the control circuit coupled to switchthe power switch in response to the feedbacksignal, the control circuit coupled to switch thepower switch at a fixed switching frequency for afirst range of feedback signal values, the controlcircuit coupled to vary a switching frequencyof the power switch without skipping cycles inresponse to the feedback signal for a secondrange of feedback signal values, wherein thecontrol circuit comprises:a feedback signal circuit coupled to the thirdterminal, the feedback signal circuit coupled togenerate the feedback signal; anda pulse width modulator circuit coupled to switchthe power switch in response to the feedbacksignal, wherein the first and second rangesof the feedback signal correspond to first andsecond ranges of on-time values of a drive signalgenerated by the pulse width modulator circuitto switch the power switch.

’079 patent, Ex Parte Reexamination Certificate,col. 2, ll. 4–32.

In a Markman order, the district court construed “fixedswitching frequency” to mean “[a] non-varying numberof switching cycles per second.” J.A. 2142. On appeal,Fairchild disputes: (1) whether all accused products includea “fixed” switching frequency because the frequency variesdue to operating conditions, and (2) whether a particularsubset of accused products, known as “frequency-hopping”products, has a “fixed” frequency. This second issue turnsprimarily on claim construction—whether the district courtproperly construed “fixed frequency” to include a per secondlimitation. But Fairchild contends that even if the claimconstruction were correct, there was not substantial evidenceto support the jury verdict.

[1] [2] Claim terms are given their ordinary and customarymeaning, which is the meaning the term would have to aperson of ordinary skill in the art at the time of the invention.Phillips v. AWH Corp., 415 F.3d 1303, 1312–13 (Fed. Cir.2005) (en banc). We review claim construction de novo,except for subsidiary facts based on extrinsic evidence, whichwe review for clear error. Teva Pharms. USA, Inc. v. Sandoz,Inc., ––– U.S. ––––, 135 S.Ct. 831, 841, ––– L.Ed.2d ––––(2015).




http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=28USCAS1295&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_7b9b000044381

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=28USCAS1295&originatingDoc=Ie16ded40bcf411e8afcec29e181e0751&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_7b9b000044381










A

[3] Fairchild argues that the jury verdict is not supported bysubstantial evidence because none of the Fairchild productshas a “fixed switching frequency” according to the languageof the claims or a “non-varying frequency” under the districtcourt’s claim construction, because even during “fixed”frequency mode, the products operate with 5% to 15%variance in frequency. This variance is due to operatingconditions, such as temperature and input voltage. Thequestion is whether this variability renders the products non-infringing.

*972 Fairchild argues that the term “fixed” under the districtcourt’s construction of “non-varying number of switchingcycles per second” requires an absolutely fixed frequencywith no variance, even due to operating conditions. Thedistrict court, Fairchild asserts, rejected a construction of“fixed” frequency that permits natural variation when itrejected Power Integration’s proposed construction of “fixedswitching frequency” as “the target switching frequency isintended to be substantially fixed.” J.A. 2125. Rather, the

court adopted “fixed” as meaning “non-varying.” J.A. 2142. 4

4 Fairchild also argues that the term “fixed” cannotinclude any variations due to operating conditionsbased on statements made by Power Integrationsduring the reexamination about a particular priorart reference, the Zhou reference. However, thisargument is waived because Fairchild did not raisethe prosecution history concerning the Zhou priorart as a claim construction argument before thedistrict court. Moreover, the Zhou reference did notdisclose holding frequency constant over a rangeof feedback signals but instead varied frequencyover the entire range of operation. Therefore, theprosecution history statement describing Zhou asnot containing a “fixed” frequency was not directedto determining whether the switching frequencyhas been fixed when environmental variationsoccur while holding a fixed frequency over acertain range of signals.

Fairchild’s argument is unpersuasive. The district court’sconstruction of “fixed switching frequency” as “non-varying”does not exclude the possibility of natural variation becausedoing so would impermissibly render the claims inoperable.See Ecolab, Inc. v. FMC Corp., 569 F.3d 1335, 1345 (Fed. Cir.

2009) (finding that where claim language permits an operable

construction, the inoperable construction is wrong). 5 Here,the parties offered expert testimony to address the knowledgeof persons of ordinary skill in the art. The expert testimonydemonstrated that no real-world power supply controllerscould operate with an absolutely fixed, or non-varying,frequency. Indeed, Fairchild seems to concede that thereis always some variation in frequency due to operatingconditions. Moreover, technical marketing documents fromproducts sold by Fairchild, Power Integrations, and thirdparties label these controllers as “fixed frequency” productsdespite the undisputed, minor variations in frequency. Sincethe term “fixed” is not unambiguously defined in the claims,the fact that power supply controllers cannot operate withoutany variation supports that the plain and ordinary meaning of“fixed” encompasses minor environmental variations.

5 This case is unlike that in Chef America, Inc.v. Lamb-Weston, Inc., where the claims wereunambiguously written in a manner that renderedthem inoperable. 358 F.3d 1371, 1374 (Fed. Cir.2004).

Thus, the jury could have properly concluded that the terms“fixed frequency” and “non-varying” left open the possibilityfor minor frequency variations due to operating conditions. Areasonable jury could have found that the accused productshave a “fixed” or “non-varying” frequency despite slightvariance due to operating conditions.

B

Fairchild alternatively argues that there was no basisfor finding that the “fixed” frequency limitation wassatisfied for a subset of the accused products because theFairchild “frequency-hopping” products intentionally varyfrequency in order to reduce electromagnetic interference.The intentional varying of frequency is referred to as“jittering.” For example, one Fairchild frequency-hoppingproduct jittered its switching frequency from 62 kilohertz to68 kilohertz, around a center frequency *973 of 65 kilohertz.Even though the frequency varies in any given microsecondinterval, the average number of cycles per second is 65,000.

[4] On appeal, Fairchild argues that the district court erredin construing “fixed switching frequency” as a “non-varyingnumber of switching cycles per second” rather than lookingto overall variation.









The district court construed claim terms in a series ofMarkman orders in 2011 and 2012—two years beforetrial. Power Integrations proposed that “fixed switchingfrequency” be construed to mean “the target switchingfrequency is intended to be substantially fixed; but doesnot preclude the presence of a frequency jittering circuit.”J.A. 2125. Fairchild proposed that: “the switching frequencydoes not vary.” Id. The district court then construed theterm to mean a “non-varying number of switching cycles persecond,” even though neither party requested the “per second”limitation. J.A. 2142.

Although Fairchild later proposed further constructionfor other claim terms, Fairchild never objected to the“per second” construction and did not seek rehearing orsupplemental construction. At trial, Fairchild did not object tothe district court’s instructing the jury using the “per second”language. Even in its post-trial motion, Fairchild did notargue that the court’s construction was incorrect. The claimconstruction issue is argued for the first time on appeal.

Power Integrations argues that because Fairchild did not seekadditional claim construction at the district court and choseto litigate this issue as a factual dispute about infringement,Fairchild has waived its “per second” claim constructionargument. Fairchild responds that it did not waive its claimconstruction argument because the claim construction itproposes now is the same as the claim construction itproposed during the Markman hearing, which did not containthe “per second” limitation.

[5] We have held that a party does not waive a claimconstruction argument by failing to object during trial whenthe construction proposed on appeal is the same as theconstruction proposed in a Markman hearing. O2 Micro Int’lLtd. v. Beyond Innovation Tech. Co., 521 F.3d 1351, 1359(Fed. Cir. 2008); see also D’Agostino v. Mastercard Int’l Inc.,844 F.3d 945, 950 (Fed. Cir. 2016); In re Pabst LicensingDig. Camera Patent Litig., 778 F.3d 1255, 1266 (Fed. Cir.2015). “When the claim construction is resolved pre-trial,and the patentee presented the same position in the Markmanproceeding as is now pressed, a further objection to the districtcourt’s pre-trial ruling may indeed have been not only futile,but unnecessary.” Cardiac Pacemakers, Inc. v. St. Jude Med.,Inc., 381 F.3d 1371, 1381 (Fed. Cir. 2004). However, this ruleonly applies when “issues were fully litigated and decided atthe Markman stage of the litigation.” O2 Micro, 521 F.3d at1359.

The problem for Fairchild is that the issue of the appropriatetime interval over which to measure frequency was notfully litigated—or even raised as an issue in dispute—at the Markman stage of this proceeding. During theMarkman proceedings, there was no dispute about the timeinterval. Neither Fairchild nor Power Integrations proposeda construction with the “per second” limitation. The districtcourt added this limitation to the construction on its ownwithout providing a clear explanation. Because the districtcourt had not specifically addressed this issue in its claimconstruction order, in order to preserve an objection to thedistrict court’s claim construction, Fairchild was requiredto raise the issue before submission to the *974 jury.Yet even when this dispute arose at trial, Fairchild didnot ask the district court to modify or clarify its claimconstruction with regard to “per second,” nor did it objectto the jury instructions. Instead, Fairchild waited until thisappeal to argue that the district court’s claim construction waserroneous.

[6] It is well-settled that a party cannot reserve a newclaim-construction argument for the post-trial motion stageof litigation. Lazare Kaplan Int’l, Inc. v. Photoscribe Techs.,Inc., 628 F.3d 1359, 1376 (Fed. Cir. 2010); Broadcom Corp. v.Qualcomm Inc., 543 F.3d 683, 694 (Fed. Cir. 2008); Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1320 (Fed.Cir. 2003).

The present situation is similar to Solvay S.A. v. HoneywellInternational, Inc., 742 F.3d 998 (Fed. Cir. 2014). In thatcase, the district court construed a claim term “isolating” torequire removing two chemicals, HFC-245fa and HCl, from achemical reaction. Id. at 1003. During claim construction, theparties did not raise and the district court did not address theissue of whether the two chemicals could return to the reactorafter initially being removed. Id. at 1003–04. However, duringthe trial, a disagreement arose between the parties as towhether the chemicals had to be permanently removed. Theparties argued the issue at trial, and the district court allowedjury instructions that did not necessarily require permanentremoval. Id. at 1004. When the patentee argued on appeal thatthe proper claim construction required the chemicals to bepermanently removed, we held that “[b]ecause [the patentee]failed to object to the court’s construction or jury instructionwith respect to the term ‘isolating,’ it waived the issue andcannot now raise novel arguments to redefine the scope of[the] claim.” Id. In particular, we noted that the patentee “didnot ask the district court to modify the claim construction




























or accompanying jury instruction.” Id. By failing either torequest that the district court modify or clarify its claimconstruction earlier in the litigation proceedings or to objectto the jury instructions, Fairchild has waived this new claim-construction argument.

[7] Because Fairchild has waived its “per second” claim-construction objection, we only review whether substantialevidence supported the jury verdict under the court’sconstruction. See Lazare, 628 F.3d at 1376; Hewlett-Packard,340 F.3d at 1320. Power Integrations’ expert, Dr. Kelley,testified that the accused products operate with a non-varyingnumber of cycles per second for a range of operation.Dr. Kelley testified that the frequency-hopping productsmeet the limitation of a “non-varying number of switchingcycles per second” because even though the frequency variesover microsecond intervals, the aggregate number of pulseswould not vary over each one-second interval. Based on thistestimony, a reasonable jury could have concluded that theaccused products operate with a “fixed switching frequency”for a certain range of feedback signals under the districtcourt’s construction. Thus, substantial evidence supports thejury’s verdict of infringement of the ’079 patent for all of theaccused products.

II

[8] Next, we address infringement of the ’908 patent underthe doctrine of equivalents. The ’908 patent is directedtowards a power supply controller, where an integrated circuitcan perform multiple functions within a single terminal.Claim 26 requires:

26. A power supply controller circuit, comprising:

*975 a multi-function circuit coupled to receive a signalat a multi-function terminal for adjusting a current limitof a power switch, the multi-function circuit to generate acurrent limit adjustment signal in response to the signal;and

a control circuit coupled to receive the current limitadjustment signal, the control circuit coupled to adjust thecurrent limit of a current through the power switch inresponse to the current limit adjustment signal.

’908 patent, col. 25 l. 63–col. 26, l. 7 (emphasis added). Claim27, the only other asserted claim, depends from claim 26.

The dispute focuses on the “current limit” term. There is nodispute about claim construction. The district court construed“current limit” as “a value of current that can be used bythe control circuit to turn off the power switch when theamount of current passing through the power switch reachesthe threshold.” J.A. 2155.

The accused products use a value of voltage, rather thana value of current, as the signal to implement the currentlimit, so there could not be literal infringement of thislimitation. Fairchild moved in limine to preclude PowerIntegrations from arguing infringement under the doctrine ofequivalents based on prosecution-history estoppel. Fairchildargued that prosecution-history estoppel existed becauseduring prosecution of a related patent, Power Integrationsexplicitly distinguished voltage from current and thereforecould not now assert voltage as an equivalent. The districtcourt denied the motion in limine because the prosecutionhistory was for a different term in a different patent, allowingPower Integrations to argue voltage as an equivalent formonitoring current.

At trial, Power Integrations’ expert testified that a value ofvoltage qualifies as a “value of current” because under Ohm’sLaw, current is equal to voltage divided by resistance. J.A.572–73, 901. The jury then found infringement under thedoctrine of equivalents, and the district court denied judgmentas a matter of law. On appeal, Fairchild argues that PowerIntegrations’ equivalents theory is barred by prosecution-history estoppel.

[9] [10] [11] [12] [13] Prosecution-history estoppellimits the application of the doctrine of equivalents. If apatentee surrenders certain subject matter during prosecution,the patentee is then barred from using the doctrine ofequivalents to recover for infringement based on that samesubject matter. Festo Corp. v. Shoketsu Kinzoku KogyoKabushiki Co., 535 U.S. 722, 733–34, 122 S.Ct. 1831, 152L.Ed.2d 944 (2002). Prosecution-history estoppel can occureither when the patentee makes a narrowing amendment tothe claim or surrenders claim scope through argument to thepatent examiner. Conoco, Inc. v. Energy & Envtl. Int’l, L.C.,460 F.3d 1349, 1363 (Fed. Cir. 2006). Here there was no claimamendment, so Fairchild relies on argument-based estoppel.To invoke argument-based estoppel, the prosecution historymust evince a “clear and unmistakable surrender of the subjectmatter.” Id. at 1364. The application of prosecution-historyestoppel is a question of law that we review de novo. Intendis


















GMBH v. Glenmark Pharm. Inc., USA, 822 F.3d 1355, 1365(Fed. Cir. 2016).

Fairchild argues for argument-based estoppel based on astatement that Power Integrations made during prosecutionof U.S. Patent No. 6,462,971 (“the ’971 patent”), which isthe parent to the ’908 patent and shares a specification. Therelevant claim of the ’971 patent is directed to:

[a] power supply controller circuit,comprising a current input circuitcoupled to receive a currentrepresentative of an input voltage,the current input circuit *976 togenerate an enable/disable signal whenthe current crosses a threshold havinga hysteresis of greater than or equalto zero, the power supply controllerto activate and deactivate the powersupply in response to the enable/disable signal.

’971 pat., col. 23, ll. 30–36 (emphasis added).

The examiner rejected the claims based on the Agimanreference. In an effort to overcome the rejection, PowerIntegrations argued that “Agiman’s circuit monitors voltagerather than current.” J.A. 2283 (emphasis in original). PowerIntegrations then urged that “Agiman fails to disclose ...a current input circuit coupled to receive a currentrepresentative of an input voltage, the current input circuit togenerate an enable/disable signal when the current crosses athreshold.” Id. (emphases in original). Fairchild argues thatthis distinction also applies to the “current limit” term of the’908 patent.

[14] [15] To determine whether prosecution-historyestoppel applies, “the relevant inquiry is whether a competitorwould reasonably believe that the applicant surrendered therelevant subject matter.” Conoco, 460 F.3d at 1364 (quotingCybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1457 (Fed.Cir. 1998), abrogated on other grounds by Teva Pharms. USA,Inc. v. Sandoz, Inc., 789 F.3d 1335 (Fed. Cir. 2015)). Whenconsidering the prosecution history of a parent application toconstrue claim terms, we consider differences in the languageand context of different claims. See Abtox, Inc. v. ExitronCorp., 122 F.3d 1019, 1027 (Fed. Cir. 1997) (“[S]tatements in

the parent application must be confined to their proper contextand properly acknowledge the distinctions between ... [the]claims.”).

Here, the claim language on its face is different than thelanguage of the claims to which the prosecution argumentwas directed. Claim 26 of the ’908 patent covers “a multi-function circuit coupled to receive a signal at a multi-functionterminal for adjusting a current limit of a power switch, themulti-function circuit to generate a current limit adjustmentsignal in response to the signal.” ’908 pat., col. 25 l. 63–col. 26, l. 7 (emphasis added). The current limit in the ’908patent is externally adjustable and helps prevent a powerswitch from overloading due to excessive current flow. The’971 patent, on the other hand, claims a “current input circuitcoupled to receive a current representative of an input voltage,the current input circuit to generate an enable/disable signalwhen the current crosses a threshold.” ’971 pat., col. 23,ll. 30–33 (emphasis added). The functions performed in thetwo patents are related but different. The ’908 patent claimsreceiving a signal to adjust the current limit, which in turndetermines when to turn the power supply on and off. The’971 patent claims receiving a signal that directly turnsthe power supply on and off. Importantly, the claim in the’971 patent specifically distinguishes voltage from current,claiming “a current representative of an input voltage.” The’908 claim, in contrast, does not distinguish between currentand voltage within the claim. It merely describes a “signal”to adjust the current limit.

On appeal, Fairchild provides only a cursory argument of whythe statement in the ’971 patent prosecution history shouldapply the embodiments claimed in the ’908 patent. Fairchildfailed to establish that the prosecution history is sufficientlyclear as to create an estoppel. We conclude that the districtcourt correctly determined that prosecution-history estoppeldoes not apply, and affirm the finding of infringement as tothe asserted claims of the ’908 patent.

*977 III

[16] Lastly, we address damages. The jury awarded PowerIntegrations $139.8 million in the form of a reasonableroyalty. The jury’s reasonable royalty covered the three typesof losses Power Integrations’ damages expert Dr. Putnamtestified the parties would anticipate during a hypotheticalnegotiation: lost sales, reduction in price due to competition,and lost licensing fees. The district court denied Fairchild’s






























motion for judgment as a matter of law or in the alternativea new trial with respect to damages. We agree with Fairchildthat the district court should have granted the new trialmotion.

[17] [18] [19] [20] A patentee is only entitled to areasonable royalty attributable to the infringing features.The patentee “must in every case give evidence tendingto separate or apportion the defendant’s profits and thepatentee’s damages between the patented feature and theunpatented features.” Garretson v. Clark, 111 U.S. 120,121, 4 S.Ct. 291, 28 L.Ed. 371 (1884). In accordance withGarretson, we have required that royalties be apportionedbetween the infringing and non-infringing features of theproduct. Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201,1226–27 (Fed. Cir. 2014); VirnetX, 767 F.3d at 1326; UnilocUSA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir.2011); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301,1336–37 (Fed. Cir. 2009). “As a substantive matter, it is the‘value of what was taken’ that measures a ‘reasonable royalty’under 35 U.S.C. § 284.” Ericsson, 773 F.3d at 1226 (quotingDowagiac Mfg. v. Minn. Moline Plow Co., 235 U.S. 641, 648,35 S.Ct. 221, 59 L.Ed. 398 (1915) ). And in the context of autility patent, it is only the patented technology that is takenfrom the owner, so the value to be determined is only thevalue that the infringing features contribute to the value of anaccused product. Id.

[21] [22] Undertaking an apportionment analysis wherereasonable royalties are sought generally requires adetermination of the royalty base to which the royalty rate willbe applied. We have articulated that, where multi-componentproducts are accused of infringement, the royalty base shouldnot be larger than the smallest salable unit embodying thepatented invention. We have cautioned against reliance onuse of the entire market value of a multi-component productthat includes a patented component because it “cannot helpbut skew the damages horizon for the jury, regardless ofthe contribution of the patented component to this revenue.”Uniloc, 632 F.3d at 1320. “Where small elements of multi-component products are accused of infringement, calculatinga royalty on the entire product carries a considerable riskthat the patentee will be improperly compensated for non-infringing components of that product.” LaserDynamics v.Quanta Computer, Inc., 694 F.3d 51, 67 (C.A.Fed.2012).Admission of evidence of the entire market value “onlyserve[s] to make a patentee’s proffered damages amountappear modest by comparison, and to artificially inflate thejury’s damages calculation beyond that which is ‘adequate

to compensate for the infringement.’ ” Id. at 68 (quoting 35U.S.C. § 284). Even when a damages theory relies on thesmallest salable unit as the basis for calculating the royalty,the patentee must estimate what portion of that smallestsalable unit is attributable to the patented technology whenthe smallest salable unit itself contains several non-infringingfeatures. VirnetX, 767 F.3d at 1327.

[23] The damages verdict here rests on Power Integrations’reliance on a demanding alternative to our general rule ofapportionment, the entire market value rule. *978 Id. “Theentire market value rule allows for the recovery of damagesbased on the value of an entire apparatus containing severalfeatures, when the feature patented constitutes the basis forconsumer demand.” Lucent Techs., Inc. v. Gateway, Inc., 580F.3d 1301, 1336 (Fed. Cir. 2009); see also Rite-Hite Corp. v.Kelley Co., 56 F.3d 1538, 1549 (Fed. Cir. 1995) (en banc). Aswe have explained, “[t]he law requires patentees to apportionthe royalty down to a reasonable estimate of the value of itsclaimed technology,” unless it can “establish that its patentedtechnology drove demand for the entire product.” VirnetX,767 F.3d at 1329. “[S]trict requirements limiting the entiremarket value exception ensure that a reasonable royalty ‘doesnot overreach and encompass components not covered by thepatent.’ ” Id. at 1326 (quoting LaserDynamics, 694 F.3d at70).

[24] If the product has other valuable features thatalso contribute to driving consumer demand—patented orunpatented—then the damages for patent infringement mustbe apportioned to reflect only the value of the patentedfeature. This is so whenever the claimed feature does notdefine the entirety of the commercial product. In somecircumstances, for example, where the other features aresimply generic and/or conventional and hence of littledistinguishing character, such as the color of a particularproduct, it may be appropriate to use the entire value of theproduct because the patented feature accounts for almost allof the value of the product as a whole. See AstraZeneca AB v.Apotex Corp., 782 F.3d 1324, 1338–40 (Fed. Cir. 2015).

Power Integrations’ royalty rate is premised on the ’079patent’s frequency reduction feature as driving consumerdemand for Fairchild’s controller chips. To support thiscontention, Power Integrations provided evidence that the’079 patented frequency reduction feature was essential tomany customers, as it allowed the products to meet thefederal government’s Energy Star program. In addition,Power Integrations provided evidence that some customers









































asked for the ’079 feature, that products with the ’079 featureoutsold other products, and that technical marketing materialspromoted the ’079 feature. Both parties, however, agreedthat the accused products contained other valuable featuresas well. Power Integrations presented no evidence about theeffect of those features on consumer demand or the extent towhich those features were responsible for the products’ value.Power Integrations did not seek a separate jury determinationas to damages for infringement of the asserted claims of the’908 patent, and it is clear that the jury calculated damagesonly for the ’079 patent.

In its JMOL motion, Fairchild argued that the evidencepresented by Power Integrations was insufficient as a matterof law to invoke the entire market value rule, pointing toour decision in LaserDynamics. The district court noted thatthree prior cases relied on evidence that “LaserDynamics... arguably would find inadequate to support EMVR,”and that the evidence presented by Power Integrations wascomparable to the evidence in the prior cases. J.A. 26; seeBose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001);Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353, 1362(Fed. Cir. 1999); Fonar Corp. v. Gen. Elec. Co., 107 F.3d1543, 1552–53 (Fed. Cir. 1997).

Despite the district court’s suggestion to the contrary, there isno conflict between LaserDynamics and these earlier cases,and subsequent cases have relied on LaserDynamics. SeeVirnetX, 767 F.3d at 1326–27; Commonwealth Sci. & Indus.Research Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1301–02(Fed. Cir. 2015); *979 Versata Software, Inc. v. SAP Am.,Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013). LaserDynamicsdiscussed how a patentee can prove that a patented featureforms the basis for consumer demand in the context ofmulti-component products. There we explained that “[i]t isnot enough to merely show that the [patented feature] isviewed as valuable, important, or even essential to the useof the [infringing product].” LaserDynamics, 694 F.3d at 68.Moreover, “proof that consumers ... choose the [infringingproduct] having the [patented] functionality says nothing asto whether the presence of that functionality is what motivatescustomers to buy [an infringing product] in the first place.” Id.None of the earlier cases that the district court cited discussedother valuable features that made the application of the entiremarket value rule inappropriate. See Bose, 274 F.3d at 1361;Tec Air, 192 F.3d at 1362; Fonar, 107 F.3d at 1552–53. Thesecases merely considered whether a patented feature formedthe basis for consumer demand and do not conflict with thelegal test articulated in LaserDynamics, which is binding.

[25] As LaserDynamics, Versata, and VirnetX held, the entiremarket value rule is appropriate only when the patentedfeature is the sole driver of customer demand or substantiallycreates the value of the component parts. LaserDynamics,694 F.3d at 67; Versata, 717 F.3d at 1268; VirnetX, 767F.3d at 1326. The burden of proof in this respect is onthe patent holder. LaserDynamics, 694 F.3d at 67. Thequestion is whether the accused product, compared to otherproducts in the same field, has features that would causeconsumers to purchase the products beyond the patentedfeature, i.e., valuable features. Where the accused infringerpresents evidence that its accused product has other valuablefeatures beyond the patented feature, the patent holder mustestablish that these features do not cause consumers topurchase the product. A patentee may do this by showing thatthe patented feature “alone motivates customers to purchase[the infringing product]” in the first place. See id. at 69.But when the product contains multiple valuable features, itis not enough to merely show that the patented feature isviewed as essential, that a product would not be commerciallyviable without the patented feature, or that consumers wouldnot purchase the product without the patented feature. Id. at68. When the product contains other valuable features, thepatentee must prove that those other features do not causeconsumers to purchase the product.

Here, the power supply controllers had other valuablefeatures, such as jittering. The district court noted that “thereis evidence in the record that other features are importantand are highlighted by the respective parties” and that “there

is no question that ... there are other valuable features.” 6

J.A. 1764. In fact, Power Integrations sought infringementdamages from Fairchild on the jittering feature in thesesame products in a separate lawsuit based on differentpatents, and we affirmed the judgment of infringement.See Power Integrations, Inc. v. Fairchild SemiconductorInt’l, Inc., 843 F.3d 1315 (Fed. Cir. 2016). Moreover, manyof Fairchild’s technical marketing documents specificallymention the jittering feature and other features in addition tothe ’079 patented feature. There is no proof that these features,including jittering, did not affect consumer demand. Withoutsuch proof, Power Integrations did not meet its burden *980to show that the patented feature was the sole driver ofconsumer demand, i.e., that it alone motivated consumers to

buy the accused products. 7













































6 Moreover, in an order denying a permanentinjunction, the district court noted that the circuits“contain numerous features aside from the patentedfeatures.” J.A. 2293.

7 Power Integrations provided testimony thatthe patented feature drove demand for thepurchase of some products. This evidence almostentirely concerned Power Integrations’ ownproducts, TOPSwitch-Fx and TOPSwitch-Gx, notFairchild’s. Power Integrations contends that theonly difference between the older TOPSwitch-Fx and the newer TOPSwitch-Gx controller chipsis the frequency reduction feature covered bythe ’079 patent, and that the frequency reductionfeature was the reason why its customers wouldbuy the Gx product over the Fx product. We,however, explained in LaserDynamics that such acomparator, without more, is not enough to provethat the frequency reduction feature alone drivesconsumer demand for power supply controllerchips. 694 F.3d at 68 (“Put another way, if givena choice between two otherwise equivalent laptopcomputers, only one of which practices optical discdiscrimination, proof that consumers would choosethe laptop computer having the disc discriminationfunctionality says nothing as to whether thepresence of that functionality is what motivatesconsumers to buy a laptop computer in the firstplace. It is this latter and higher degree of proof that

must exist to support an entire market value ruletheory.”). Moreover, this evidence does not addressthe other valuable features in Fairchild’s products.

Because the evidence presented by Power Integrations wasinsufficient as a matter of law to invoke the entire marketvalue rule, we vacate the award of damages and remandfor a new trial. In light of this disposition, we need notaddress Fairchild’s other arguments about the sufficiency ofthe reasonable-royalty evidence.

CONCLUSION

We affirm the judgment of infringement of the asserted claimsof the ’079 and the ’908 patents. We vacate the damagesaward and remand for further proceedings consistent with thisopinion.

AFFIRMED-IN-PART, VACATED-IN-PART,REMANDED

COSTS

Costs to neither party.

All Citations

904 F.3d 965, 128 U.S.P.Q.2d 1121

End of Document © 2020 Thomson Reuters. No claim to original U.S. Government Works.






Virnetx, Inc. v. Cisco Systems, Inc., 767 F.3d 1308 (2014)113 U.S.P.Q.2d 1112


KeyCite Yellow Flag - Negative Treatment Distinguished by AstraZeneca AB v. Apotex Corp., Fed.Cir.(N.Y.), April 7,

2015

767 F.3d 1308United States Court of Appeals,

Federal Circuit.

VIRNETX, INC., Plaintiff–Appellee,and

Science Applications InternationalCorporation, Plaintiff–Appellee,

v.CISCO SYSTEMS, INC., Defendant,

andApple Inc., Defendant–Appellant.

No. 2013–1489.|

Sept. 16, 2014.|

Rehearing and Rehearing EnBanc Denied Dec. 16, 2014.

SynopsisBackground: Patentee brought action against mobile phonemanufacturer, alleging infringement of patents describingmethod of transparently creating virtual private network(VPN) between client computer and target computer andpatents disclosing secure domain name service. The UnitedStates District Court for the Eastern District of Texas,Leonard Davis, Chief Judge, 2009 WL 2370727 and2012 WL 3135639, construed the claims, and then deniedmanufacturer's post-trial motions after jury returned verdict inpatentee's favor 925 F.Supp.2d 816. Manufacturer appealed.

Holdings: The Court of Appeals, Prost, Chief Judge, heldthat:

[1] term “domain name” meant name corresponding toInternet Protocol (IP) address;

[2] term “secure communication link” meant directcommunication link that provided data security andanonymity;

[3] substantial evidence supported jury verdict that accusedproduct met “direct communication” limitation;

[4] accused feature in mobile phone manufacturer's productmet “determining whether” limitation;

[5] substantial evidence supported jury's finding that featurein accused product created “VPN” or “secure channel” thatextended from client to target computer;

[6] security provided by accused system that includedencryption on insecure paths but otherwise relied onsecurity provided by private networks was not equivalent to“encrypted channel”;

[7] patentee could not rely on entire market value ofmulti-component product containing several non-infringingfeatures with no relation to patented feature to approximatereasonable royalty base; and

[8] evidence relying on 50-50 starting point based onbargaining solution theorem was not admissible.

Affirmed in part, reversed in part, vacated in part, andremanded.

Procedural Posture(s): On Appeal.

West Headnotes (40)

[1] Patents De novo review in general

Patents Questions of fact, verdicts, andfindings in general

Patent claim construction is a question of law thatis reviewed de novo.


[2] Patents Language of claims in general

Patents Specifications and Drawings; Written Description

The process of construing a patent claim termbegins with the words of the claims themselves;however, the claims must be read in view of thespecification, of which they are a part.

https://1.next.westlaw.com/Link/RelatedInformation/Flag?documentGuid=I97a72c92dd5d11e4b4bafa136b480ad2&transitionType=Document&originationContext=docHeaderFlag&Rank=0&contextData=(sc.FindAndPrintPortal)

https://www.westlaw.com/Document/I97a72c92dd5d11e4b4bafa136b480ad2/View/FullText.html?navigationPath=RelatedInfo%2Fv4%2Fkeycite%2Fnav%2F%3Fguid%3DI97a72c92dd5d11e4b4bafa136b480ad2%26ss%3D2034333117%26ds%3D2035761565%26origDocGuid%3DI282a80953dbb11e4a795ac035416da91&listSource=RelatedInfo&list=NegativeCitingReferences&rank=0&originationContext=docHeader&transitionType=NegativeTreatment&contextData=%28sc.FindAndPrintPortal%29&VR=3.0&RS=cblt1.0


http://www.westlaw.com/Link/Document/FullText?findType=h&pubNum=176284&cite=0183072701&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2019529761&pubNum=0000999&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RP&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)




http://www.westlaw.com/Browse/Home/KeyNumber/291/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Browse/Home/KeyNumber/291k1967/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)




http://www.westlaw.com/Link/RelatedInformation/DocHeadnoteLink?docGuid=I282a80953dbb11e4a795ac035416da91&headnoteId=203433311700120150331223426&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=CitingReferences&contextData=(sc.FindAndPrintPortal)









[3] Patents Claim differentiation

The patent claim differentiation doctrinedisfavors reading a limitation from a dependentclaim into an independent claim.


[4] Patents Dictionaries, encyclopedias,treatises, and other reference works

Patents Expert and inventor testimony

Although courts are permitted to considerextrinsic evidence like expert testimony,dictionaries, and treatises when construing apatent claim term, such evidence is generally ofless significance than the intrinsic record.


[5] Patents Business methods; Internetapplications

Term “domain name,” in patents thatdisclosed domain name service (DNS) systemthat resolved domain names and facilitatesestablishing secure communication links, meantname corresponding to Internet Protocol (IP)address.


[6] Patents Business methods; Internetapplications

Term “secure communication link,” in patentsthat disclosed domain name service (DNS)system that resolved domain names andfacilitates establishing secure communicationlinks, meant direct communication link thatprovided data security and anonymity.


[7] Courts Particular questions or subjectmatter

In a patent case, the Court of Appeals for theFederal Circuit reviews the denial of a motion for

judgment as a matter of law (JMOL) or a newtrial under the law of the regional circuit.


[8] Federal Courts Verdict

The Fifth Circuit requires that a jury'sdetermination must be upheld if it is supportedby substantial evidence.

[9] Patents Particular fields of invention

Substantial evidence supported jury verdict thataccused product met “direct communication”limitation in patents disclosing secure domainname service; each claim required someindication that domain name service systemsupported establishing secure communicationlink, relay server created two separatecommunications, network address translators(NAT) used by accused products did not impededirect communication but operated like routersor firewalls, and NAT router still allowed for“end-to-end communication between the twodevices” because it merely translated addressesfrom public address space to private addressspace, but did not terminate the connection.


[10] Patents Radio and telecommunicationsequipment

Accused feature in mobile phone manufacturer'sproduct met “determining whether” limitationof patents generally describing method oftransparently creating virtual private network(VPN) between client computer and targetcomputer, since manufacturer's accused featurecould be configured to infringe based onmanufacturer's internal documents and sourcecode and “determining whether” step could beperformed by comparing requested domain nameagainst list of domain names; while featurecould initiate VPN connections with unsecurewebsites, feature was not intended to be usedin that manner and there was no requirement inclaims for verification of security of requestedwebsite or server.



http://www.westlaw.com/Browse/Home/KeyNumber/291k1325(3)/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)




















http://www.westlaw.com/Browse/Home/KeyNumber/170B/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Browse/Home/KeyNumber/170Bk3602/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)










[11] Patents Particular fields of invention

Substantial evidence supported jury's findingthat feature in accused product created “VPN”or “secure channel” that extended from client totarget computer and thus literally infringed claimof patent that required creating “secure channel”“between” client and secure server; pathextending from virtual private network (VPN)server to target computer, i.e., within privatenetwork, would be secure and anonymous owingto protection provided by private network,paths beyond VPN server could be renderedsecure and anonymous by means of “physicalsecurity” present in private corporate networks,and patentee did not have to prove that accusedproduct did not have any non-infringing modesof operation.


[12] Patents Television and motion pictures

Security provided by accused system thatincluded encryption on insecure paths butotherwise relied on security provided by privatenetworks was not equivalent to “encryptedchannel” required by claim in patent thatgenerally described method of transparentlycreating virtual private network (VPN) betweenclient computer and target computer, andthus accused product did not infringe underequivalents doctrine; “security” of privatenetwork could not be equated with “encryption”provided by VPN server because encryptionwas narrower, more specific requirement thansecurity, according to patent.


[13] Patents Substitution of Equivalents

To find infringement under the equivalentsdoctrine, any differences between the claimedinvention and the accused product must beinsubstantial; insubstantiality may be determinedby whether the accused device performssubstantially the same function in substantially

the same way to obtain substantially the sameresult as the patent claim limitation.


[14] Patents Questions of law or fact

Under the equivalents doctrine, whether anaccused device performs substantially the samefunction in substantially the same way to obtainsubstantially the same result as the patent claimlimitation is a question of fact.


[15] Patents Vitiation test

“Vitiation” is not an exception to the doctrine ofequivalents, but instead is a legal determinationthat the evidence in a patent suit is such that noreasonable jury could determine two elements tobe equivalent.

[16] Patents Degree of proof

A party challenging the validity of a patentmust establish invalidity by clear and convincingevidence.


[17] Patents Novelty; anticipation

Anticipation in a patent case is a factual questionthat is reviewed for substantial evidence.


[18] Patents Single reference disclosing everyelement or limitation of claim

A patent claim is anticipated only if each andevery element is found within a single prior artreference, arranged as claimed.


[19] Patents Particular products or processes

Substantial evidence supported finding thatpatents generally describing method oftransparently creating a virtual private network






























(VPN) between a client computer and atarget computer and patents disclosing securedomain name service were not invalid asanticipated; patent owner presented evidenceand testimony that prior publication failed todisclose several claim limitations including,“secure communication link,” “virtual privatenetwork,” “a DNS proxy server,” “an encryptedchannel,” and “secure channel.” 35 U.S.C.A. §102(a).


[20] Evidence Tendency to mislead or confuse

District court would not have abused itsdiscretion in finding that probative valueof evidence that mobile phone manufacturerinitiated re-examinations of patents generallydescribing method of transparently creating avirtual private network (VPN) between clientcomputer and target computer and patentsdisclosing secure domain name service wassubstantially outweighed by risk of unfairprejudice to patentee, confusion with invalidityon the merits, or misleading jury, therebyjustifying exclusion in patent infringementaction. Fed.Rules Evid.Rule 403, 28 U.S.C.A.


[21] Courts Particular questions or subjectmatter

In a patent case, regional circuit law is applied toevidentiary issues.


[22] Federal Courts Probative value andprejudicial effect

The Fifth Circuit reviews a district court'sexclusion of relevant evidence on the basis thatits probative value is substantially outweighedby danger of unfair prejudice for clear abuseof discretion resulting in substantial prejudice.Fed.Rules Evid.Rule 403, 28 U.S.C.A.


[23] Patents Entire market value

Patentee could not rely on entire marketvalue of multi-component product containingseveral non-infringing features with no relationto patented feature to approximate basefor reasonable royalty that manufacturer ofaccused products would have been willing tooffer to pay to patentee during hypotheticalnegotiation, without attempting to apportionvalue attributable to patented features. 35U.S.C.A. § 284.



The most common method for determining areasonable royalty is the hypothetical negotiationapproach, which attempts to ascertain the royaltyupon which the parties would have agreed hadthey successfully negotiated an agreement justbefore patent infringement began. 35 U.S.C.A. §284.



In a patent case, a reasonable royalty may bea lump-sum payment not calculated on a perunit basis, but it may also be, and often is, arunning payment that varies with the number ofinfringing units; in that event, it generally hastwo prongs: a royalty base and a royalty rate. 35U.S.C.A. § 284.


[26] Patents Damages

Whatever the form of the royalty, a patentee musttake care to seek only those damages attributableto the infringing features. 35 U.S.C.A. § 284.


[27] Patents Elements, measure, and amount ingeneral

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=35USCAS102&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_8b3b0000958a4

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=35USCAS102&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_8b3b0000958a4




http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000607&cite=USFRER403&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=LQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)






http://www.westlaw.com/Browse/Home/KeyNumber/170B/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Browse/Home/KeyNumber/170Bk3598(5)/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Browse/Home/KeyNumber/170Bk3598(5)/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)





http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=35USCAS284&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=LQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)
























When patent claims are drawn to an individualcomponent of a multi-component product, it isthe exception, not the rule, that damages maybe based upon the value of the multi-componentproduct; in the absence of a showing that thepatented feature creates the basis for customerdemand or substantially creates the value of thecomponent parts, principles of apportionmentapply. 35 U.S.C.A. § 284.



When determining a reasonable royalty in apatent case, absolute precision is not requiredwhen assigning value to a feature that may nothave ever been individually sold; this processmay involve some degree of approximation anduncertainty. 35 U.S.C.A. § 284.


[29] Evidence Damages

Testimony of patentee's damages expert thatrelied on entire value of accused devices andcomputers as “smallest salable units” withoutattempting to apportion value attributableto patented features was not admissible toapproximate base for reasonable royalty thatmanufacturer of accused products would havebeen willing to offer to pay to patentee duringhypothetical negotiation, for failure to comportwith settled principles of apportionment; wheresmallest salable unit was multi-componentproduct containing non-infringing features withno relation to patented feature, patentee hadto demonstrate that patented features drovedemand for accused products. 35 U.S.C.A. § 284;Fed.Rules Evid.Rule 702, 28 U.S.C.A.


[30] Evidence Necessity and sufficiency

The admissibility of expert testimony isgoverned by the Federal Rules of Evidence andthe principles laid out in Daubert v. Merrell Dow

Pharmaceuticals. Fed.Rules Evid.Rule 702, 28U.S.C.A.


[31] Evidence Necessity and sufficiency

A district court's “gatekeeping obligation”applies to all types of expert testimony.Fed.Rules Evid.Rule 702, 28 U.S.C.A.


While questions regarding which facts are mostrelevant for calculating a reasonable royaltyin a patent case are properly left to the jury,a critical prerequisite is that the underlyingmethodology be sound. 35 U.S.C.A. § 284;Fed.Rules Evid.Rule 702, 28 U.S.C.A.



When calculating a reasonable royalty, apatentee's obligation to apportion damages onlyto the patented features does not end with theidentification of the smallest salable unit if thatunit still contains significant unpatented features.35 U.S.C.A. § 284.



When calculating a reasonable royalty in a patentcase, there is no necessity-based exception tothe entire market value rule; a patentee mustbe reasonable, though may be approximate,when seeking to identify a patent-practicing unit,tangible or intangible, with a close relation to thepatented feature. 35 U.S.C.A. § 284.











http://www.westlaw.com/Browse/Home/KeyNumber/157k555.9/View.html?docGuid=I282a80953dbb11e4a795ac035416da91&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)
































Patentee must apportion the royalty down to areasonable estimate of the value of its claimedtechnology, or else establish that its patentedtechnology drove demand for the entire product.35 U.S.C.A. § 284.



District court did not abuse its discretionin patent case by permitting testimony fromdamages expert regarding proper royalty ratebased on allegedly comparable licenses; fourlicenses related to actual patents-in-suit andothers were drawn to related technology, anddifferences were presented to jury to allow jury tofully evaluate relevance of licenses. 35 U.S.C.A.§ 284.



When relying on licenses to prove a reasonableroyalty, alleging a loose or vague comparabilitybetween different technologies or licenses doesnot suffice. 35 U.S.C.A. § 284.



Evidence relying on 50-50 starting pointbased on bargaining solution theorem wasnot admissible under Daubert to approximatereasonable royalty rate that manufacturer ofaccused product would have been willing tooffer to pay to patentee during hypotheticalnegotiation, since patentee did not sufficientlyshow how premises of theorem actually appliedto specific facts of case at hand. 35 U.S.C.A. §284; Fed.Rules Evid.Rule 702, 28 U.S.C.A.



A patentee may not balance out an unreasonablyhigh royalty base simply by asserting a lowenough royalty rate.


[40] Patents In general; utility

US Patent 6,502,135, US Patent 7,418,504, USPatent 7,490,151, US Patent 7,921,211. Valid andInfringed.

Attorneys and Law Firms

*1313 William F. Lee, Wilmer Cutler Pickering Hale andDorr, LLP, of Boston, MA, argued for defendant-appellant.With him on the brief were Mark C. Fleming, Lauren B.Fletcher, and Rebecca Bact, of Boston, MA, and JonathanG. Cedarbaum, Brittany Blueitt Amadi, and Leah Litman,of Washington, DC. Of counsel on the brief was Danny L.Williams, Williams, Morgan & Amerson, P.C., of Houston,TX.

J. Michael Jakes, Finnegan, Henderson, Farabow, Garrett& Dunner, LLP, of Washington, DC, argued for plaintiffs-appellees. With him on the brief for Virnetx, Inc. were KaraF. Stoll and Srikala Atluri, of Washington, DC, and BenjaminR. Schlesinger, of Atlanta, GA. Of counsel on the brief wereBradley W. Caldwell, Jason D. Cassady, and John AustinCurry, Caldwell, Cassady & Curry, of Dallas, TX. On thebrief for Science Applications International Corporation wereDonald Urrabazo, Arturo Padilla, and Ronald Wielkopolski,Urrabazo Law, P.C., of Los Angeles, CA; and Andy Tindel,Mann, Tindel & Thompson, of Tyler, TX.

Before PROST, * Chief Judge and CHEN, Circuit Judge. **

* Sharon Prost assumed the position of Chief Judgeon May 31, 2014.

** Randall R. Rader, who retired from the position ofCircuit Judge on June 30, 2014, did not participatein this decision.

Opinion

PROST, Chief Judge.

























http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2002809283&pubNum=0004074&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=PA&docFamilyGuid=I0084bab0743b11d7abd288e162f1ee6f&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2016832767&pubNum=0004074&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=PA&docFamilyGuid=Ie4e1392b737b11ddb6a3a099756c05b7&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)

http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2018115323&pubNum=0004074&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=PA&docFamilyGuid=I0c0cd395f7a311ddb77d9846f86fae5c&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)


http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2024944250&pubNum=0004074&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=PA&docFamilyGuid=I09abba605f9511e0af6af9916f973d19&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)



























Apple Inc. appeals from a final judgment of the U.S. DistrictCourt for the Eastern District of Texas, in which a juryfound that Apple infringed U.S. Patent Nos. 6,502,135(“′135 patent”), 7,418,504 (“′504 patent”), 7,490,151 (“′151patent”), and 7,921,211 (“′211 patent”). The jury furtherfound that none of the infringed claims were invalid andawarded damages to plaintiffs-appellees VirnetX, Inc. andScience Applications International Corporation (“SAIC”) inthe amount of $368,160,000.

For the reasons that follow, we affirm the jury's findings thatnone of the asserted claims are invalid and that many of theasserted claims of the ′135 and ′151 patents are infringedby Apple's VPN On *1314 Demand product. We alsoaffirm the district court's exclusion of evidence relating tothe reexamination of the patents-in-suit. However, we reversethe jury's finding that the VPN On Demand product infringesclaim 1 of the ′151 patent under the doctrine of equivalents.We also reverse the district court's construction of the claimterm “secure communication link” in the ′504 and ′211 patentsand remand for further proceedings to determine whether theFaceTime feature infringes those patents under the correctclaim construction. Finally, we vacate the jury's damagesaward and remand for further proceedings consistent with thisopinion.

BACKGROUND

The patents at issue claim technology for providing securityover networks such as the Internet. The patents assert priorityto applications filed in the 1990s, originally assigned to SAIC.VirnetX, a Nevada-based software development and licensingenterprise, acquired the patents from SAIC in 2006.

I. The ′504 and ′211 Patents and FaceTimeThe ′504 and ′211 patents share a common specificationdisclosing a domain name service (“DNS”) system thatresolves domain names and facilitates establishing “securecommunication links.” ′504 patent col. 55 ll. 49–50. In oneembodiment, an application on the client computer sends aquery including the domain name to a “secure domain nameservice,” which contains a database of secure domain namesand corresponding secure network addresses. Id. at col. 50ll. 54–57, col. 51 ll. 11–19, col. 51 ll. 29–32. This allows auser to establish a secure communication link between a clientcomputer and a secure target network address. Id. at col. 51ll. 34–40.

Representative claim 1 of the ′504 patent recites:

1. A system for providing a domain name service forestablishing a secure communication link, the systemcomprising:

a domain name service system configured to be connectedto a communication network, to store a plurality of domainnames and corresponding network addresses, to receive aquery for a network address, and to comprise an indicationthat the domain name service system supports establishinga secure communication link.

Id. at col. 55 ll. 49–56.

Before the district court, VirnetX accused Apple ofinfringement based on its “FaceTime” feature. Specifically,VirnetX accused Apple's servers that run FaceTime onApple's iPhone, iPod, iPad (collectively, “iOS devices”), andMac computers of infringing claims 1, 2, 5, 16, 21, and 27 ofthe ′504 patent as well as claims 36, 37, 47, and 51 of the ′211patent. In operation, FaceTime allows secure video callingbetween select Apple devices. J.A. 1443. To use FaceTime,a caller enters an intended recipient's e-mail address ortelephone number into the caller's device (e.g., iPhone). J.A.1451–52. An invitation is then sent to Apple's FaceTimeserver, which forwards the invitation to a network addresstranslator (“NAT”) which, in turn, readdresses the invitationand sends it on to the receiving device. J.A. 1821, 1824–25.The recipient may then accept or decline the call. J.A. 1453. Ifaccepted, FaceTime servers establish a secure FaceTime call.J.A. 1453. Once connected, the devices transmit audio/videodata as packets across the secure communication path withoutpassing through the FaceTime server. J.A. 1820, 1825.

*1315 II. The ′135 and ′151 Patents and VPN OnDemand

A conventional DNS resolves domain names (e.g.,“Yahoo.com”) into Internet Protocol (“IP”) addresses. See′135 patent col. 37 ll. 22–27. A user's web browser thenutilizes the IP address to request a website. Id. at col. 37 ll.24–29.

The ′135 and ′151 patents share a common specificationdisclosing a system in which, instead of a conventionalDNS receiving the request, a DNS proxy intercepts it anddetermines whether the request is for a secure site. Id. at col.38 ll. 23–25. If the proxy determines that a request is for a






















secure site, the system automatically initiates a virtual privatenetwork (“VPN”) between the proxy and the secure site. Id.at col. 38 ll. 30–33. If the browser determines that the requestwas for a non-secure website, then the DNS proxy forwardsthe request to a conventional DNS for resolution. Id. at col.38 ll. 43–47.

Representative claim 1 of the ′135 patent recites:

1. A method of transparently creating a virtual privatenetwork (VPN) between a client computer and a targetcomputer, comprising the steps of:

(1) generating from the client computer a DomainName Service (DNS) request that requests an IP addresscorresponding to a domain name associated with the targetcomputer;

(2) determining whether the DNS request transmitted instep (1) is requesting access to a secure web site; and

(3) in response to determining that the DNS requestin step (2) is requesting access to a secure target website, automatically initiating the VPN between the clientcomputer and the target computer.

Id. at col. 47 ll. 20–32.

Claims 1 and 13 of the ′151 patent are similar to claim 1 ofthe ′135 patent except that they recite initiating an “encryptedchannel” and creating a “secure channel,” respectively,instead of creating a “VPN.” ′151 patent col. 46 ll. 55–67, col.48 ll. 18–29.

Before the district court, VirnetX accused Apple's iPhone,iPad, and iPod Touch of infringing claims 1, 3, 7, and 8of the ′135 patent and claims 1 and 13 of the ′151 patentbecause they include a feature called “VPN On Demand.”When a user enters a domain name into the browser of aniOS device, a DNS request is generated. J.A. 1393–94. VPNOn Demand receives the request and checks a list of domainnames for which a VPN connection should be established,known as a “configuration file.” J.A. 1377. If the entereddomain name matches a domain name in the configurationfile, VPN On Demand contacts a VPN server to authenticatethe user and, if successful, automatically establishes a VPNbetween the user's browser and the target computer withwhich the requested domain name is associated. J.A. 1377–78, 1396–98.

III. Five–Day Jury Trial and Post–Trial MotionsOn August 11, 2010, VirnetX filed this infringement action,alleging that Apple's FaceTime servers infringe certain claimsof the ′504 and ′211 patents, and that Apple's VPN OnDemand feature infringes certain claims of the ′135 and′151 patents. Apple responded that FaceTime and VPN OnDemand do not infringe, and that the asserted claims wereinvalid as anticipated by a 1996 publication by TakahiroKiuchi et al. (“Kiuchi”).

*1316 On April 25, 2012, the district court construeddisputed claim terms, and a jury trial commenced on October31, 2012. After a five-day trial, the jury returned its verdict,finding all of the asserted claims valid and infringed. Thejury awarded VirnetX $368,160,000 in reasonable royaltydamages. Apple moved for judgment as a matter of law(“JMOL”) or, alternatively, for a new trial or remittitur.On February 26, 2013, the district court denied Apple'smotions. VirnetX, Inc. v. Apple Inc., 925 F.Supp.2d 816(E.D.Tex.2013).

Apple now appeals the denial of its post-trial motion forJMOL or a new trial. This court has jurisdiction under 28U.S.C. § 1295(a)(1).

DISCUSSION

I. Claim Construction

On appeal, Apple argues that the district court erredin construing the terms “domain name” and “securecommunication link,” both recited in the ′504 and ′ 211patents. For the reasons that follow, we affirm the constructionof “domain name” and reverse the construction of “securecommunication link.”

[1] [2] [3] [4] Claim construction is a question oflaw that we review de novo. Lighting Ballast Control LLCv. Philips Elecs. N. Am. Corp., 744 F.3d 1272, 1276–77(Fed.Cir.2014) (en banc); Cybor Corp. v. FAS Techs., Inc.,138 F.3d 1448, 1456 (Fed.Cir.1998) (en banc). The processof construing a claim term begins with the words of theclaims themselves. See Vitronics Corp. v. Conceptronic, Inc.,90 F.3d 1576, 1582 (Fed.Cir.1996); Phillips v. AWH Corp.,415 F.3d 1303, 1312–14 (Fed.Cir.2005) (en banc). However,the claims “must be read in view of the specification, ofwhich they are a part.” Phillips, 415 F.3d at 1315 (quoting











http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=28USCAS1295&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_7b9b000044381

http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1000546&cite=28USCAS1295&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RB&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_7b9b000044381



http://www.westlaw.com/Link/Document/FullText?findType=Y&serNum=2032766364&pubNum=0000506&originatingDoc=I282a80953dbb11e4a795ac035416da91&refType=RP&fi=co_pp_sp_506_1276&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.FindAndPrintPortal)#co_pp_sp_506_1276












Markman v. Westview Instruments, Inc., 52 F.3d 967, 979(Fed.Cir.1995) (en banc), aff'd 517 U.S. 370, 116 S.Ct.1384, 134 L.Ed.2d 577 (1996)). Additionally, the doctrineof claim differentiation disfavors reading a limitation from adependent claim into an independent claim. See InterDigitalCommc'ns, LLC v. Int'l Trade Comm'n, 690 F.3d 1318, 1324(Fed.Cir.2012). Although courts are permitted to considerextrinsic evidence like expert testimony, dictionaries, andtreatises, such evidence is generally of less significancethan the intrinsic record. Phillips, 415 F.3d at 1317 (citingC.R. Bard, Inc. v. U.S. Surgical Corp., 388 F.3d 858, 862(Fed.Cir.2004)).

A. “Domain Name”

[5] The district court construed “domain name” as “a namecorresponding to an IP address.” Memorandum Opinion &Order at 16, VirnetX, Inc. v. Cisco Sys. Inc., No. 6:10–cv–416 (E.D.Tex. Apr. 25, 2012), ECF No. 266 (“ClaimConstruction Order ”). Apple argues, as it did below, that theproper construction is “a hierarchical sequence of words indecreasing order of specificity that corresponds to a numericalIP address.” Apple insists that its construction represents theplain and ordinary meaning of the term, relying primarilyon a technical dictionary definition and several examples inthe specification (e.g., “Yahoo.com”). We disagree. Intrinsicevidence supports the district court's construction of “domainname.” The specification of the ′ 504 and ′211 patents suggeststhe use of the invention for secure communications betweenapplication programs like “video conferencing, e-mail, wordprocessing programs, telephony, and the like.” ′504 patent col.21 ll. 27–29. The disclosure of such applications demonstratesthat the inventors did not intend to limit “domain name” to theparticular formatting limitations of websites sought by Apple,i.e., a top-level domain, second-level domain, and host name.

*1317 Additionally, fundamental principles of claimdifferentiation disfavor reading Apple's hierarchicallimitation into the independent claims. Dependent claims inboth patents require that “at least one” of the domain namesstored by the system comprise a top-level domain name.See, e.g., ′ 504 patent col. 55 ll. 57–59 (“The system ofclaim 1, wherein at least one of the plurality of domainnames comprises a top-level domain name.”); ′211 patent col.57 ll. 47–50 (“The non-transitory machine-readable mediumof claim 36, wherein the instructions comprise code forstoring the plurality of domain names and correspondingnetwork addresses including at least one top-level domain

name.”). The specific limitation of hierarchical formatting inthe dependent claims strongly suggests that the independentclaims contemplate domain names both with and withoutthe hierarchical format exemplified by “Yahoo.com.” SeeInterDigital, 690 F.3d at 1324 (“The doctrine of claimdifferentiation is at its strongest ... ‘where the limitation that issought to be “read into” an independent claim already appearsin a dependent claim.’ ” (quoting Liebel–Flarsheim Co. v.Medrad, Inc., 358 F.3d 898, 910 (Fed.Cir.2004))).

Such intrinsic evidence is not outweighed by the extrinsicevidence of one dictionary definition. This is particularly truehere, where the dictionary definition seems to contemplateweb addresses on the Internet, while the specification makesclear that the claim term in question is not so limited. See J.A.6139–40. Thus, we affirm the district court's construction ofthe term “domain name” as “a name corresponding to an IPaddress.”

B. “Secure Communication Link”

[6] The district court construed “secure communicationlink” as “a direct communication link that provides datasecurity.” Claim Construction Order at 13. Apple argues thatthis term should be construed consistent with “VPN,” whichthe district court construed to require not only data security

but also anonymity. 1

1 The district court construed VPN to mean “anetwork of computers which privately and directlycommunicate with each other by encrypting trafficon insecure paths between the computers wherethe communication is both secure and anonymous.”Claim Construction Order at 8.

As an initial matter, we note that there is no disputethat the word “secure” does not have a plain andordinary meaning in this context, and so must bedefined by reference to the specification. See Oral Arg.31:50–32:40, available at http://www.cafc.uscourts.gov/oral-argument-recordings/13-1489/all (acknowledgement byVirnetX's counsel that construction of “secure” requiresconsideration of the specification).

Moreover, we agree with Apple that, when read in lightof the entire specification, the term “secure communicationlink” requires anonymity. Indeed, the addition of anonymityis presented as one of the primary inventive contributions




















of the patent. For example, the Background of the Inventionstates that “[a] tremendous variety of methods have beenproposed and implemented to provide security and anonymityfor communications over the Internet.” ′504 patent col. 1ll. 32–35 (emphasis added). It goes on to define these twoconcepts as counterpart safeguards against eavesdroppingthat could occur while two computer terminals communicateover the Internet. Id. at col. 1 ll. 38–54. Security in thiscontext refers to protection of data itself, to preserve thesecrecy of its contents, while anonymity refers to preventingan eavesdropper from discovering the *1318 identity of aparticipating terminal. Id. at col. 1 ll. 40–54.

Having thus framed the problem, the patent (as expected)proposes a solution. Specifically, the Summary of theInvention begins by explaining how the invention improvessecurity by using a “two-layer encryption format” known asthe Tunneled Agile Routing Protocol, or TARP. Id. at col. 3ll. 14–17. First, an “inner layer” secures the data itself, id.at col. 4 ll. 5–7, and then a second “outer layer” concealsthe data's “true destination,” id. at col. 3 ll. 34–35. The factthat the Summary of the Invention gives primacy to theseattributes strongly indicates that the invention requires morethan just data security. See, e.g., C.R. Bard, 388 F.3d at 864(giving particular weight to statements in the Summary of theInvention because “[s]tatements that describe the invention asa whole, rather than statements that describe only preferredembodiments, are more likely to support a limiting definitionof a claim term”).

Consistent with this emphasis, the Detailed Description statesthat “the message payload is embedded behind an inner layerof encryption” and “[e]ach TARP packet's true destinationis concealed behind an outer layer of encryption.” ′504patent col. 9 ll. 60–61, col. 11 ll. 2–4. The concealmentrequirement appears throughout the specification and isimplicated in every embodiment associated with the “two-layer encryption” or TARP VPN. The fact that anonymityis “repeatedly and consistently” used to characterize theinvention strongly suggests that it should be read as part of theclaim. See Eon–Net LP v. Flagstar Bancorp., 653 F.3d 1314,1321–23 (Fed.Cir.2011).

VirnetX attempts to rebut this suggestion by pointingto a single place in the specification where a “securecommunication path” is referred to as providing only security,without anonymity. See ′504 patent col. 39 ll. 24–35. Butthat disclosure relates to the “conventional architecture” ofthe prior art that suffers precisely because it “hamper[s]

anonymous communications on the Internet.” Id. at col. 39 ll.24, 32–33. And indeed, the specification goes on to explainhow the invention solves that very problem by setting up aVPN, which requires anonymity. Id. at col. 39 ll. 46–62.

VirnetX also argues that the specification teaches thatdifferent users have “different needs” such that some usersneed data security while, in other cases, “it may be desired”to also have anonymity. Appellee's Br. 48 (citing ′ 504 patentcol. 1 ll. 33–52). Thus, VirnetX insists, the TARP protocol(with its requirement of anonymity) is but one type of “securecommunication link,” and does not limit the constructionof that term. To be sure, the specification mechanicallyprefaces most passages with the phrase “according to oneaspect of the present invention.” See, e.g., ′504 patent col.6 l. 36. But the Background and Summary of the Inventionclearly identify the TARP protocol as a key part of the novelsolution to the specific problem identified in the prior art.Unsurprisingly, therefore, VirnetX has not identified evena single embodiment that provides data security but notanonymity.

Moreover, in several instances the specification appears touse the terms “secure communication link” and “VPN”interchangeably, suggesting that the inventors intended thedisputed term to encompass the anonymity provided bya VPN. See Nystrom v. Trex Co., 424 F.3d 1136, 1143(Fed.Cir.2005) ( “Different terms or phrases in separateclaims may be construed to cover the same subject matterwhere the written description and prosecution history indicatethat such a reading of the terms or phrases is proper.”). Forexample, it *1319 states that “[w]hen software module 3309is being installed or when the user is off-line, the user canoptionally specify that all communication links establishedover computer network 3302 are secure communication links.Thus, anytime that a communication link is established,the link is a VPN link.” ′504 patent col. 52 ll. 15–19(emphases added). Similarly, in the very next paragraphthe specification states that “a user at computer 3301 canoptionally select a secure communication link through proxycomputer 3315. Accordingly, computer 3301 can establish aVPN communication link 3323 with secure server computer3320 through proxy computer 3315.” Id. at col. 52 ll.25–29 (emphases added). In both of these instances, thespecification equates the term “secure communication link”with a “VPN.” The only counter-example VirnetX can pointto is an instance where the specification states, in relation toone aspect of the invention, that “[t]he secure communicationlink is a virtual private network communication link over the















computer network.” Id. at col. 6 ll. 61–63. But equating thetwo terms with respect to one aspect of the present inventionis a far cry from expressly divorcing those terms elsewhere,particularly in the absence of any embodiment or disclosurethat does so.

Thus, we reverse the district court's claim construction andconclude that the term “secure communication link” as usedin the ′504 and ′211 patents requires anonymity. Accordingly,the term should be construed as “a direct communication linkthat provides data security and anonymity.”

II. Infringement

[7] [8] We review the denial of a motion for JMOL or a newtrial under the law of the regional circuit. Verizon Servs. Corp.v. Cox Fibernet Va., Inc., 602 F.3d 1325, 1331 (Fed.Cir.2010).The Fifth Circuit requires that a jury's determination must beupheld if it is supported by substantial evidence. ClearValue,Inc. v. Pearl River Polymers, Inc., 668 F.3d 1340, 1343(Fed.Cir.2012) (citing Med. Care Am., Inc. v. Nat'l Union FireIns. Co., 341 F.3d 415, 420 (5th Cir.2003)).

A. ′504 and ′211 Patents

[9] Apple argues that there was not substantial evidence tosupport the jury's verdict that its FaceTime servers infringethe asserted claims of the ′ 504 and ′211 patents. Apple insiststhat FaceTime does not infringe the “secure communicationlink” claim term for two reasons: first, because when properlyconstrued it requires anonymity, which the FaceTime serversdo not provide, and second, because they do not provide“direct” communication, as required by the district court'sclaim construction.

With respect to the first argument, we have now construed thedisputed claim term so as to require anonymity. See supra at1319. However, the jury was not presented with the questionof whether FaceTime infringes the asserted claims undera construction requiring anonymity. Thus, we remand forfurther proceedings to determine whether Apple's FaceTimeservers provide anonymity.

With respect to the second argument, Apple argues thatFaceTime servers do not provide “direct” communicationbecause the communications are addressed to a NAT, ratherthan to the receiving device. Appellant's Br. 43. The district

court concluded that there was substantial evidence to supportthe jury's finding that the NAT routers used by FaceTimedo not impede direct communication, VirnetX, 925 F.Supp.2dat 831, and we agree. As the district court noted, VirnetX'sexpert testified that the NAT routers still allow for *1320“end-to-end communication between the two devices,” J.A.1565, because they merely translate addresses from thepublic address space to the private address space, but do notterminate the connection. J.A. 1465, 1536–37. Even Apple'sexpert admitted that the connection does not stop at the NATrouters. J.A.1984.

Apple argues that this testimony cannot support a finding ofinfringement because it is inconsistent with the court's claimconstruction that required “direct addressability.” Appellant'sBr. 43–45. But the district court considered this argumentand disagreed, noting that its claim construction expresslyprovided that “routers, firewalls, and similar servers ... donot impede ‘direct’ communication,” and VirnetX presentedevidence that NATs operate like routers or firewalls. VirnetX,925 F.Supp.2d at 831.

Thus, we do not think the district court erred in finding thatthere was substantial evidence on which the jury could haverelied to reach its finding of infringement on this element.

B. ′135 and ′151 Patents

Apple also argues that there was not substantial evidence tosupport the jury's verdict that its VPN On Demand productinfringed the asserted claims of the ′135 and ′151 patents forseveral reasons, discussed in turn below.

1. “Determining Whether”

[10] Apple argues that its VPN On Demand feature doesnot infringe the asserted claims of the ′135 and ′151 patentsbecause it does not “determine whether” a requested domainname is a secure website or server. Instead, Apple insists thatit merely determines whether the requested website is listedin the user-created “configuration file” and initiates a VPNconnection for any domain name on that list, regardless ofwhether or not it is secure. In response, VirnetX argues thatthere was substantial evidence demonstrating that the VPNOn Demand system is designed and intended to be used onlyfor accessing secure private networks. We agree with VirnetX.




















Here, the evidence presented at trial supports the conclusionthat Apple's VPN On Demand product infringes the assertedclaim limitation in its normal configuration. In particular,VirnetX's expert testified that Apple's technical designdocuments and internal technical presentations relating to theVPN On Demand system (many of which are confidentialand cannot be quoted here) make clear that a VPN connectionshould only be established for private web addresses. Thus,regardless of whether a user could misconfigure the list byentering public domain names, Apple's planning documents,internal emails, and presentations all explained that VPN OnDemand's primary use is to connect users to secure sites usinga VPN. That is all that is required. See Hilgraeve Corp. v.Symantec Corp., 265 F.3d 1336, 1343 (Fed.Cir.2001).

Moreover, this description of the VPN On Demand feature isconsistent with how the claimed functionality is described inthe specification. For example, in one embodiment, the DNSproxy determines whether a request is for a secure site bychecking the domain name against a table or list of domainnames. ′135 patent col. 38 ll. 23–30. In other words, the proxyidentifies a request for “access to a secure site ... by referenceto an internal table of such sites.” Id. That is precisely howthe VPN On Demand feature operates.

We therefore conclude that the jury's finding that the VPNOn Demand product infringes the “determining whether”limitation *1321 was supported by substantial evidence.

2. “Between”

a. Literal Infringement of Claim 1 of the′135 Patent and Claim 13 of the ′ 151 Patent

[11] Claim 1 of the ′135 patent requires creating a “VPN”“between” the client and a target computer. ′135 patent col.47 ll. 20–22. Similarly, claim 13 of the ′151 patent requirescreating a “secure channel” “between” the client and thesecure server. ′151 patent col. 48 ll. 28–29. For both claims,the district court construed “between” to mean “extendingfrom” the client to the target computer. Claim ConstructionOrder at 26.

Apple argues that its VPN On Demand product fails tomeet this limitation because it only secures communicationsbetween the iPhone and the VPN server, but not betweenthe VPN server and the target computer. VirnetX respondsthat Apple's product is intended to be used with private

networks, which are generally configured to be both secureand anonymous. In other words, VirnetX argues that thesecure channel between the VPN server and the targetcomputer is provided by the target computer itself. Afterconsidering the record as a whole, we conclude that therewas substantial evidence to support the jury's verdict ofinfringement on this limitation.

At trial, VirnetX presented evidence and testimony to the jurythat “the virtual private network extend[s] from the clientcomputer to the target computer ... because it's encryptedon the insecure paths, and it's secure within the corporatenetwork.” J.A. 1400–01. VirnetX's expert testified that one ofordinary skill would understand that the path extending fromthe VPN server to the target computer, i.e., within the privatenetwork, would be secure and anonymous owing to protectionprovided by the private network. J.A. 1080 (“That network issecure, because it's been physically secured; and it also haswhat's called a firewall between its network and the publicnetwork. So it keeps the bad guys out.”); J.A. 1379 (“If that'sa private network of the company that they've set up behinda VPN server, the company would have configured that to besecure.”); J.A. 1396 (“[T]hese are ... private networks that arenot to be accessed by others. They require authorization foraccess.”). The jury also heard testimony that while in somesituations traffic could be unsecured behind the VPN server,J.A.1997–98, this scenario would be “atypical.” J.A.1992–93. For example, VirnetX presented evidence to the jury thatApple itself advertised that VPN On Demand is designedto connect with “private corporate networks” and “workswith a variety of authentication methods.” J.A. 20001. And,more to the point, the jury heard that the “private corporatenetworks” to which VPN On Demand is intended to connectemploy security measures including VPN servers, VPNauthentication servers, proxy servers, and firewalls whichregulate access to private resources and prevent unauthorizedusers from breaching. J.A. 1080, 1379, 1401.

Apple argues that this finding of infringement necessarilyrests on a series of “assumptions” about how all privatenetworks operate in order to conclude that VPN OnDemand is “typically” configured to operate in themanner accused of infringement. Appellant's Br. 30–31. However, VirnetX's expert relied on Apple's owninternal technical documentation, product specifications, andmarketing presentations, several of which describe specificsecurity measures used by the private networks to whichVPN On Demand is intended to connect. This evidencedemonstrates *1322 not only that VPN On Demand may












be configured to interact with private networks, but that thiswas apparently Apple's primary objective. Apple would haveVirnetX prove that VPN On Demand has no non-infringingmodes of operation. But, as noted above, VirnetX bearsno such burden. See supra at 1320–21; see also z4 Techs.,Inc. v. Microsoft Corp., 507 F.3d 1340, 1350 (Fed.Cir.2007)(“[I]nfringement is not avoided merely because a non-infringing mode of operation is possible.”). We cannot agreethat the jury's finding lacks substantial evidence becauseVirnetX did not specifically disprove that VPN On Demandcan, in atypical situations, establish a VPN with insecurenetworks.

Apple also responds that this evidence is insufficient becauseVirnetX's expert testified that VPN On Demand only encryptscommunications between the iPhone and the VPN server—by implication leaving the path from the VPN server to thetarget unencrypted. Appellant's Br. 29 (quoting J.A. 1392).However, the district court's construction of “VPN” does notrequire that traffic on a secure path be encrypted. Rather,the construction only requires encryption of traffic “oninsecure paths.” Claim Construction Order at 8. Moreover, asindicated by the ′135 patent, encryption is just one possibleway to address data security. ′135 patent col. 1 ll. 38–39 (“Data security is usually tackled using some form ofdata encryption.” (emphasis added)). And VirnetX providedsubstantial evidence for the jury to conclude that paths beyondthe VPN server may be rendered secure and anonymous bymeans of “physical security” present in the private corporatenetworks connected to by VPN On Demand. See, e.g., J.A.1401.

Accordingly, we conclude that the jury's finding that theVPN On Demand feature creates a “VPN” or a “securechannel” that extends from the client to the target computerwas supported by substantial evidence. We therefore affirmthe district court's denial of JMOL as to claim 1 of the ′135patent and claim 13 of the ′151 patent.

b. Infringement of Claim 1 of the ′151Patent Under the Doctrine of Equivalents

[12] Claim 1 of the ′151 patent is similar to claim 13except that it requires initiating an “encrypted channel”—rather than a “secure channel”—“between” the client andthe secure server. ′151 patent col. 46 ll. 66–67. With respectto infringement, VirnetX conceded that VPN On Demanddoes not literally practice this limitation because the private

network between the VPN server and the target is “notnecessarily encrypted” from end to end. J.A. 1420–21. Rather,VirnetX asserted that VPN On Demand infringes under thedoctrine of equivalents because the difference between securecommunication via encryption and secure communicationin general is insubstantial. J.A. 1421–24. Apple argues thatVirnetX's theory of equivalents is legally insufficient becauseit vitiates the “encrypted channel” element. Appellant's Br.32–33.

[13] [14] [15] To find infringement under the doctrine ofequivalents, any differences between the claimed inventionand the accused product must be insubstantial. See GraverTank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605,608, 70 S.Ct. 854, 94 L.Ed. 1097 (1950). Insubstantialitymay be determined by whether the accused device performssubstantially the same function in substantially the same wayto obtain substantially the same result as the claim limitation.Crown Packaging Tech., Inc. v. Rexam Beverage Can Co.,559 F.3d 1308, 1312 (Fed.Cir.2009). This is a question offact. Anchor Wall Sys., *1323 Inc. v. Rockwood RetainingWalls, Inc., 340 F.3d 1298, 1313 (Fed.Cir.2003). Vitiationis not an exception to the doctrine of equivalents. Deere &Co. v. Bush Hog, LLC, 703 F.3d 1349, 1356 (Fed.Cir.2012).Rather, it is a legal determination that “the evidence is suchthat no reasonable jury could determine two elements to beequivalent.” Id. (citation omitted).

After considering the record as a whole, we conclude thatthe evidence presented at trial does not support the jury'sfinding of infringement under the doctrine of equivalents.VirnetX's expert testified that VPN On Demand (a) performssubstantially the same function because it secures thecommunication between the client and the secure server, (b)does so in substantially the same way by protecting datathrough encryption on insecure paths that are vulnerable toeavesdroppers, and (c) achieves substantially the same resultof successfully protecting the entire communication pathfrom potential eavesdroppers. See J.A. 1424.

Notably, in explaining the “way” that VPN On Demandsecures communications, the expert did not testify that VPNOn Demand provides encryption on the allegedly securepathway between the VPN server and the private network,but only on the insecure portion of the pathway. Thus, histestimony effectively equates the “security” of the privatenetwork with the “encryption” provided by the VPN server.But the patent consistently differentiates between “security”and “encryption.” Both the claims and the specification of























the ′151 patent make clear that encryption is a narrower,more specific requirement than security. For example, thespecification states that encryption is just one possibleway to address data security. ′151 patent col. 1 ll. 49–50(“Data security is usually tackled using some form of dataencryption.” (emphasis added)). Additionally, one of theprimary differences between the steps performed in claim 1of the ′151 patent and the steps performed in claim 13 is thatclaim 13 requires creating a “secure” channel, while claim 1specifically requires that the channel be “encrypted.”

In light of these distinctions in the patent itself, thejury's implicit finding that VPN On Demand achieves theresult of protecting communications from eavesdroppingin “substantially the same way” as contemplated by the“encrypted channel” claim limitation was not supported byVirnetX's expert's testimony. See Crown Packaging, 559 F.3dat 1312. No reasonable jury could have determined that thesecurity provided by the VPN On Demand system—whichincludes encryption on the insecure paths but otherwise relieson the security provided by private networks—is equivalentto the “encrypted channel” required by claim 1 of the ′151patent. The district court's denial of JMOL as to that claimmust therefore be reversed.

III. Invalidity

[16] [17] [18] A party challenging the validity of a patentmust establish invalidity by clear and convincing evidence.See Microsoft Corp. v. i4i Ltd. P'ship, ––– U.S. ––––, 131S.Ct. 2238, 2242, 180 L.Ed.2d 131 (2011). Anticipation isa factual question that we review for substantial evidence.SynQor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1373(Fed.Cir.2013). A claim is anticipated only if each and everyelement is found within a single prior art reference, arrangedas claimed. See Net MoneyIN, Inc. v. VeriSign, Inc., 545 F.3d1359, 1369 (Fed.Cir.2008).

[19] Apple argues that the asserted claims are anticipatedby the Kiuchi reference. However, we conclude that thejury heard substantial evidence that at least one element ofeach asserted claim was missing from that reference. Withrespect *1324 to the ′135, ′504, and ′211 patents, the juryheard evidence that Kiuchi's proxy servers at least do notteach “direct communication” between a client and targetcomputer, which is sufficient to defeat a claim of anticipation.J.A. 2343–44. Specifically, the jury heard expert testimonythat Kiuchi's client-side and server-side proxies terminate the

connection, process information, and create a new connection—actions that are not “direct” within the meaning of theasserted claims. J.A. 2334–35. VirnetX distinguished suchproxy activities from the operation of NAT routers which—unlike proxy servers in the prior art-do not terminate theconnection.

Additionally, with respect to the ′151 patent, there wassubstantial evidence to support VirnetX's argument thatKiuchi fails to disclose the requirement that the DNS requestbe “sent by a client.” ′151 patent col. 46 l. 57. Apple arguedthat the “client-side proxy” of Kiuchi meets the “client”limitation, but there was evidence that the “client” of Kiuchiis actually a web browser, a component that is distinguishablefrom the client-side proxy. See J.A. 2341. Thus, the districtcourt did not err in denying Apple's JMOL motion withrespect to invalidity.

IV. Exclusion of Evidence

[20] At trial, to prove induced infringement, VirnetXattempted to show that Apple knew or was willfully blind tothe fact that its customers' use of its products would infringevalid patent claims. In defense, Apple sought to informthe jury that, after learning of VirnetX's allegations, Appleinitiated reexaminations against the asserted patents. Apple'srequests for reexamination resulted in initial rejections of theasserted claims at the United States Patent and TrademarkOffice (“PTO”). Apple offered these rejections as evidence ofApple's reasonably-held belief that the patents were invalid.The district court, however, excluded this proffer, concludingthat such non-final actions in pending reexaminations wouldbe “highly prejudicial evidence that risks misleading thejury.” VirnetX, 925 F.Supp.2d at 842.

[21] [22] We apply regional circuit law to evidentiaryissues. The Fifth Circuit reviews a district court's exclusion ofevidence under Federal Rule of Evidence 403 for “clear abuseof discretion” resulting in substantial prejudice. Wellogix, Inc.v. Accenture, L.L.P., 716 F.3d 867, 882 (5th Cir.2013). In thiscase, we cannot say that the district court abused its discretionin excluding this evidence.

Apple asserts that the rejections are relevant because theyestablish its good faith belief that the asserted claims areinvalid, thereby negating the requisite intent for inducement.Appellant's Br. 50 (citing Commil USA, LLC v. Cisco Sys.,Inc., 720 F.3d 1361, 1368–69 (Fed.Cir.2013)). As an initial

























matter, we note that this court's precedent has often warned ofthe limited value of actions by the PTO when used for suchpurposes. See, e.g., Hoechst Celanese Corp. v. BP Chems.Ltd., 78 F.3d 1575, 1584 (Fed.Cir.1996) (“[G]rant by theexaminer of a request for reexamination is not probative ofunpatentability.”); Acoustical Design, Inc. v. Control Elecs.Co., 932 F.2d 939, 942 (Fed.Cir.1991) (“[I]nitial rejectionby the [PTO] ... hardly justifies a good faith belief in theinvalidity of the claims.”). However, in this case we neednot decide whether our opinion in Commil justifies relianceon reexamination evidence to establish a good faith beliefof invalidity. Instead, we conclude that, regardless of theevidence's relevance to a fact at issue at trial, the districtcourt would still not have abused its discretion in findingthat the probative value was substantially outweighed by the*1325 risk of unfair prejudice to the patentee, confusion

with invalidity (on the merits), or misleading the jury, therebyjustifying exclusion under Federal Rule of Evidence 403.See, e.g., SynQor, 709 F.3d at 1380 (finding no abuse ofdiscretion for excluding non-final reexamination evidenceas being “confusing and more prejudicial than probative”);Callaway Golf Co. v. Acushnet Co., 576 F.3d 1331, 1342–43(Fed.Cir.2009) (finding the probative value of a copendingreexamination marginal and the effect likely to be highlyprejudicial). Thus, we affirm the district court's exclusion ofthis evidence.

V. Damages

[23] At trial, VirnetX's damages expert, Mr. Roy Weinstein,provided three reasonable royalty theories, which the districtcourt admitted over Apple's challenges under Daubert v.Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct.2786, 125 L.Ed.2d 469 (1993).

Weinstein's first approach began with the lowest sale price ofeach model of the accused iOS devices containing the accusedfeatures. J.A. 1616–23. Weinstein then applied a 1% royaltyrate to the base, derived from a VirnetX policy of seekingto license its patents for at least 1–2% of the entire valueof products sold and several allegedly comparable licenses.J.A. 1595, 1613–14. This theory yielded a $708 milliondemand, consisting of $566 million for products includingboth FaceTime and VPN On Demand, and $142 million forthose including only VPN On Demand. J.A. 1622–24, 1644.

Weinstein also offered a second damages theory, regardingFaceTime alone, relying on a mathematical theorem proved

by John Nash, a mathematician who proved a numberof results in game theory that have become important ineconomics and other fields. J.A. 1628–29. Nash was a co-winner of the 1994 Nobel Prize in Economics for some ofthis work, though not the theorem at issue here—publishedas “The Bargaining Problem” in 18 Econometrica 155–62(Apr.1950). Like other mathematical theorems, this theoremstates a number of premises and establishes a conclusionthat follows from those premises. In particular, under theconditions stated in the premises, where two persons bargainover a matter, there is a “solution” to the negotiation problemsatisfying stated conditions on a desirable result (bargain).That solution—in which “each bargainer get[s] the samemoney profit,” id. at 162—has come to be called the NashBargaining Solution.

Weinstein, invoking the Nash Bargaining Solution, testifiedthat “the parties [would have] split between themselves theincremental or additional profits that are associated with theuse of the patented technology.” J.A. 1630. Weinstein derivedthe profits associated with FaceTime from the revenuegenerated by the addition of a “front-facing” camera onApple's mobile devices. Without examining the applicabilityto this case of all the preconditions for the Nash BargainingSolution, he invoked the Solution as suggesting a 50/50split of those profits, and then modified that result by 10%,explaining that VirnetX would have received only 45% ofthe profit because of its weaker bargaining position, leaving55% for Apple. J.A. 1633, 1709. This calculation amountedto $588 million in damages for infringement by FaceTime.J.A. 1633–38.

Finally, Weinstein offered yet another theory for FaceTime,again relying on the Nash Bargaining Solution. This time, heclaimed that FaceTime “drove sales” for Apple iOS products.J.A. 1639. Weinstein extrapolated from a customer surveyto assert that 18% of all iOS device sales would not haveoccurred without the addition *1326 of FaceTime. J.A.1641. From that figure, he determined the amount of Apple'sprofits that he believed were attributable to the FaceTimefeature, and apportioned 45% of the profits to VirnetX,consistent with his previous application of the Nash theory.Using this approach, Weinstein arrived at damages of $5.13per unit, totaling $606 million in damages for FaceTime. J.A.1643.

Ultimately, the jury awarded VirnetX $368 million indamages. Apple now challenges each of Weinstein's damagestheories, as well as the district court's jury instruction on














damages. For the reasons stated below, we vacate the jury'sdamages award and remand for further proceedings consistentwith this opinion.

A. Jury Instruction

[24] [25] Upon a finding of infringement, “the court shallaward the claimant damages adequate to compensate for theinfringement, but in no event less than a reasonable royaltyfor the use made of the invention by the infringer.” 35U.S.C. § 284. The most common method for determining areasonable royalty is the hypothetical negotiation approach,which “attempts to ascertain the royalty upon which theparties would have agreed had they successfully negotiatedan agreement just before infringement began.” Lucent Techs.,Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed.Cir.2009).A reasonable royalty may be a lump-sum payment notcalculated on a per unit basis, but it may also be, and often is,a running payment that varies with the number of infringingunits. In that event, it generally has two prongs: a royalty baseand a royalty rate.

[26] No matter what the form of the royalty, a patenteemust take care to seek only those damages attributable tothe infringing features. Indeed, the Supreme Court long agoobserved that a patentee

must in every case give evidencetending to separate or apportion thedefendant's profits and the patentee'sdamages between the patented featureand the unpatented features, and suchevidence must be reliable and tangible,and not conjectural or speculative; orhe must show, by equally reliable andsatisfactory evidence, that the profitsand damages are to be calculated onthe whole machine, for the reason thatthe entire value of the whole machine,as a marketable article, is properlyand legally attributable to the patentedfeature.

Garretson v. Clark, 111 U.S. 120, 121, 4 S.Ct. 291, 28 L.Ed.371 (1884).

[27] Thus, when claims are drawn to an individualcomponent of a multi-component product, it is the exception,not the rule, that damages may be based upon the value ofthe multi-component product. LaserDynamics, Inc. v. QuantaComputer, Inc., 694 F.3d 51, 67–68 (Fed.Cir.2012). Indeed,we recently reaffirmed that “[a] patentee may assess damagesbased on the entire market value of the accused product onlywhere the patented feature creates the basis for customerdemand or substantially creates the value of the componentparts.” Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255,1268 (Fed.Cir.2013) (emphasis added) (quoting SynQor, 709F.3d at 1383). In the absence of such a showing, principles ofapportionment apply.

These strict requirements limiting the entire market valueexception ensure that a reasonable royalty “does notoverreach and encompass components not covered by thepatent.” LaserDynamics, 694 F.3d at 70; see also Garretson,111 U.S. at 121, 4 S.Ct. 291 (“[T]he patentee must show inwhat particulars his improvement has added to the usefulnessof the machine or contrivance.”). Thus, “[i]t is not enoughto *1327 merely show that the [patented feature] is viewedas valuable, important, or even essential to the use ofthe [overall product].” LaserDynamics, 694 F.3d at 68.Instead, this court has consistently held that “a reasonableroyalty analysis requires a court to ... carefully tie proof ofdamages to the claimed invention's footprint in the marketplace.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869(Fed.Cir.2010); see also Cornell Univ. v. Hewlett–PackardCo., 609 F.Supp.2d 279, 285 (N.D.N.Y.2009) (“The entiremarket value rule indeed permits damages on technologybeyond the scope of the claimed invention, but onlyupon proof that damages on the unpatented components ortechnology is necessary to fully compensate for infringementof the patented invention.”). Additionally, we have alsocautioned against reliance on the entire market value ofthe accused products because it “cannot help but skew thedamages horizon for the jury, regardless of the contributionof the patented component to this revenue.” Uniloc USA, Inc.v. Microsoft Corp., 632 F.3d 1292, 1320 (Fed.Cir.2011).

Apple argues that the district court misstated this law on theentire market value rule in its jury instruction. The districtcourt instructed the jury as follows:

In determining a royalty base, youshould not use the value of the entireapparatus or product unless either:

























(1) the patented feature creates thebasis for the customers' demand forthe product, or the patented featuresubstantially creates the value ofthe other component parts of theproduct; or (2) the product in questionconstitutes the smallest saleable unitcontaining the patented feature.

J.A. 2515–16. Apple argues that this instructioninappropriately created a second exception that would allowa patentee to rely on the entire market value of a multi-component product so long as that product is the smallestsalable unit containing the patented feature.

We agree with Apple that the district court's instructionmisstates our law. To be sure, we have previously permittedpatentees to base royalties on the “smallest salable patent-practicing unit.” LaserDynamics, 694 F.3d at 67. However,the instruction mistakenly suggests that when the smallestsalable unit is used as the royalty base, there is necessarily nofurther constraint on the selection of the base. That is wrong.For one thing, the fundamental concern about skewing thedamages horizon—of using a base that misleadingly suggestsan inappropriate range—does not disappear simply becausethe smallest salable unit is used.

Moreover, the smallest salable unit approach was intendedto produce a royalty base much more closely tied to theclaimed invention than the entire market value of the accusedproducts. Indeed, that language first arose in the Cornell case,where the district court noted that, rather than pursuing a“royalty base claim encompassing a product with significantnon-infringing components,” the patentee should have basedits damages on “the smallest salable infringing unit with closerelation to the claimed invention.” 609 F.Supp.2d at 287–88 (emphasis added). In other words, the requirement that apatentee identify damages associated with the smallest salablepatent-practicing unit is simply a step toward meeting therequirement of apportionment. Where the smallest salableunit is, in fact, a multi-component product containing severalnon-infringing features with no relation to the patentedfeature (as VirnetX claims it was here), the patentee must domore to estimate what portion of the value of that productis attributable to the patented technology. To hold otherwisewould permit *1328 the entire market value exception to

swallow the rule of apportionment. 2

2 As, indeed, it did in this case, where VirnetXeffectively relied on the entire market value ofthe iOS devices without showing that the patentedfeatures drove demand for those devices, simply byasserting that they were the smallest salable units.

[28] In reaching this conclusion, we are cognizant of thedifficulty that patentees may face in assigning value toa feature that may not have ever been individually sold.However, we note that we have never required absoluteprecision in this task; on the contrary, it is well-understoodthat this process may involve some degree of approximationand uncertainty. See generally Unisplay, S.A. v. Am. Elec. SignCo., 69 F.3d 512, 517 (Fed.Cir.1995).

We conclude that the district court's jury instruction regardingthe entire market value rule was legally erroneous. Moreover,that error cannot be considered harmless, as VirnetX's expertrelied on the entire value of the iOS devices as the “smallestsalable units,” without attempting to apportion the valueattributable to the VPN On Demand and FaceTime features.Thus, it is clear that the jury's verdict was tainted by theerroneous jury instruction.

B. Weinstein's First Approach: Royalty Base

[29] In addition to the erroneous jury instruction, Appleargues that the testimony of VirnetX's expert on the properroyalty base should have been excluded because it reliedon the entire market value of Apple's products withoutdemonstrating that the patented features drove the demand forthose products. For similar reasons to those stated above, weagree.

[30] [31] [32] The admissibility of expert testimony isgoverned by the Federal Rules of Evidence and the principleslaid out in Daubert v. Merrell Dow Pharmaceuticals, Inc.,509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).The district court's “gatekeeping obligation” applies to alltypes of expert testimony. Kumho Tire Co. v. Carmichael,526 U.S. 137, 147, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999).While questions regarding which facts are most relevant forcalculating a reasonable royalty are properly left to the jury,a critical prerequisite is that the underlying methodologybe sound. Here, it was not, and the district court shouldhave exercised its gatekeeping authority to ensure that onlytheories comporting with settled principles of apportionmentwere allowed to reach the jury.












Under Weinstein's first damages theory, he undisputedlybased his calculations on the entire cost of the iOS devices,ranging in value from $199 for the iPod Touch to $649for the iPhone 4S. Weinstein used the base price at whicheach product was sold, excluding only charges for additionalmemory sold separately. He called this the smallest salableunit. However, when asked whether this “remove[d] featuresthat aren't accused in this case,” Weinstein answered asfollows:

To the extent that the products thatwe're talking about here containadditional features, like additionalmemory, for instance, that Apple wascharging for, by using the lowestsaleable unit, I'm doing as much asI can to remove payments for thosefeatures....

J.A. 1620 (emphasis added). This testimony confirms thatWeinstein did not even attempt to subtract any otherunpatented elements from the base, which therefore includedvarious features indisputably not claimed by VirnetX, e.g.,touchscreen, camera, processor, speaker, and microphone, toname but a few. J.A. 1143–44.

*1329 VirnetX defends Weinstein's approach by insistingthat “software creates the largest share of the product's value”for these popular iOS products. Appellee's Br. 60. But thismisses the point. Whether “viewed as valuable, important,or even essential,” the patented feature must be separated.LaserDynamics, 694 F.3d at 68. Weinstein made no attemptto separate software from hardware, much less to separate theFaceTime software from other valuable software components.

[33] Indeed, the record supports Apple's contention thatWeinstein could have apportioned a smaller per unit figurefor FaceTime; namely, for the use of FaceTime on Maccomputers he used a royalty base of $29—the cost of thesoftware upgrade. J.A. 1619. And he used an even lowerestimate to represent the patentable contributions to iOSdevices in his application of the Nash Bargaining Solution,calculating incremental revenues due to FaceTime at $15 periOS device. J.A. 1634–36. The only reason Weinstein gavefor not using the $29 as the base for other iOS products wasthat Apple does not actually charge separately for FaceTime

on those devices. J.A. 1673–74. But, as explained above,a patentee's obligation to apportion damages only to thepatented features does not end with the identification of thesmallest salable unit if that unit still contains significant

unpatented features. 3

3 Because Apple has not challenged it, we offer noopinion on whether the $29 software upgrade isitself so closely related to the patented feature thatVirnetX may rely on its entire value in determiningthe proper royalty base for the FaceTime feature.

[34] Thus, VirnetX cannot simply hide behind Apple'ssales model to avoid the task of apportionment. This courtrejects the excuse that “practical and economic necessitycompelled [the patentee] to base its royalty on the price ofan entire [device].” LaserDynamics, 694 F.3d at 69. Thereis no “necessity-based exception to the entire market valuerule.” Id. at 70. On the contrary, a patentee must be reasonable(though may be approximate) when seeking to identify apatent-practicing unit, tangible or intangible, with a closerelation to the patented feature.

[35] In the end, VirnetX should have identified a patent-practicing feature with a sufficiently close relation to theclaimed functionality. The law requires patentees to apportionthe royalty down to a reasonable estimate of the value ofits claimed technology, or else establish that its patentedtechnology drove demand for the entire product. VirnetX didneither. As we noted in LaserDynamics:

Whether called “product valueapportionment” or anything else, thefact remains that the royalty wasexpressly calculated as a percentageof the entire market value of a [multi-component product] rather than apatent-practicing [component] alone.This, by definition, is an application ofthe entire market value rule.

Id. at 68. In calculating the royalty base, Weinstein did noteven try to link demand for the accused device to the patentedfeature, and failed to apportion value between the patentedfeatures and the vast number of non-patented featurescontained in the accused products. Because Weinstein did not“carefully tie proof of damages to the claimed invention's






footprint in the market place,” Uniloc, 632 F.3d at 1317(quoting ResQNet, 594 F.3d at 869), his testimony on theroyalty base under this approach was inadmissible and shouldhave been excluded.

C. Weinstein's First Approach: Royalty Rate

[36] In addition to challenging Weinstein's testimony withrespect to the royalty *1330 base, Apple argues that histestimony with respect to the royalty rate should also havebeen excluded.

After determining the royalty base, Weinstein applied a 1%royalty rate, based on six allegedly comparable licenses,as well as his understanding that VirnetX had a “policy”of licensing its patents for 1–2%. Apple argues that thelicenses on which Weinstein relied were not sufficientlycomparable to the license that would have resulted fromthe hypothetical negotiation. In particular, Apple points outthat two of the licenses predated the patents-in-suit. Both ofthose agreements related to technology leading to the claimedinvention, and one contained a software license in additionto a license for various patent applications. Apple furthercomplains that three of the other licenses were entered intoin 2012, a full three years after the date of the “hypotheticalnegotiation,” set in June 2009. Apple argues that at the timethose licenses were entered into, VirnetX was in a much betterfinancial position (and therefore a better bargaining position)than it was in 2009. Finally, Apple notes that the sixth licensecovered sixty-eight VirnetX patents, and was therefore muchbroader than the license to four patents Apple would beseeking in the hypothetical negotiation. It also equated to a0.24% royalty rate, which is significantly lower than the 1–2% rate Weinstein testified VirnetX would accept.

[37] We have held that in attempting to establish areasonable royalty, the “licenses relied on by the patenteein proving damages [must be] sufficiently comparable to thehypothetical license at issue in suit.” Lucent, 580 F.3d at 1325.“When relying on licenses to prove a reasonable royalty,alleging a loose or vague comparability between differenttechnologies or licenses does not suffice.” LaserDynamics,694 F.3d at 79. However, we have never required identity ofcircumstances; on the contrary, we have long acknowledgedthat “any reasonable royalty analysis ‘necessarily involves anelement of approximation and uncertainty.’ ” Lucent, 580 F.3dat 1325 (quoting Unisplay, 69 F.3d at 517). Thus, we havecautioned that “district courts performing reasonable royalty

calculations [must] exercise vigilance when considering pastlicenses to technologies other than the patent in suit,”ResQNet, 594 F.3d at 869, and “must account for differencesin the technologies and economic circumstances of thecontracting parties,” Finjan, Inc. v. Secure Computing Corp.,626 F.3d 1197, 1211 (Fed.Cir.2010).

With those principles in mind, we conclude that the districtcourt here did not abuse its discretion in permitting Weinsteinto rely on the six challenged licenses. To begin with, four ofthose licenses did indeed relate to the actual patents-in-suit,while the others were drawn to related technology. Moreover,all of the other differences that Apple complains of werepresented to the jury, allowing the jury to fully evaluate therelevance of the licenses. See J.A. 1600, 1650, 1678–82. Nomore is required in these circumstances.

Our case law does not compel a contrary result. In ResQNet,we faulted the district court for relying on licenses with “norelationship to the claimed invention,” nor even a “discerniblelink to the claimed technology.” 594 F.3d at 870. And inLucent, we rejected reliance on licenses from “vastly differentsituation[s]” or where the subject matter of certain agreementswas not even ascertainable from the evidence presented attrial. 580 F.3d at 1327–28. The licenses in this case—thoughnot immune from challenge—bear a closer relationship to thehypothetical negotiation that would have occurred.

This case is therefore much more akin to the circumstancesin Finjan and ActiveVideo *1331 Networks, Inc. v. VerizonCommunications, Inc., 694 F.3d 1312 (Fed.Cir.2012). InFinjan, there were several differences between the singlelicense relied upon and the hypothetical negotiation, mostnotably that Finjan did not compete with the licensee asit did with the defendant in the case, and that the licenseinvolved a lump sum rather than a running royalty. 626 F.3dat 1212. Nevertheless, we affirmed the damages award basedon that license because “[those] differences permitted the juryto properly discount the ... license.” Id. And in ActiveVideo,the damages expert relied on two agreements, one of whichpost-dated the hypothetical negotiations by two years, did notinvolve the patents-in-suit, and did not cover the technologiesin the case, while the other agreement covered both patentsand software services. 694 F.3d at 1333. Nevertheless, weconcluded that the “degree of comparability” of the licenseagreements was “[a] factual issue[ ] best addressed by crossexamination and not by exclusion.” Id. Similarly, here, thoughthere were undoubtedly differences between the licenses atissue and the circumstances of the hypothetical negotiation,





















“[t]he jury was entitled to hear the expert testimony anddecide for itself what to accept or reject.” i4i Ltd. P'ship v.Microsoft Corp., 598 F.3d 831, 856 (Fed.Cir.2010), aff'd –––U.S. ––––, 131 S.Ct. 2238, 180 L.Ed.2d 131 (2011).

Thus, we do not believe the district court abused its discretionby permitting Weinstein's testimony regarding the properroyalty rate based on these allegedly comparable licenses.

D. Weinstein's Second and ThirdApproaches: Nash Bargaining Solution

[38] Weinstein also offered two other estimates of thedamages attributable to the FaceTime feature. Both of theseestimates relied on the Nash Bargaining Solution. Weinsteinbegan by determining “incremental or additional profits thatare associated with the use of the patented technology.” J.A.1630. Weinstein used two different methods to estimate theincremental profits associated with the FaceTime feature.First, he used the front-facing camera as a proxy for theFaceTime feature, and calculated the profits that he believedwere attributable to the addition of the front-facing camera tocertain Apple products. And second, he relied on customersurveys to assert that 18% of iOS device sales would not haveoccurred but for the inclusion of FaceTime, and determinedthe profits attributable to those sales.

Having thus purported to determine those profits, Weinsteinthen testified about how the parties would split thoseincremental profits. To do this, he began with the assumptionthat each party would take 50% of the incremental profits,invoking the Nash Bargaining Solution, and then adjustedthat split based on “the relative bargaining power of the twoentities.” J.A. 1632.

Apple challenges both steps of Weinstein's analysis. First,Apple insists that Weinstein did not adequately isolate theincremental profits attributable to the patented technologyunder either approach. And second, Apple argues that theinvocation of a 50/50 starting point based on the NashBargaining Solution is akin to the “25 percent rule of thumb”that we rejected in Uniloc as being insufficiently grounded inthe specific facts of the case. Because we agree with Appleon the second point, we need not reach the first.

In recent years, numerous district courts have confrontedexperts' invocations of the Nash Bargaining Solution asa model for reasonable royalty damages, with *1332

varying results. Compare Robocast, Inc. v. Microsoft Corp.,No. 10–1055, 2014 WL 350062 (D.Del. Jan. 29, 2014)(excluding expert testimony based on Nash BargainingSolution because it was not sufficiently tied to the factsof the case); Dynetix Design Solutions, Inc. v. Synopsys,Inc., No. 11–5973, 2013 WL 4538210, at *4–5 (N.D.Cal.Aug. 22, 2013) (excluding expert testimony on royalty ratethat began from a starting point of a 50/50 split becausethe expert's methodology was “indistinguishable from 25%rule”); Oracle Am., Inc. v. Google Inc., 798 F.Supp.2d1111, 1119–21 (N.D.Cal.2011) (excluding testimony basedon Nash Bargaining Solution because it “would invite amiscarriage of justice by clothing a fifty-percent assumptionin an impenetrable façade of mathematics”) with MformationTechs., Inc. v. Research in Motion Ltd., No. 08–4990,2012 WL 1142537, at *3 n. 19 (N.D.Cal. Mar. 29, 2012)(declining to exclude Weinstein's testimony based on NashBargaining Solution because he used it only “as a check” inaddition to the Georgia–Pacific analysis, rather than in lieuof it); Gen–Probe Inc. v. Becton Dickinson & Co., No. 09–2319, 2012 WL 9335913, at *3 (S.D.Cal. Nov. 26, 2012)(permitting testimony based on Nash Bargaining Solutionbecause calculation was sufficiently tied to the facts ofthe case, “including the competitive environment and Gen–Probe's policy of exploiting its own patents”); Sanofi–AventisDeutschland Gmbh v. Glenmark Pharms. Inc., USA, No. 07–5855, 2011 WL 383861, at *12–13 (D.N.J. Feb. 3, 2011)(determining that expert's testimony asserting a 50/50 profitsplit was based on the specific facts of the case); AmakuaDev. LLC v. Warner, No. 05–3082, 2007 WL 2028186, at*20 (N.D.Ill. July 10, 2007) (permitting reliance on Nashbecause the “[d]efendants ha[d] not challenged the reliabilityof Nash's theories, and the assessment of whether the theorypersuasively can be applied in the context of this case is forthe jury”).

For the reasons that follow, we agree with the courts that haverejected invocations of the Nash theorem without sufficientlyestablishing that the premises of the theorem actually applyto the facts of the case at hand. The use here was just such aninappropriate “rule of thumb.”

Previously, damages experts often relied on the “25 percentrule of thumb” in determining a reasonable royalty rate ina hypothetical negotiation. That rule hypothesized that 25%of the value of the infringing product would remain with thepatentee, while the remaining 75% would go to the licensee.In Uniloc, however, we held the “25 percent rule of thumb”to be inadmissible “because it fails to tie a reasonable royalty
























base to the facts of the case at issue.” 632 F.3d at 1315. Inso doing, we noted that the rule did not differentiate betweendifferent industries, technologies, or parties. Id. at 1317.Rather, it assumed the same 25/75 royalty split regardless ofthe size of the patent portfolio in question or the value ofthe patented technology. Id. The problem was that the 25%rule made too crude a generalization about a vastly morecomplicated world.

The problem with Weinstein's use of the Nash BargainingSolution, though somewhat different, is related, and just asfatal to the soundness of the testimony. The Nash theoremarrives at a result that follows from a certain set of premises.It itself asserts nothing about what situations in the real worldfit those premises. Anyone seeking to invoke the theoremas applicable to a particular situation must establish that fit,because the 50/50 profit-split result is proven by the theoremonly on those premises. Weinstein did not do so. This was anessential failing in invoking the Solution. Moreover, we donot *1333 believe that the reliability of this methodology issaved by Weinstein's attempts to account for the unique factsof the case in deviating from the 50/50 starting point. As wenoted in Uniloc:

It is of no moment that the 25 percentrule of thumb is offered merely as astarting point to which the Georgia–Pacific [Corp. v. U.S. Plywood Corp.,318 F.Supp. 1116 (S.D.N.Y.1970) ]factors are then applied to bringthe rate up or down. Beginningfrom a fundamentally flawed premiseand adjusting it based on legitimateconsiderations specific to the factsof the case nevertheless results in afundamentally flawed conclusion.

632 F.3d at 1317. Indeed, Weinstein's thin attempts to explainhis 10% deviation from the 50/50 baseline in this casedemonstrates how this methodology is subject to abuse. Hisonly testimony on the matter was that although he “consideredother splits,” he ultimately determined that a 10% deviation—resulting in a 45/55 split—was appropriate “to reflect thefact that Apple would have additional bargaining power overVirnetX back in ... 2009.” JA. 1708–09. Such conclusoryassertions cannot form the basis of a jury's verdict. See Gen.Elec. Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139

L.Ed.2d 508 (1997) (noting that where an expert considersrelevant material but fails to provide an opinion explaininghow that material leads to his conclusion, “[a] court mayconclude that there is simply too great an analytical gapbetween the data and the opinion proffered”).

[39] More importantly, even if an expert could identify allof the factors that would cause negotiating parties to deviatefrom the 50/50 baseline in a particular case, the use of thismethodology would nevertheless run the significant risk ofinappropriately skewing the jury's verdict. This same concernunderlies our rule that a patentee may not balance out anunreasonably high royalty base simply by asserting a lowenough royalty rate. See Uniloc, 632 F.3d at 1320. Althoughthe result of that equation would be mathematically sound ifproperly applied by the jury, there is concern that the highroyalty base would cause the jury to deviate upward fromthe proper outcome. Id. Thus, in Uniloc, we noted that “[t]hedisclosure that a company has made $19 billion dollars inrevenue from an infringing product cannot help but skew thedamages horizon for the jury, regardless of the contributionof the patented component to this revenue.” Id. Similarly,here, the use of a 50/50 starting point—itself unjustified byevidence about the particular facts—provides a baseline fromwhich juries might hesitate to stray, even if the evidencesupported a radically different split.

Even the 25% rule had its share of support in the literature,which had observed that, at least as an anecdotal matter, a 25%royalty rate was a common starting point—and not far offfrom a common end point—of licensing negotiations acrossnumerous industries. See Uniloc, 632 F.3d at 1313 (citingRobert Goldscheider, John Jarosz and Carla Mulhern, Use ofthe 25 Per Cent Rule in Valuing IP, 37 les Nouvelles 123,132–33 (Dec.2002); Stephen A. Degnan & Corwin Horton, ASurvey of Licensed Royalties, 32 les Nouvelles 91, 95 (June1997)). Nevertheless, we rejected it, insisting on testimonytied to the particular facts. The same insistence is vital here.

We note that the Nash Bargaining Solution does offer at leastone noticeable improvement over the 25% rule: where the25% rule was applied to the entire profits associated with theallegedly infringing product, the Nash theory focuses only onthe incremental profits earned by the infringer from the use ofthe asserted patents. *1334 But while we commend partiesfor using a theory that more appropriately (and narrowly)defines the universe of profits to be split, the suggestionthat those profits be split on a 50/50 basis—even whenadjusted to account for certain individual circumstances—













is insufficiently tied to the facts of the case, and cannot besupported.

For each of the reasons stated above, we vacate the damagesaward and remand for further proceedings consistent with thisopinion.

AFFIRMED–IN–PART, REVERSED–IN–PART,VACATED–IN–PART and REMANDED

COSTS

Each party shall bear its own costs.

All Citations

767 F.3d 1308, 113 U.S.P.Q.2d 1112

End of Document © 2020 Thomson Reuters. No claim to original U.S. Government Works.

[2020] UKSC 37

On appeals from: [2018] EWCA Civ 2344

and [2019] EWCA Civ 38

JUDGMENT

Unwired Planet International Ltd and another

(Respondents) v Huawei Technologies (UK) Co Ltd

and another (Appellants)

Huawei Technologies Co Ltd and another

(Appellants) v Conversant Wireless Licensing

SÀRL (Respondent)

ZTE Corporation and another (Appellants) v

Conversant Wireless Licensing SÀRL (Respondent)

before

Lord Reed

Lord Hodge

Lady Black

Lord Briggs

Lord Sales

JUDGMENT GIVEN ON

26 August 2020

Heard on 21, 22, 23 and 24 October 2019

Appellants (Huawei) Respondents (Unwired)

Mark Howard QC Adrian Speck QC

Daniel Alexander QC Sarah Ford QC

Andrew Lykiardopoulos QC Isabel Jamal

Henry Forbes Smith Thomas Jones

James Segan

(Instructed by Allen & Overy

LLP (London) & Powell

Gilbert LLP)

(Instructed by EIP Legal &

Osborne Clarke)

Appellants (ZTE) Respondent (Conversant)

Michael Bloch QC Adrian Speck QC

Sarah Ford QC

Colin West

Isabel Jamal

Thomas Jones

(Instructed by Bristows LLP) (Instructed by EIP Legal)

1st Intervener (Apple Inc)

(written submissions only)

Hugh Mercer QC

(Instructed by Wilmer Cutler

Pickering Hale and Dorr LLP)

2nd Intervener (Ericsson)


James Marshall (Solicitor)

Xuyang Zhu (Solicitor)

(Instructed by Taylor Wessing

LLP (London))

3rd Intervener

(Qualcomm Inc)


Nicholas Saunders QC

(Instructed by Quinn Emanuel

Urquhart & Sullivan UK LLP

(London))

Appellants:-

(1) Huawei Technologies Co Ltd and another

(2) ZTE Corporation and another

Respondents:-

(1) Unwired Planet International Ltd and another

(2) Conversant Wireless Licensing SARL

JUDGMENT OF THE COURT:

1. These appeals raise several matters which are important to the international

market in telecommunications. The first (in all three appeals) is whether a court in

the United Kingdom (“UK”) has jurisdiction and may properly exercise a power,

without the agreement of both parties, to (a) grant an injunction to restrain the

infringement of a UK patent where the patented invention is an essential component

in an international standard of telecommunications equipment, which is marketed,

sold and used worldwide, unless the implementer of the patented invention enters

into a global licence of a multinational patent portfolio, and (b) determine royalty

rates and other disputed terms of such a global licence. Secondly, there is a dispute

(in the Conversant appeals: para 17 below) whether England is the appropriate

forum to determine those matters. Thirdly, (in the Unwired appeal: para 16 below)

there is a question as to the nature of the requirement that the licence, which the

owner of a Standard Essential Patent (“SEP”) must offer to an implementer, be non-

discriminatory. Fourthly, (again in the Unwired appeal) there is a question whether

the court should refuse to grant the owner of such a SEP an injunction on the ground

that it has breached EU competition law because it has not complied with the

guidance given in the judgment of the Court of Justice of the European Union

(“CJEU”) in Huawei v ZTE (Case C-170/13) EU:C:2015:477; [2015] 5 CMLR 14;

[2016] RPC 4. Fifthly, the appeals raise a more general question as to the

circumstances in which it is appropriate for an English court to grant a prohibitory

injunction or to award damages instead. Each member of the panel has contributed

to this judgment which addresses those matters.

Patents: the legal background

2. The starting point is the “patent bargain” which promotes innovation and

justifies the monopoly which a patent gives an inventor. The patent bargain is this:

an inventor receives the reward of a time-limited monopoly of the industrial use of

its invention in return for disclosing the invention and dedicating it to the public for

use after the monopoly has expired. See for example Actavis Group PTC EHF v

ICOS Corpn [2019] UKSC 15; [2019] Bus LR 1318, para 53. The patents conferring

such monopoly rights are national in scope and are usually conferred by national

governments. Legal questions as to their validity and their infringement are

determined by the national courts of the state which has conferred the patent right

or, in the case of a European patent, in a designated state. An inventor has to protect

its invention by applying for patents to the national authorities of each of those states

in which it seeks to obtain a monopoly (unless it obtains a patent from the European

Patent Office under the European Patent Convention which creates a nationally

enforceable patent within each designated state). It is not unusual for a national

patent for an invention to be upheld by the courts of one state and another national

patent for what in substance is the same invention to be invalidated by the courts of

another state. Within Europe, the same European patent can on occasion be upheld

by the courts in one signatory state but be invalidated in another. Much may depend

on the differing evidence led and arguments advanced in national legal proceedings.

3. In English law, once a patent owner has established that a patent is valid and

has been infringed, it is prima facie entitled to prevent further infringement of its

property rights by injunction. In Scots law an interdict provides a similar remedy.

We discuss this matter (the fifth issue) in more detail in paras 159-169 below. This

prima facie entitlement and the patent owner’s entitlement in other jurisdictions to

obtain similar prohibitory remedies form part of the backdrop to the contractual

arrangements which lie at the centre of these appeals.

4. To promote the development of global markets for telecommunications

products, including mobile phones, the infrastructure equipment and devices

produced by competing manufacturers need to communicate and inter-operate with

one another and the phones need to be available for use internationally by consumers

who travel with their phones from one jurisdiction to another. Two attributes of

patent law have militated against this development. First, the prima facie entitlement

of the owner of a patent to prohibit by injunction the use of its invention within a

national jurisdiction has the potential to disrupt a global market for equipment using

that invention. Secondly, the national nature of patent monopolies, which forces the

patent owner seeking to protect its monopoly to raise proceedings in individual

national courts, makes it very difficult, if not wholly impracticable, for a patent

owner to protect an invention which is used in equipment manufactured in another

country, sold in many countries and used by consumers globally. The first attribute

may give owners of patents included in an agreed standard excessive power to

disrupt an otherwise global market to the prejudice of manufacturers of equipment

using such inventions (“implementers”) and to exact excessive royalties for the use

of their inventions. The second attribute may enable implementers to avoid paying

an inventor a proper price for the use of its invention internationally. There was

therefore potential for the alternative evils of the abuse by a patent owner of its

monopoly rights and of the denial by implementers of the patent owner’s legitimate

rights. Organisations involved in the telecommunications industry have sought to

address those evils by establishing Standard Setting Organisations (“SSOs”) to

which they bring their most advanced technologies, promoting standards using those

technologies, and putting in place contractual arrangements to which we now turn.

SSOs aim to promote both technological innovation, which is made available to the

public, and competition between manufacturers, and thereby to benefit consumers

through more convenient products and services, interoperability, lower product

costs and increased price competition.

Standard Setting Organisations

5. Telecommunications SSOs have been established in China, Europe, India,

Japan (two), South Korea and the United States. The first telecommunications SSO

was the European Telecommunications Standards Institute (“ETSI”), which is a

French association formed in 1988 and which has adopted an intellectual property

rights (“IPR”) policy and contractual framework governed by French law. ETSI is

recognised as the SSO in the European Union telecommunications sector. It has over

800 members from 66 countries across five continents. Its purposes, as set out in

article 2 of its Statutes (5 April 2017), include the production of “the technical

standards which are necessary to achieve a large unified European market for

telecommunications [etc]” and “to contribute to world-wide standardization” in that

field. SSOs bring together industry participants to evaluate technologies for

inclusion in a new standard. ETSI is the relevant SSO as the patents which are the

subject of these appeals are the UK designations of European patents (“UK patents”)

which have been declared to ETSI as essential. The relevant standards in these

appeals are telecommunications standards for 2G (GSM), 3G (UMTS) and 4G

(LTE) telecommunications equipment and devices. The seven SSOs have

cooperated to form the 3rd Generation Platform Partnership (3GPP) to develop and

oversee those standards. ETSI through its secretariat manages the process by which

its members contribute to the development of international standards. Participants

in SSOs have an incentive to put forward their technology as a component of a

proposed standard as inclusion in the standard ensures a market for the technology.

Alternative technologies which are not included in a standard may well disappear

from the market. Participants also accept obligations to declare IPRs which might

potentially have an effect on the implementation of standards developed by the

SSOs.

6. Although it is necessary to examine the arrangements in more detail below,

it may be useful to give an overview of how ETSI deals with “Essential IPRs”, a

term which we equate with SEPs, when it devises those standards. Owners of

patented inventions which might be used in a telecommunications industry standard,

which is under preparation, declare their patents to ETSI. When considering whether

to include a technology in a standard, ETSI requires the patent owner to enter into

an irrevocable undertaking or contract with it to allow implementers of the standard

to obtain a licence to use the relevant patented technology on fair, reasonable and

non-discriminatory (“FRAND”) terms. If the declared patented invention is included

in a standard and it is not possible to make, sell, use or operate etc equipment or

methods which comply with the standard without infringing that IPR, it is treated as

an “Essential IPR”. The irrevocable undertaking to give a licence on FRAND terms

to implementers applies to any such Essential IPRs. But ETSI is not under an

obligation to check whether patents declared to be essential are in fact essential. Nor

does ETSI make any binding judgment on the validity or status of any such patents:

ETSI Guide on IPRs (19 September 2013) (“the Guidance”) para 3.2.1. Those are

matters for the relevant national courts. ETSI leaves it to the relevant parties, if they

so wish, to resolve those questions by court proceedings or alternative dispute

resolution: the Guidance para 4.3.

7. The purpose of the ETSI IPR Policy is, first, to reduce the risk that technology

used in a standard is not available to implementers through a patent owner’s

assertion of its exclusive proprietary interest in the SEPs. It achieves this by

requiring the SEP owner to give the undertaking to license the technology on

FRAND terms. Secondly, its purpose is to enable SEP owners to be fairly rewarded

for the use of their SEPs in the implementation of the standards. Achieving a fair

balance between the interests of implementers and owners of SEPs is a central aim

of the ETSI contractual arrangements.

The ETSI IPR Policy

8. The ETSI IPR Policy (“the IPR Policy”) is a contractual document, governed

by French law. It binds the members of ETSI and their affiliates. It speaks (clause

15(6)) of patents which are inevitably infringed by the sale, lease, use, operation etc

of components which comply with a standard as “Essential IPR”. By requiring an

IPR holder whose invention appears to be an Essential IPR to give an irrevocable

undertaking to grant a licence of the IPR on FRAND terms, it creates a “stipulation

pour autrui”, in other words an obligation which a third-party implementer can

enforce against the IPR holder. The IPR Policy falls to be construed, like other

contracts in French law, by reference to the language used in the relevant contractual

clauses of the contract and also by having regard to the context. In this case, that

context is both the external context and the internal context of the IPR Policy

document itself, such as the policy objectives declared in the document.

9. The external context includes (i) the Guidance (above) which ETSI has

produced on the operation of the IPR Policy, (ii) ETSI’s statutes (above), (iii) the

globalised market which ETSI and other SSOs were and are seeking to promote,

which we have discussed in para 4 above, and (iv) the fact that ETSI is a body

comprising experts and practitioners in the telecommunications industry who would

be expected to have a good knowledge of the territorial nature of national patents,

the remedies available to patent owners against infringement of their patents, the

need to modify by contract the application of patent law to promote the development

of a globalised market in telecommunications products, and the practice of the

industry in negotiating patent licensing agreements voluntarily.

10. The policy statements which provide the internal context include the

objectives set out in clause 3 of the IPR Policy. They include the statement in clause

3.1 that the IPR Policy:

“seeks to reduce the risk to ETSI, MEMBERS, and others applying

ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that

investment in the preparation, adoption and application of

STANDARDS could be wasted as a result of an ESSENTIAL IPR for

a STANDARD or TECHNICAL SPECIFICATION being

unavailable.”

That statement clearly reveals a policy of preventing the owner of an Essential IPR

from “holding up” the implementation of the standard. But that policy is to be

balanced by the next sentence of clause 3.1 which speaks of seeking a balance, when

achieving that objective, “between the needs of standardization for public use in the

field of telecommunications and the rights of the owners of IPRs.” The importance

of protecting the rights of the owners of IPRs is declared in the second policy

objective (clause 3.2) in these terms:

“IPR holders whether members of ETSI and their AFFILIATES or

third parties, should be adequately and fairly rewarded for the use of

their IPRs in the implementation of STANDARDS and TECHNICAL

SPECIFICATIONS.”

This objective seeks to address the mischief of “holding out” by which

implementers, in the period during which the IPR Policy requires SEP owners not

to enforce their patent rights by seeking injunctive relief, in the expectation that

licence terms will be negotiated and agreed, might knowingly infringe the owner’s

Essential IPRs by using the inventions in products which meet the standard while

failing to agree a licence for their use on FRAND terms, including fair, reasonable

and non-discriminatory royalties for their use. In circumstances where it may well

be difficult for the SEP owner to enforce its rights after the event, implementers

might use their economic strength to avoid paying anything to the owner. They may

unduly drag out the process of licence negotiation and thereby put the owner to

additional cost and effectively force the owner to accept a lower royalty rate than is

fair.

11. Having looked at context, we turn to the operative clauses of the IPR Policy.

A member of ETSI is obliged to use its reasonable endeavours to inform ETSI in a

timely manner of Essential IPRs during the development of a standard or technical

specification. If a member submits a technical proposal for a standard or technical

specification it is obliged to inform ETSI of its IPRs which might be essential (clause

4.1). Clause 4.3 confirms that this obligation of disclosure applies to all existing and

future members of a “patent family” and deems the obligation in respect of them to

be fulfilled if an ETSI member has provided details of just one member of the patent

family in a timely manner, while also allowing it voluntarily to provide information

to ETSI about other members of that family. A “patent family” is defined as “all the

documents having at least one priority in common, including the priority

document(s) themselves” and “documents” in this context means “patents, utility

models, and applications therefor” (clause 15(13)). The patent family thus extends

to patents relating to the same invention applied for and obtained in several

jurisdictions. It shows an intention for the arrangement to apply internationally. This

is important because the undertaking to grant a licence under clause 6, to which we

now turn, extends to all present and future Essential IPRs in that patent family.

12. The key to the IPR Policy is clause 6, which provides the legal basis on which

an owner of an Essential IPR gives an irrevocable undertaking to grant a licence and

thereby protects both ETSI and implementers against “holding up”. Clause 6.1

provides so far as relevant:

“When an ESSENTIAL IPR relating to a particular STANDARD or

TECHNICAL SPECIFICATION is brought to the attention of ETSI,

the Director-General of ETSI shall immediately request the owner to

give within three months an irrevocable undertaking in writing that it

is prepared to grant irrevocable licences on fair, reasonable and non-

discriminatory (‘FRAND’) terms and conditions under such IPR …”

It provides that the licences must at least cover the manufacture of equipment, the

sale, lease or other disposal of equipment so manufactured, and the repair, use or

operation of such equipment. FRAND licensing undertakings made pursuant to

clause 6 are intended to bind all successors-in-interest in respect of a SEP, and upon

transfer of a SEP the SEP owner is required to take steps to ensure that this is

achieved (clause 6.1bis). The undertaking made in respect of a specified member of

a patent family is applied to all existing and future Essential IPRs of that patent

family unless specified IPRs are excluded in writing when the undertaking is made

(clause 6.2). It is envisaged in the IPR Policy that this process will usually take place

while ETSI is working to create a standard because clause 6.3 provides that, if the

IPR owner does not grant the requested undertaking, relevant office-bearers in ETSI

will decide whether to suspend work on the relevant parts of the standard or

technical specification until the matter is resolved, or to submit any relevant standard

or technical specification for adoption. Similarly, if, before a standard or technical

specification is published, an IPR owner is not prepared to license an IPR, clause

8.1 provides for the adoption of a viable alternative technology for the standard or

technical specification if such a technology exists. If such technology does not exist,

clause 8.1 provides an option for work on the standard or technical specification to

cease. If the refusal to grant a licence occurs after ETSI has published a standard or

a technical specification, clause 8.2 provides the option of modifying the standard

so that the relevant IPR is no longer essential.

13. Clause 6bis instructs members of ETSI to use one of the declaration forms

annexed to the Policy. So far as relevant, the licensing declaration is an irrevocable

declaration by the declarant and its affiliated legal entities that, to the extent that

disclosed IPRs are or become and remain Essential IPRs, they (a) are prepared to

grant irrevocable licences in accordance with clause 6.1, and (b) will comply with

clause 6.1bis.

14. It appears from this brief review of the IPR Policy in its context that the

following conclusions may be reached. First, the contractual modifications to the

general law of patents are designed to achieve a fair balance between the interests

of SEP owners and implementers, by giving implementers access to the technology

protected by SEPs and by giving the SEP owners fair rewards through the licence

for the use of their monopoly rights. Secondly, the SEP owner’s undertaking, which

the implementer can enforce, to grant a licence to an implementer on FRAND terms

is a contractual derogation from a SEP owner’s right under the general law to obtain

an injunction to prevent infringement of its patent. Thirdly, the obtaining of

undertakings from SEP owners will often occur at a time when the relevant standard

is being devised and before anyone may know (a) whether the patent in question is

in fact essential, or may become essential as the standard is developed, in the sense

that it would be impossible to implement the standard without making use of the

patent and (b) whether the patent itself is valid. Fourthly, the only way in which an

implementer can avoid infringing a SEP when implementing a standard and thereby

exposing itself to the legal remedies available to the SEP owner under the general

law of the jurisdiction governing the relevant patent rights is to request a licence

from the SEP owner, by enforcing that contractual obligation on the SEP owner.

Fifthly, subject only to an express reservation entered pursuant to clause 6.2, the

undertaking, which the SEP owner gives on its own behalf and for its affiliates,

extends to patents in the same patent family as the declared SEP, giving the

implementer the right to obtain a licence for the technology covering several

jurisdictions. Finally, the IPR Policy envisages that the SEP owner and the

implementer will negotiate a licence on FRAND terms. It gives those parties the

responsibility to resolve any disputes as to the validity of particular patents by

agreement or by recourse to national courts for determination.

Industry practice in negotiating licensing agreements

15. The parties do not dispute that SEP owners, which have a large portfolio of

patents covering many countries, and implementers, which market their products in

many countries, would as a matter of practice voluntarily negotiate worldwide

licences, or at least licences from which a given territory is carved out while the rest

of the world is licensed. Implementers in the telecommunications industry are often

also owners of many SEPs and negotiate cross-licences with other implementers. As

Birss J explained in his judgment at first instance ([2017] EWHC 2988 (Pat); [2017]

RPC 19, para 544), no rational business would seek to license products country by

country if it could be avoided. This is, as Birss J said, in part because of the effort

required to negotiate and agree so many different licences and thereafter to keep

track of so many different royalty calculations and payments. It is also, as he

recognised, because businesses and consumers will move mobile handsets across

borders and an implementer would want to be able to bind the SEP owner into

allowing the entry of otherwise unlicensed handsets into the jurisdictions in which

the SEP owner had a valid SEP or valid SEPs. The Court of Appeal in its judgment

in the Unwired appeal ([2018] EWCA Civ 2344; [2018] RPC 20, paras 55-56) also

referred to the prohibitive cost of litigating the validity and essentiality of patents

territory by territory. These obvious considerations must have been part of the

factual background of which the expert framers of the IPR Policy were aware when

they devised that Policy.

The parties to the appeals

16. In this judgment the court addresses three appeals. In the first, the appellants

are Huawei Technologies Co Ltd (“Huawei (China)”), a Chinese company which

develops telecommunications technology and also implements the technology of

others, and Huawei Technologies (UK) Co Ltd (“Huawei (UK)”), a UK subsidiary

of Huawei (China) (collectively “Huawei”). The respondents are Unwired Planet

International Ltd and Unwired Planet LLC (collectively “Unwired”) which are

registered in Ireland and the United States of America respectively. They are both

intellectual property licensing companies (sometimes called “Patent Assertion

Entities”) which obtain income from the licensing of patents to companies which

make and sell telecommunications equipment. In 2013 Unwired acquired a portfolio

of patents and patent applications from Ericsson, which was a major developer of

telecommunications technology and a participant in standard setting. At the time of

trial, the portfolio covered 42 countries and comprised 276 patents and applications

declared as essential, of which 29 were UK patents or applications. Each of Ericsson

and Unwired made an ETSI IPR Licensing Declaration and a Specific IPR Licensing

Declaration in respect of patent families which encompass five of the UK patents on

which Unwired sued Huawei in England. Ericsson had licensed patents to Huawei,

including the UK patents which are the subject of these proceedings, but the licence

expired in 2012. Huawei’s continued use of the technology covered by the patents

in suit forms the backdrop to its appeal.

17. In the second and third appeals the appellants are respectively (i) Huawei and

(ii) ZTE Corporation (“ZTE (China)”), a Chinese company, and its UK subsidiary

ZTE (UK) Ltd (“ZTE (UK)”), collectively “ZTE” and both part of the ZTE group,

which is a global supplier of telecommunications and information technology

equipment. The respondent in both appeals is Conversant Wireless Licensing SÀRL

(“Conversant”), a company registered in Luxembourg and part of a Canadian group

of companies which is managed from the United States. It is an intellectual property

licensing company or Patent Assertion Entity, which licenses patents for royalty

income. Conversant acquired a portfolio of about 2,000 patents and patent

applications, covering over 40 countries, from Nokia in 2011. Conversant pleads

that the portfolio includes 28 patent families which are essential. It also pleads that

it and/or Nokia have given an ETSI IPR Licensing Declaration and a Specific IPR

Licensing Declaration in respect of its portfolio, which include the UK patents in

suit, and that Conversant gave a General IPR Licensing Declaration on 22 July 2014.

18. We also received short written interventions from Apple Inc, Ericsson and

Qualcomm Incorporated, in which three important players in the

telecommunications industry set out their views on industry practice and on the

principal issues of these appeals, including the interpretation of the IPR Policy. We

are very grateful for their assistance.

The legal proceedings

(i) Unwired v Huawei

19. Unwired commenced proceedings in England on 10 March 2014 against

Huawei, Samsung and Google, alleging infringement of the UK designation of six

European patents (“EP”), and requesting, among other remedies, an injunction to

prevent further infringement. Unwired began parallel proceedings in Germany at the

same time. Before the proceedings commenced, Unwired and Huawei had discussed

the possibility of Huawei buying some of Unwired’s patents but Huawei did not do

so. We discuss the further exchanges between Unwired and Huawei, both before the

proceedings commenced and during the course of those proceedings, when we

address the fourth issue (whether the court should refuse an injunction because of

any failure to comply with the guidance of the CJEU in Huawei v ZTE) in paras 128-

158 below.

20. In 2015 and 2016 three trials were held to determine whether the UK patents

in suit were valid and infringed. After a seven-day trial, Birss J held that one patent

(EP ‘744) was both valid and essential. His findings were upheld on appeal. In the

second trial, after a hearing over eight days, two patents (EP ‘287 and EP ‘514) were

held to be invalid, permission to appeal was granted, and the appeal was stayed in

July 2017. In the third trial, after a five-day hearing, a patent (EP ‘818) was held to

be valid and essential. Permission to appeal was granted and the appeal was stayed

in July 2017. The equivalent technical trial on the remaining UK SEP (EP ‘991) has

been postponed indefinitely.

21. At the same time Unwired brought proceedings in Germany, in which it had

mixed success and from which appeals are pending. In particular, the German

designation of EP ‘744 has been held to be valid but not infringed and an appeal on

infringement is pending. The German designations of EP ‘287 and EP ‘514 have

been held to be infringed but the Opposition Division of the European Patent Office

has held those patents to be invalid and appeals from those decisions to the EPO

Technical Board of Appeal are pending. The German designation of EP ‘818 has

been held to be valid and infringed and those judgments have been upheld on appeal.

The claims of EP ‘991 which were alleged to be infringed were revoked for the

German designation and an appeal against that judgment is pending, as is a

proceeding relating to the infringement of that patent.

22. Huawei (China) challenged several of Unwired’s patents in China. The Patent

Re-examination Board (“PRB”) has held that two Chinese family members of

Unwired’s European patents (EP ‘287 and ‘514) are invalid but those findings are

under appeal. The PRB has held the Chinese family member of EP ‘744 to be valid

and Huawei (China) has appealed. Huawei (China) has also challenged five other

patents, which Unwired declared to be SEPs; three have been upheld, one upheld in

part and one invalidated. Appeals from those decisions are pending.

23. As matters currently stand, and subject to continuing appeal proceedings in

Germany and China, Huawei has been held to be infringing one or more of

Unwired’s SEPs through its use of patented technology in both the UK and Germany

and in China challenges to two patents have failed.

24. Unwired settled with Google in 2015 and with Samsung in July 2016, after

the technical trials of the UK patents but before Birss J held the trial to determine

remedies for infringement of its UK patents, in an arrangement in which it granted

Samsung a global licence for its portfolio. Unwired was sold to the PanOptis group

of companies in July 2016. It was in serious financial trouble and was close to

insolvency. We address in more detail the Samsung settlement when we discuss the

third issue, namely what is required to make the licence offered by a SEP owner

non-discriminatory, in paras 105-127 below.

25. Between October and December 2016 Birss J held a trial to determine the

remedies for the infringement of Unwired’s valid SEPs. In his judgment of 5 April

2017 ([2017] EWHC 711 (Pat)), later reissued with revised redactions on 30

November 2017, [2017] EWHC 2988 (Pat)) he concluded, among other things, that

the FRAND undertaking was justiciable and enforceable in the English courts and

that an implementer who refused to take a licence on terms which the court held to

be FRAND exposed itself to an injunction for infringing a UK patent which the court

held to be valid and infringed. He held that a willing licensor, with Unwired’s

portfolio of patents, and a willing licensee, with almost global sales, acting

reasonably and on a willing basis would agree a worldwide licence. He concluded

that such parties would regard the negotiation of licences country by country as

“madness”. Having been presented with detailed expert evidence, Birss J determined

the rates of royalty and other terms of the licence, so far as they were in dispute, that

he considered to be FRAND. He held that in the circumstances a UK portfolio

licence, for which Huawei had argued, would not be FRAND but that a FRAND

licence between Unwired and Huawei had to be a worldwide licence.

26. In case he was wrong in his conclusion that only a worldwide licence was

FRAND, he also determined the rates and terms of a UK-only licence covering

Unwired’s UK portfolio.

27. The judge also made findings which are relevant to the third and fourth issues

which we discuss below. He held that the royalty rates which he settled for the global

licence were FRAND notwithstanding that they were higher than those in the licence

which Unwired gave to Samsung. He also held that Unwired had not breached article

102 of the Treaty on the Functioning of the European Union (“TFEU”) and that the

Huawei v ZTE case did not give Huawei a defence if it decided not to enter into the

global licence which he had settled.

28. In a hearing on 7 June 2017 Birss J granted an injunction to restrain

infringement of the relevant UK patents with a proviso that the injunction would

cease to have effect if the defendant entered into the FRAND global licence which

he had settled. He stayed the injunction pending appeals: [2017] EWHC 1304 (Pat);

[2017] RPC 20. Huawei has given certain undertakings to the court and has sought

to conduct itself according to those undertakings pending the determination of all

appeals in the English proceedings.

29. Huawei appealed against Birss J’s orders. On 23 October 2018 the Court of

Appeal (Lord Kitchin, and Floyd and Asplin LJJ) handed down a judgment

dismissing the appeal: [2018] EWCA Civ 2344; [2018] RPC 20. The court disagreed

with the judge’s conclusion that in any particular case there could only be one set of

FRAND terms. Ifa circumstance were to arise in which either a local or a global

licence would be FRAND, it would be for the SEP owner to choose which it

preferred because the SEP owner performed its obligation by offering a licence on

FRAND terms. But this aspect of the judge’s reasoning had no material effect on

the conclusion which he had reached because he had not erred in deciding that, in

the circumstances of this case, only a global licence would be FRAND.

(ii) Conversant v Huawei and ZTE

30. Conversant commenced proceedings against Huawei and ZTE in England in

July 2017. It seeks among other things a declaration that the global licence which it

offered the defendants is FRAND, alternatively, if that is not granted, a

determination of FRAND terms. It also seeks, after amending its pleadings,

injunctions in respect of UK patents found to be valid and infringed which will last

until the defendants enter into a licence which the court determines is FRAND.

Huawei and ZTE challenged the jurisdiction of the English courts on the grounds of

(a) a lack of jurisdiction to determine the validity of foreign patents and (b) forum

non conveniens. Conversant sought permission to serve the Chinese defendants out

of the jurisdiction. In a judgment handed down on 16 April 2018, Henry Carr J

dismissed the jurisdiction challenges and granted Conversant’s application to serve

out of jurisdiction: [2018] EWHC 808 (Pat); [2018] RPC 16. Commenting on Birss

J’s judgment, he held that the English courts had jurisdiction to enforce the contract

contained in the IPR Policy and to determine such terms of a licence as were in

dispute. Enforcing the contract and determining the terms of a FRAND licence did

not involve the English courts intruding on the jurisdiction of foreign courts in

relation to the validity or infringement of foreign patents. The licences determined

by the English courts could be adjusted to reflect the rulings of foreign courts on

such matters. The effect of this jurisdiction was to put the onus on an implementer

to challenge foreign patents once the court had found a UK SEP to be valid and

infringed. The royalty rates which the court could adopt would be based on evidence

of comparable real-life licences which could be expected to take into account the

competition policies of foreign states. He concluded on the basis of expert legal

evidence led before him that the Chinese courts did not have jurisdiction to

determine FRAND royalty rates in respect of non-Chinese patents without the

agreement of the parties. He regarded it as no more than speculative whether the

Chinese courts would have such jurisdiction, even if the parties consented, and he

rejected the plea of forum non conveniens.

31. Before the hearing in England on the jurisdiction challenges, Huawei and

ZTE raised proceedings in China to challenge the validity of Conversant’s declared

Chinese patents. After Henry Carr J handed down his judgment on the jurisdiction

challenge in England, Conversant raised proceedings in Germany against Huawei

(China) and ZTE (China) and their German subsidiaries claiming infringement of

its German patents.

32. In England, four UK patents were in suit but trials of two of them were stayed

once they had expired. After a technical trial of EP (UK) ‘659 Arnold J handed down

a judgment on 4 July 2019 in which he held that the patent was infringed but that

the patent was invalid for added matter. Conversant was given permission to appeal

and that appeal has now taken place. The technical trial of EP (UK) ‘177 and its

divisional family members (EP (UK) ‘722 and EP (UK) ‘206) took place in the

autumn of 2019. Birss J handed down a judgment on 8 January 2020 in which he

held that EP (UK) ‘177 and EP (UK) ‘722 were partially valid and infringed and

that EP (UK) ‘206 was invalid. An appeal is scheduled to take place in November

2020. A FRAND trial was listed for April 2020 with a time estimate of 15 days but

was adjourned due to the Coronavirus pandemic and to await the outcome of these

appeals.

33. Huawei and ZTE appealed the judgment of Henry Carr J on jurisdiction. On

30 January 2019, the Court of Appeal (Patten, Floyd and Flaux LJJ) handed down

judgment, dismissing the appeal: [2019] EWCA Civ 38; [2019] RPC 6. In the

Conversant appeals to this court therefore, Huawei’s and ZTE’s cases relate to the

preliminary questions of jurisdiction and forum non conveniens.

34. In the Chinese proceedings Huawei (China) and ZTE (China) challenged 11

Chinese patents. As at the date of the chronology which the parties provided, the

PRB had ruled that of those 11, eight are invalid, two are valid and one is partially

valid. Those decisions are under appeal. None of the Chinese patents held to be valid

are of the same families as the UK patents in suit. Huawei (China) and ZTE (China)

have raised separate proceedings in China with the aim of obtaining a determination

of FRAND royalty rates for Conversant’s Chinese patents if they are found to be

valid and essential. Huawei and ZTE have offered Conversant to allow the Chinese

courts to address global FRAND terms and rates for Conversant’s non-Chinese

patents in its portfolio. Conversant did not accept those offers and Henry Carr J held

that it acted reasonably in so doing.

35. In the German proceedings Conversant has claimed infringement of the

German designations of EP ‘177, EP ‘659 and EP ‘986. Hearings on those claims

took place on 18 June 2020 and Conversant has given undertakings which seek to

address the possibility of conflict between judgments of the English courts and the

German courts.

(iii) Overview of the markets and the proceedings

36. It is clear from the UK, German and Chinese proceedings that ascertaining

the validity, essentiality and infringement of national patents within a portfolio by

legal proceedings in several different jurisdictions involves the expenditure of a

prodigious amount of money and effort by both claimants and defendants, although

the proceedings in China are significantly less costly than those in the West. It is not

disputed that it would be impracticable for the parties to litigate these matters in each

of the countries which the portfolio covers. It also appears to be clear and it is not

disputed that within a substantial portfolio of patents there may be many patents,

which (if subject to examination in proceedings) would be found to be invalid in

whole or in part or not infringed by the technology used in the standard. These are

in our view relevant facts when one addresses the fair balance between the interests

of the SEP owner and the implementer which the IPR Policy seeks to achieve.

37. At the same time, Huawei and ZTE point out that only a very small proportion

of their worldwide sales are made in the UK. Huawei manufactures in China and its

principal market is in China. It asserts that 64% of its relevant sales occur in China

or in countries in which Unwired has no patent protection and is dependent on the

validity and infringement of Chinese patents for its claim for royalties. In relation to

the Conversant claim, Huawei asserts that the Chinese market accounts for 56% of

its group’s worldwide sales on which Conversant makes claims, and a further 19%

of such sales occur in countries in which Conversant has no patents, so that

Conversant’s claims in those countries depend on the Chinese patents. The UK

market comprises only 1% of Huawei’s sales of those products. Similarly, ZTE

manufactures in China and in the first six months of 2017 60% of the group’s

operating revenue was from China. At that time only 0.07% of its turnover was

generated in the UK. Thus, Huawei and ZTE submit that questions as to the validity

and infringement of Chinese patents, which are within the jurisdiction of the Chinese

courts, are of central importance to the value of a global licence of declared SEPs.

38. The force of this contention can be seen from the current state of play in

litigation which Huawei commenced in China, seeking declarations that

Conversant’s Chinese patents were invalid or were not essential. Of the 15 patents

which Conversant put forward for trial from its portfolio of Chinese patents, 14 were

held to be either invalid or not infringed and only one was found to be essential but

the trial of its validity has yet to take place.

39. In China, the Nanjing Intermediate People’s Court of Jiangsu Province in a

judgment dated 16 September 2019 in actions raised by Huawei ((2018) Su 01 Min

Chu No 232, 233 and 234) criticised Conversant for seeking to obtain a global rate

for its patents from a foreign judge without obtaining the view of the Chinese courts

on the validity and infringement of its Chinese patents.

40. As we have said, many of the foreign judgments have been appealed, but they

nonetheless show what is in fact common ground between the parties, that declared

SEPs within a portfolio are often invalid or not essential.

41. Before turning to the challenges raised in these appeals we set out briefly the

methodology which Birss J adopted in determining what was a FRAND licence

between Unwired and Huawei. An understanding of the nature of the exercise which

he undertook is important to an analysis of the relationship between the

determination of the terms of a FRAND licence on the one hand and, on the other,

the exclusive right of foreign courts to adjudicate on the validity and infringement

of their national patents.

(iv) Birss J’s methodology in the Unwired case

42. Birss J did not purport to determine the validity of any non-UK patent or to

find that any such patent was or was not a SEP. What he sought to do was to value

the portfolio as a whole, recognising that it was likely to include patents which were

not valid and patents which although valid were not infringed and so were not SEPs.

One possible method, called the “top down” method, was to take a view on what the

total aggregate royalty burden would be for all the intellectual property relating to

the standardised telecommunications technology in a product such as a handset. We

refer to that aggregate burden as “T”. Various companies in the industry had made

public statements as to the value of T. The task was then to share out the aggregate

royalty - T - across all licensors in proportion to the value of each licensor’s patent

portfolio as a share - “S” - of the total relevant patent portfolio essential to the

standard. By this method the FRAND rate for a portfolio was the product of T and

S (ie T x S).

43. The second method was to use comparable licences. These are licences

which parties engaged in the telecommunications industry had already agreed and

operated. As the experts who gave evidence recognised and Birss J accepted, many

patent licences including cross-licences may have different terms, including

different ways of calculating royalties, which make comparison difficult. The

experts had to adopt methods of unpacking the licences in order to make them

comparable and this introduced uncertainty into the exercise of comparison.

Unwired had obtained most of the patents in its portfolio from Ericsson. Thus,

Ericsson’s licences in the past had included all the SEPs in issue. That made

Ericsson’s licences particularly relevant as comparables. As Birss J explained (para

180), if the rate for Ericsson’s portfolio was E and the relative value of Unwired’s

portfolio to Ericsson’s portfolio was R, the Unwired rate is E x R.

44. Birss J accepted evidence that parties when agreeing licences of a substantial

portfolio of declared SEPs did not evaluate the importance of individual patents but

adopted methods involving patent counting. While it may be possible sometimes to

identify a patent which is a keystone invention underpinning the technical approach

on which a standard is based, none of Unwired’s patents were in that category.

Patent counting therefore involved identifying from among the declared SEPs those

which were to be treated as essential, which he described as “Relevant SEPs”. There

is a problem that more patents are declared to be essential than in fact are essential.

This problem of over-declaration is in part the result of the IPR Policy process which

requires patent owners to declare SEPs in a timely manner when a standard is being

prepared, as it encourages patent owners to err on the safe side by making a

declaration. In part, there are difficulties in interpreting both the patents and the

standards. In part also, patent claims are amended over time; different national

patents within a patent family will vary in scope around the world; and standards

themselves will vary over time. Further, the process of negotiating rates by counting

patents within a portfolio creates a perverse incentive to over-declare. This

phenomenon must be recognised and be taken into account when identifying

Relevant SEPs and calculating shares and ratios - S and R above. Significantly, Birss

J held, on the evidence led before him, that no-one in counting Relevant SEPs takes

account of the validity of the patents.

45. Much of Birss J’s impressive judgment involved an analysis of the competing

methods by which the parties sought to carry out this exercise. He also analysed a

number of licences which Unwired and Ericsson had agreed and identified those

licences to which Ericsson was a party on which he was prepared to place any weight

(para 462) in determining a rate for E in relation to each of the standards for handsets

and infrastructure.

46. Birss J also looked for guidance to decisions of courts in Japan and China

(paras 472-474). The Intellectual Property High Court in Japan used the top down

method described above (ie looking to the total royalty burden) in Apple Japan v

Samsung Electronics (Case No 2013 [Ne] 10043). In China, the Guangdong High

People’s Court in Huawei v Interdigital (2013), Guangdong High Ct Civ. Third

Instance No 305, fixed a FRAND rate for Interdigital’s portfolio in China by

unpacking other Interdigital licences. The Chinese court’s judgment supported

Huawei’s case that rates in China were low in comparison with rates elsewhere. But

of more significance for present purposes is the fact that the Japanese and Chinese

courts used methods similar to those presented to and adapted by Birss J, who relied

principally on the analysis of comparable licences and used the top down method as

a cross-check.

47. Birss J, having heard the evidence, including that of the parties’ experts, and

having analysed comparable international licences, concluded that on a FRAND

approach the royalty rates for China would be 50% lower than the rest of the world.

He divided the rest of the world into major markets and other markets and held that

the rate applicable in the latter markets would be the same as in China. He provided

a mechanism for the adjustment of royalties payable in major markets if successful

challenges to the validity or infringement of SEPs reduced the number of declared

SEPs in any of those markets (paras 582-592).

48. In deciding that a worldwide licence was FRAND Birss J had regard to

practice in the telecommunications industry to agree portfolio licences and observed

that every patent licence which the parties had produced in the trial bundles was a

worldwide portfolio contract, although some licences carved out a particular

territory while licensing the rest of the world (paras 524-534). Unwired’s portfolio

covered 42 countries and was large enough that it would not be practicable to fight

over every patent. A willing licensor of such a portfolio and a willing licensee such

as Huawei with global sales would agree on a worldwide licence (paras 538-543).

He recorded that it was common ground that the industry assessed patent families

rather than individual patents within a family (para 546). He thus drew on industry

practice in deciding that a FRAND licence would be a worldwide licence.

49. Against that background we turn to address the first issue.

Issue 1: Whether the English courts have jurisdiction and may properly exercise a

power without the agreement of both parties (a) to grant an injunction restraining

the infringement of a UK SEP unless the defendant enters into a global licence on

FRAND terms of a multinational patent portfolio and (b) to determine royalty rates

and other disputed items for a settled global licence and to declare that such terms

are FRAND.

50. The principal arguments which Huawei advances against the finding that it

must take a worldwide licence of the SEP owners’ relevant patents on FRAND terms

fixed by the English court in order to avoid an injunction restraining the

infringement of a UK SEP are as follows.

51. First, the English courts are not entitled to grant an injunction for the

infringement of a UK patent unless an implementer agrees to take a licence of

disputed foreign patents because this involves the implementer having to

compromise foreign rights, including the right to challenge (a) the validity of those

foreign patents and (b) the assertion that they are SEPs in the use of the standards in

the foreign jurisdictions. The validity or infringement of disputed foreign patents is

not justiciable in the courts of England and Wales. If the declared SEPs were foreign

patents, the relevant national courts alone can determine validity and infringement.

Foreign patents should be exposed to proper scrutiny by the national courts which

determine their validity and infringement. An English court cannot compel a

company to take a licence in respect of rights which may not exist. Thus, once an

implementer disputes the validity or infringement of a foreign patent, the English

courts have no jurisdiction to require the implementer to take a global licence to

avoid an injunction.

52. Secondly, the English courts in so acting are fixing the terms and the royalty

rates on which foreign patents are to be licensed without regard to what the foreign

courts with jurisdiction over the foreign patents would decide. English judges were,

in Mr Howard QC’s words, setting up the English jurisdiction as “a de facto

international or worldwide licensing tribunal for the telecommunications industry”.

In so acting the English courts were out of step with the approach of other national

courts.

53. Thirdly, a clear distinction falls to be drawn between what two global

telecommunications companies might do voluntarily in a commercial negotiation to

license patents to enable the conduct of a global business and what a national court

may impose on such companies. Companies may choose to compromise rights

which otherwise might be enforced and challenges to validity and infringement

which might otherwise be made; national courts cannot or should not impose such

compromises.

54. Fourthly, the IPR Policy, when properly construed, removes the SEP owner’s

right to obtain an injunction and limits its remedy to monetary compensation for

infringement of such patents as the SEP owner has established or the implementer

has agreed are valid and infringed. Once a SEP owner has established that a national

patent was valid and infringed, a national court can determine the terms of a licence

of such a patent if the parties cannot agree on those terms. The IPR Policy does not

overturn the legal right of an implementer to challenge the validity of a patent or to

seek to establish that the patent was not infringed. The IPR Policy, it is submitted,

is not focussing on an international portfolio of patents but addresses particular

SEPs, the validity and infringement of which, if challenged, would have to be

established in national courts. In construing the IPR Policy it is important to note

that ETSI has not established an international tribunal or forum to determine the

terms of global licences of portfolios of patents. This points against a construction

which would allow a national court to determine a global licence.

55. Fifthly, Huawei also submits that it is improper for an English court to

exclude the products of implementers, both handsets and infrastructure, from the

UK market as the result of an infringement of a SEP. Such a remedy is said to be

disproportionate. It is also said to be anomalous that an implementer should be liable

only for damages for infringing the established UK SEP if it chose to withdraw from

the UK market but that infringement of that patent should entitle the SEP owner to

receive global royalties if the implementer wished to market its products in the UK.

Huawei also argues that there is a fundamental difference between what commercial

parties may choose to do in their own interests and what an intellectual property

court can impose on them. It also expresses concern about the role of Patent

Assertion Entities in litigation to enforce SEPs.

56. Huawei also argues, based on general principles of English equity, that the

only appropriate remedy which the English courts should consider is to address only

the UK rights and to require an implementer to enter into a licence to pay in the

future the same royalty as it has awarded as damages for past infringement. This is

an argument which we address under Issue 5 in paras 159-169 below.

57. ZTE generally supports Huawei’s submissions but accepts that patent by

patent licensing is unlikely to be FRAND. It focusses its case on jurisdiction on

questions of comity and as a fall back argues forum non conveniens. It submits that

the determination by one national court of a worldwide FRAND licence raises issues

of comity as it amounts to interference with the patent regimes of other states which

adopt different approaches to the licensing of their national patents and as to what

terms would be FRAND. Such a licence could also impair a party’s ability to comply

with foreign law such as the competition law of a country in which it was active. Mr

Bloch QC submits that the English courts have placed themselves out on a limb

through their willingness to determine the terms of a compulsory licence of foreign

patents. We discuss in more detail his arguments on forum non conveniens under

issue 2 below (paras 92-104).

58. In addressing the submissions set out above, we recognise, as is undisputed,

(a) that questions as to the validity and infringement of a national patent are within

the exclusive jurisdiction of the courts of the state which has granted the patent and

(b) that in the absence of the IPR Policy an English court could not determine a

FRAND licence of a portfolio of patents which included foreign patents. It is the

contractual arrangement which ETSI has created in its IPR Policy which gives the

court jurisdiction to determine a FRAND licence and which lies at the heart of these

appeals. We therefore address first the fourth of Huawei’s submissions concerning

the interpretation of the IPR Policy.

59. In our view, the submission attaches too much weight to the protection of

implementers against “holding up”, which is the purpose stated in clause 3.1, and

fails to give due weight to the counterbalancing purpose of clause 3.2, which seeks

to secure fair and adequate rewards for SEP holders and which requires protection

against “holding out”. The suggestion that the IPR Policy removes a SEP owner’s

right to exclude implementers from a national market while requiring the SEP owner

to establish the validity and infringement of each of its alleged SEPs, in the absence

of a concession by the implementer, runs counter to the balance which the IPR

Policy seeks to achieve.

60. The submission also fails adequately to take into account the external context

which we have discussed. Operators in the telecommunications industry or their

assignees may hold portfolios of hundreds or thousands of patents which may be

relevant to a standard. The parties accept that SEP owners and implementers cannot

feasibly test the validity and infringement of all of the patents involved in a standard

which are in a sizeable portfolio. An implementer has an interest in taking its product

to the market as soon as reasonably possible after a standard has been established

and to do so needs authorisation to use all patented technology which is comprised

in the standard. The implementer does not know which patents are valid and

infringed by using the standard but needs authority from the outset to use the

technology covered by such patents. Similarly, the owner who declares a SEP or

SEPs does not know at this time which, if any, of its alleged SEPs are valid and are

or will be infringed by use pursuant to the developing standard. The practical

solution therefore is for the SEP owner to offer to license its portfolio of declared

SEPs. That is why it is common practice in the telecommunications industry for

operators to agree global licences of a portfolio of patents, without knowing

precisely how many of the licensed patents are valid or infringed. It is a sensible

way of dealing with unavoidable uncertainty. It ought to be possible for operators in

an industry to make allowance for the likelihood that any of the licensed patents are

either invalid or not infringed, at least in calculating the total aggregate royalty

burden in the “top down” method. By taking out a licence of an international

portfolio of generally untested patents the implementer buys access to the new

standard. It does so at a price which ought to reflect the untested nature of many

patents in the portfolio; in so doing it purchases certainty. The IPR Policy was agreed

against that background and the undertaking required from the SEP owner likewise

needs to be interpreted against that background.

61. We therefore do not construe the IPR Policy as providing that the SEP owner

is entitled to be paid for the right to use technology only in patents which have been

established as valid and infringed. Nor do we construe the IPR Policy as prohibiting

the SEP owner from seeking in appropriate circumstances an injunction from a

national court where it establishes that an implementer is infringing its patent. On

the contrary, the IPR Policy encourages parties to reach agreement on the terms of

a licence and avoid litigation which might involve injunctions that would exclude

an implementer from a national market, thereby undermining the effect of what is

intended to be an international standard. It recognises that if there are disputes about

the validity or infringement of patents which require to be resolved, the parties must

resolve them by invoking the jurisdiction of national courts or by arbitration. The

possibility of the grant of an injunction by a national court is a necessary component

of the balance which the IPR Policy seeks to strike, in that it is this which ensures

that an implementer has a strong incentive to negotiate and accept FRAND terms

for use of the owner’s SEP portfolio. The possibility of obtaining such relief if

FRAND terms are not accepted and honoured by the implementer is not excluded

either expressly or by necessary implication. The IPR Policy imposes a limitation

on a SEP owner’s ability to seek an injunction, but that limitation is the irrevocable

undertaking to offer a licence of the relevant technology on FRAND terms, which

if accepted and honoured by the implementer would exclude an injunction.

62. The IPR Policy is intended to have international effect, as its context makes

clear. This is underlined by the fact that the undertaking required of the owner of an

alleged SEP extends not only to the family of patents (subject only to reservations

entered pursuant to clause 6.2 of the IPR Policy) but also to associated undertakings,

as stated in the declaration forms in the IPR Policy. In imposing those requirements

and more generally in its requirement that the SEP owner makes an irrevocable

undertaking to license its technology, ETSI appears to be attempting to mirror

commercial practice in the telecommunications industry. We do not accept the

distinction which Huawei draws (in its third submission above (para 53)) between

voluntary agreements which operators in the telecommunications industry choose to

enter into on the one hand and the limited powers of a court on the other, since the

IPR Policy envisages that courts may determine whether or not the terms of an

offered licence are FRAND when they are asked to rule upon the contractual

obligation of a SEP owner which has made the irrevocable undertaking required

under the IPR Policy. It is to be expected that commercial practice in the relevant

market is likely to be highly relevant to an assessment of what terms are fair and

reasonable for these purposes. Moreover, the IPR Policy envisages that the parties

will first seek to agree FRAND terms for themselves, without any need to go to

court; and established commercial practice in the market is an obvious practical

yardstick which they can use in their negotiation. In our view the courts below were

correct to infer that in framing its IPR Policy ETSI intended that parties and courts

should look to and draw on commercial practice in the real world.

63. We now turn to the submission (para 51 above) that the English courts have

no jurisdiction to determine the terms of a licence involving disputed or potentially

disputed foreign patents. We disagree. If the judgments of the English courts had

purported to rule on the validity or infringement of a foreign patent, that would

indeed be beyond their jurisdiction. But that is not what Birss J and the Court of

Appeal have done. Instead, they looked to the commercial practice in the industry

of agreeing to take a licence of a portfolio of patents, regardless of whether or not

each patent was valid or was infringed by use of the relevant technology in the

standard, and construed the IPR Policy as promoting that behaviour.

64. We agree with the parties that the FRAND obligation in the IPR Policy

extends to the fairness of the process by which the parties negotiate a licence. If an

implementer is concerned about the validity and infringement of particularly

significant patents or a group of patents in a particular jurisdiction which might have

a significant effect on the royalties which it would have to pay, it might in our view

be fair and reasonable for the implementer to reserve the right to challenge those

patents or a sample of those patents in the relevant foreign court and to require that

the licence provide a mechanism to alter the royalty rates as a result. It might also

be fair and reasonable for the implementer to seek to include in the licence an

entitlement to recover sums paid as royalties attributable to those patents in the event

that the relevant foreign court held them to be invalid or not infringed, although it

appears that that has not been usual industry practice. Huawei suggests that it would

serve no purpose for a UK court to fix the terms of a global licence but to provide

for the alteration of royalties in the event of successful challenges to declared SEPs

overseas. This would, it suggests, reduce a licence to an interim licence. Again, we

disagree. Under a FRAND process the implementer can identify patents which it

wishes to challenge on reasonable grounds. For example, in the Conversant case, it

might well be argued by Huawei or ZTE at trial that the obligation of fairness and

reasonableness required any global licence granted by Conversant to include

provision to allow for Huawei or ZTE to seek to test the validity and infringement

of samples of Conversant’s Chinese patents, with the possibility of consequential

adjustment of royalty rates, given the importance of China as a market and a place

of manufacture. In other cases, such challenges may make little sense unless, at a

cost proportionate to what was likely to be achieved in terms of eliminating relevant

uncertainty, they were likely significantly to alter the royalty burden on the

implementer.

65. In the Unwired case, Huawei appears not to have sought any provision in the

draft global licence to alter the royalties payable if Unwired’s Chinese patents or a

relevant sample of them were successfully challenged. As we have said (para 47

above) the only adjustment mechanism which the draft licence provided was to the

royalties payable in relation to major markets. Huawei has not appealed the detailed

terms of that draft licence but has focussed its attack on the principle of a national

court determining that a global licence was FRAND without the consent of the

parties to such an exercise. That notwithstanding, it would be open to Huawei in

another case to seek to make such a reservation when negotiating or debating in

court the terms of a licence and to seek to persuade the court at first instance that the

reservation was appropriate in a FRAND process.

66. We turn to the submission (para 52 above) that the English courts are out of

step with foreign courts in requiring an implementer to enter into a global licence in

order to avoid an injunction for infringement of a national patent and in being

prepared to determine the disputed terms of a global FRAND licence. Huawei

suggests that the English courts are uniquely setting themselves up as a de facto

global licensing tribunal.

67. We are not persuaded by this submission. The Court of Appeal in the

Unwired case (paras 59-74) analysed the cases which the parties had presented to

the court and concluded that they did not support the contention that Birss J’s

approach lost sight of the territorial nature of patents and did not accord with the

approach taken in other jurisdictions. We agree. We recognise that Birss J has gone

further than other courts have done thus far in his willingness to determine the terms

of a FRAND licence which the parties could not agree, but that does not involve any

difference in principle from the approach of courts in other jurisdictions. Otherwise

his approach is consistent with several judgments in other jurisdictions, which, as

this is a developing area of jurisprudence, we now examine briefly. The principles

stated in those judgments contemplate that, in an appropriate case, the courts in the

relevant jurisdictions would determine the terms of a global FRAND licence.

68. The United States: the US Court of Appeals Federal Circuit has recognised

that an injunction against infringement of a national patent may be an appropriate

remedy if an implementer refuses to enter into a FRAND licence or unreasonably

delays in negotiating such a licence: Apple Inc v Motorola Inc 757 F 3d 1286 (Fed

Circuit 2014), Judge Reyna at para 49, p 1332, with whom Chief Judge Rader agreed

on this point. That case did not involve a proposed global FRAND licence. The court

did not pronounce an injunction in that case because it considered on the facts of the

case that the claimant had not suffered irreparable harm and that monetary

compensation would suffice. But the judgment is clearly inconsistent with the

submission that the standard setting regime which obliges a SEP owner to offer

FRAND licences confines the SEP owner to monetary remedies.

69. Three judgments in a dispute between Microsoft Inc and Motorola Inc show

the willingness of US courts to enforce the contractual obligation on a SEP owner

in a SSO policy to offer an implementer a global FRAND licence (the specific

obligations in the case were to offer a licence on reasonable and non-discriminatory,

ie RAND, terms, but no relevant distinction arises from that). The case was

concerned with obligations owed by a SEP owner in relation to a SSO, the

International Telecommunication Union (“ITU”), in relation to video coding

technology and the Institute of Electrical and Electronics Engineers (“IEEE”) in

relation to wireless local area network (“WLAN”). The relevant policies of the IEEE

and the ITU expressly envisaged the grant of worldwide licences, but as we have

construed the IPR Policy as encompassing the grant of such licences, that is not a

basis for distinguishing these cases. Motorola offered Microsoft a worldwide licence

of its portfolio of patents which might be SEPs but Microsoft disputed the offers,

arguing that Motorola had breached its obligation to offer a RAND licence because

its proposed royalty rates were unreasonable. Microsoft commenced proceedings in

the USA alleging breach of contract and Motorola counterclaimed that it had offered

a RAND licence and that Microsoft had rejected it and so had lost its entitlement to

a RAND licence. Several months after Microsoft initiated its lawsuit in the USA,

Motorola commenced proceedings in Germany to enforce its German patents.

Microsoft sought an anti-suit injunction to prevent the enforcement of any injunction

which the German courts might grant to enforce the European patents.

70. In Microsoft Corpn v Motorola Inc 871 F Supp 1089 (W D Wash 2012) Judge

Robart granted Microsoft a preliminary anti-suit injunction. In his reasoning he

recorded that a trial had been fixed in the USA to determine the RAND terms and

conditions of any licence which Motorola was obliged to provide, including a

RAND royalty rate. He stated (p 9):

“Thus, at the conclusion of this matter, the court will have determined

(1) whether Microsoft is entitled to a worldwide RAND license for

Motorola’s standard essential patents, including the European Patents,

(2) whether Microsoft has repudiated its rights to such a license, (3)

whether Motorola may seek injunctive relief against Microsoft with

respect to its standard essential patents, and (4) in the event Microsoft

is entitled to such a license, what the RAND terms are for such a

license.”

He found that the US action was dispositive of whether a German court might issue

an injunction against Microsoft. He also observed that his injunction did not prohibit

the pursuit of the German proceedings in so far as Motorola sought rulings on the

validity or infringement of the German patents and non-injunctive relief.

71. On appeal, the US Court of Appeals Ninth Circuit (Microsoft Corpn v

Motorola Inc 696 F 3d 872 (9th Cir 2012)) upheld Judge Robart’s decision. In her

judgment Circuit Judge Berzon explained that the US courts had jurisdiction in a

contract action - ie an action to enforce the obligation on the SEP owner to grant a

RAND licence and therefore not enforce its patents - to grant an anti-suit injunction

against enforcement of foreign patents covered by the contractual obligation. She

observed that the ITU contract encompassed all of Motorola’s SEPs worldwide and

stated (p10):

“When that contract is enforced by a US court, the US court is not

enforcing German patent law but, rather, the private law of the

contract between the parties. Although patents themselves are not

extraterritorial, there is no reason a party may not freely agree to

reservations or limitations on rights that it would have under foreign

patent law (or any other rights that it may have under foreign law) in

a contract enforceable in US courts.”

She went on to observe (p 12) that an anti-suit injunction was less likely to threaten

comity in the context of a private contractual dispute than in a dispute involving

public international law or government litigants.

72. The dispute then returned to Judge Robart. The Court of Appeal discussed

this decision (Microsoft Corpn v Motorola Inc. Case C10-1823JLR, 2013 US Dist

LEXIS 60233) in para 69 of its judgment in the Unwired case. As the parties

remained in disagreement as to the meaning of RAND, and that dispute needed to

be resolved in order to ascertain whether Motorola was in breach of its obligation to

license its patents on RAND terms, Judge Robart held a trial to determine a RAND

licensing rate and a RAND royalty range for Motorola’s worldwide portfolio of

patents. In his judgment he used evidence of real-world negotiations in simulating

the hypothetical negotiation to determine the rate and range. Mr Howard seeks to

distinguish this case on the basis that Microsoft had consented to the court’s

determination of the RAND terms. We do not consider that to be a material

distinction as Huawei has sought the determination of a FRAND licence and

because, in any event, the operation of the ETSI regime requires the SEP owner to

offer a FRAND licence and the implementer to decline it as preconditions of the

grant of an injunction.

73. We were referred to Apple Inc v Qualcomm Inc, Case No 3:17-cv-00108-

GPC-MDD, which is a judgment by District Judge Curiel in the US District Court,

Southern District of California given on 7 September 2017, which the Court of

Appeal discussed in paras 67 and 68 of its judgment. In this case Apple was the

implementer and Qualcomm the SEP owner. Apple challenged Qualcomm’s patents

in eleven lawsuits in several jurisdictions on the grounds of invalidity, non-

infringement and breaches of foreign competition law. Apple’s claim in the US

proceedings included assertions of breach of contract and challenges to Qualcomm’s

US patents on the ground of invalidity or non-infringement and also on grounds of

anti-trust/competition law. In a counterclaim Qualcomm sought a declaration that it

had complied with its irrevocable undertaking given pursuant to ETSI’s IPR Policy

and asked the court to hold that particular offers were FRAND or in the alternative

to determine worldwide FRAND royalty rates. Judge Curiel refused Qualcomm’s

application for an anti-suit injunction on grounds which included that the

determination of the global FRAND issue would not dispose of Apple’s foreign

claims, which challenged the foreign patents. The judge did not decide whether he

had authority to adjudicate upon Qualcomm’s claim for a worldwide FRAND

determination. His decision therefore is not inconsistent with Birss J’s judgment.

74. We were referred to orders of the US International Trade Commission and

the US Federal Trade Commission which treated offers by a SEP owner of global

licences to prospective licensees as FRAND. We were also referred to a District

Court judgment in Optis Wireless Technology LLC v Huawei Case No 2:17-cv-

00123-JRG-RSP but it has no bearing on the matters before us.

75. Germany: In Pioneer v Acer 7 O 96/14, which the Court of Appeal discussed

in para 63 of its judgment, the Regional Court of Mannheim in a judgment dated 8

January 2016 considered the geographical scope of a FRAND licence in the light of

the usual practices of the industry. Pioneer sought to restrain infringement of its

German patent. As it owned SEPs in many countries and as the defendant was active

in many countries it offered to grant the defendant’s parent company a worldwide

portfolio licence. The defendant implementer was prepared to take a licence only of

Pioneer’s German patent rights. The court held that the defendant’s offer was not

FRAND and granted an injunction against infringement. In so concluding it drew

on the jurisprudence of the CJEU in the application of competition law to the

practices of SEP owners and implementers, which emphasised the importance of

complying with usual industry practices, and held that in the light of such practices

the offer of a Germany-only licence was not FRAND. In accepting as FRAND the

SEP owner’s offer of a worldwide licence it stated (para 119):

“It does not matter that the offer calls for a worldwide portfolio license

and was addressed to the parent company as contract partner and not

to the Defendant itself. The [CJEU] relies essentially on the customary

practices current in the particular industry. In the view of the chamber,

it is the aim of the behavior program set forth by the [CJEU] to lead

the parties to license agreements which are otherwise also customary

in the particular business area. Evidently it was not the intent of the

[CJEU] to artificially bring about licence contracts stipulated for

individual countries or even separate licence contracts for each

individual SEP used when this does not comport with the business

practices of the particular business area. Such a market intervention

ignoring the market realities was not the purpose of the [CJEU]. In the

experience of the chamber, it corresponds to the usual practices in the

area of worldwide applicable standards to make license contracts for

SEPs in the case of a patent user active in many affected countries

with patent protection not individually for each country with the group

company of the patent user there for each individual patent, but instead

to stipulate worldwide portfolio licences with the group parent, which

the individual national group companies can then also utilize.”

This judgment is clearly consistent with and supports Birss J’s approach both of

looking to industry practice when determining the geographical scope of a FRAND

licence and of granting an injunction against infringement of a national patent if the

implementer is not prepared to accept or delays in accepting the offer of a FRAND

licence.

76. The judgment of the District Court of Düsseldorf in St Lawrence v Vodafone

4a 073/14 dated 31 March 2016, which is discussed in para 64 of the Court of

Appeal’s judgment, is consistent with and supports this approach. The SEP owner

offered a worldwide licence to the implementer, covering its affiliated companies,

in accordance with standard industry practice, and received a counter-offer from the

implementer, which was active worldwide, to license only its German patents. The

court held that the offer by the SEP owner of a worldwide licence would normally

be FRAND unless the circumstances of the case justified a different conclusion. The

court treated the SEP owner’s offer as “FRAND appropriate” and held that the

failure of the implementer to make a prompt counter-offer which was FRAND

exposed it to an injunction. The court also held that the implementer could reserve

the right to challenge the validity and infringement (“standard essentiality”) of the

SEP but could not delay concluding the contract of licence for that nor, because it

was not consistent with industry practice in licensing contracts, could the

implementer refuse to pay the licence royalties or claim repayment of earlier paid

royalties.

77. We accept Mr Speck QC’s submission that these judgments suggest that the

current approach of the German courts, in deciding whether to grant an injunction

to a SEP owner for the breach of a national patent, is, first, to look to see whether

the SEP owner’s offer of a licence is apparently FRAND. If it is not, they will not

grant an injunction. Secondly, the courts look at the implementer’s behaviour to see

if its response is FRAND before deciding whether to grant the injunction. Thirdly,

as the quoted para 119 of Pioneer v Acer illustrates, the courts look to see if the

parties’ behaviour conforms to industry practice, and if in the real world parties

would voluntarily agree a global portfolio licence, but the implementer refuses to

take such a licence, the way is open to the grant of an injunction.

78. It is also relevant to observe that in Germany, where the courts which

determine infringement of a patent are separate from those which determine its

validity, it is possible to obtain an injunction against infringement from one court

before the validity of a patent has been established in the other. Where there is an

obvious challenge to validity, such as a challenge to novelty, the German court

dealing with infringement may suspend an injunction pending determination of that

challenge. But otherwise an injunction may be granted without the patent owner

having established the validity of the relevant patent. In the UK, by contrast, it is

necessary first to establish both validity and infringement of the national patent, as

Birss J did in this case, before the courts will grant an injunction against

infringement.

79. Before leaving Germany, we record that we were referred to the recent case

of Huawei Technologies Co Ltd v Unwired Planet International Ltd 4b 0 49/14 G,

a judgment of the Higher Regional Court of Düsseldorf concerning the disclosure

of information relevant to financial remedies. We are satisfied that the judgment has

no bearing on the issue of jurisdiction which we are considering.

80. China: In para 73 of the Court of Appeal’s judgment it considered the

judgment of the Guangdong High People’s Court in Huawei v Interdigital (para 46

above). The Court of Appeal observed that the trial court’s holding that

Interdigital’s offers of a licence were not FRAND was not made on the basis that

the offers were for a worldwide licence and that that court appeared to think that a

worldwide licence of Interdigital’s SEPs would be both reasonable and feasible. The

High People’s Court upheld the trial court’s judgment. Before this court Mr Howard

states correctly that the Chinese court settled a FRAND royalty between Huawei

and Interdigital in relation to Interdigital’s Chinese SEP portfolio but he does not

suggest that the Chinese court ruled out a worldwide FRAND licence.

81. Mr Howard also referred this court to the judgment of the Nanjing

Intermediate People’s Court of Jiangsu Province in Huawei Technologies Ltd v

Conversant Wireless Licensing SarL (para 39 above) as an example of the Chinese

courts fixing a FRAND licence rate for Chinese patents only. In that case, as we

have said, the court criticised Conversant for having failed to test the Chinese patents

in its portfolio in the Chinese courts and for adopting the device (as it saw it) of

seeking a foreign court, ie the High Court in London, to fix a global rate of royalties.

Having regard to Conversant’s lack of success in selecting for testing Chinese

patents which were then held to be either invalid or not infringed (para 36 above)

one can readily understand the importance of establishing the quality of

Conversant’s Chinese patents. But the Chinese court was responding to Huawei’s

application for, among other things, the fixing of the Chinese rates and did not

criticise the idea of a court in an appropriate case having jurisdiction to fix royalty

rates in a worldwide FRAND licence.

82. Japan: We were referred to the judgment of the Intellectual Property High

Court of Japan in Samsung Electronics Co Ltd v Apple Japan Godo Kaisha (Case

No 2013 (Ne) 10043) dated 16 May 2014, which is discussed in para 72 of the Court

of Appeal’s judgment. As the Court of Appeal said, the Japanese court was not asked

to find and did not find that a global portfolio licence cannot be FRAND. Samsung

as a SEP owner under the ETSI regime had given an undertaking to enter into a

FRAND licence which Apple had not accepted. The case, in so far as relevant to the

issue we are considering, concerned the nature of the damages which Samsung could

recover from the infringement by Apple, the implementer, of Samsung’s Japanese

patent and in particular whether those damages could exceed the FRAND royalty.

The court in that case declined Samsung’s application for an injunction and focussed

on its claim for damages, but the judgment is not inconsistent with Birss J’s

approach.

83. The European Commission: In Motorola (Case AT.39985), which was issued

on 29 April 2014, the European Commission (“EC”) held that Motorola had

infringed article 102 of the TFEU, which is concerned with the abuse of a dominant

position, by seeking and enforcing an injunction against Apple in the German

Federal Court for Apple’s infringement of one of its German SEPs. In the course of

the proceedings Apple had offered to take a licence of relevant SEPs for Germany

on terms to be settled by the German courts, if necessary. Motorola argued that this

offer was not FRAND for several reasons, including that the offered licence was not

worldwide. The EC rejected Motorola’s argument, finding that Apple’s offer was

FRAND and that Motorola did not need an injunction to protect its commercial

interest. The Court of Appeal discussed this decision in paras 59 and 60 of its

judgment, suggesting that this was the high-water mark of Huawei’s case and that it

was based on the view that a licence limited to Germany was FRAND. But the Court

of Appeal noted that the EC was not expressing a concluded view that in other

circumstances a worldwide licence would not be FRAND. We agree. The Court of

Appeal referred to the subsequent communication by the EC to the European

Parliament, the Council and the European Social and Economic Committee dated

29 November 2017 (COM (2017) 712 final) (“the Communication”) setting out a

European approach to SEPs. The Communication in so far as relevant for the

question in hand endorsed portfolio licensing of products with a global circulation

in the interests of efficiency and recognised that a country-by-country approach

might not be efficient or conform to the established practice of the relevant industrial

sector. It acknowledged that there was no one-size-fits-all solution to identifying

what is FRAND, as what can be considered fair and reasonable varies from sector

to sector and over time. Mr Howard played down the Communication, pointing out

correctly that it did not purport to be a statement of the law and that it cited only

Birss J’s judgment as a legal authority in support of global licences. But in our view

the Communication represents the considered view of the EC regarding the proper

working of the ETSI regime and is consistent with judicial developments in

Germany and the United States which we have discussed above.

84. Conclusions about foreign jurisprudence on jurisdiction: In summary, the US

case law shows (i) a recognition that the court in determining a FRAND licence in

such cases is being asked to enforce a contractual obligation which limits the

exercise of the patent owner’s IP rights including its IP rights under foreign law; (ii)

a willingness in principle to grant an injunction against the infringement of a national

patent which is a SEP, if an implementer refuses a licence on FRAND terms; (iii) a

willingness in principle to determine the FRAND terms of a worldwide licence; (iv)

a practice of looking to examples of real life commercial negotiation of licences by

parties engaged in the relevant industry when fixing the FRAND terms of a licence;

and (v) a recognition that the determination of a FRAND licence by one national

court does not prevent an implementer from challenging foreign patents on the

grounds of invalidity or non-infringement in other relevant national courts.

Similarly, in Germany the developing case law shows (i) a recognition that a

worldwide licence might be FRAND and an implementer’s counter-offer of a

national licence confined to Germany might not be FRAND; (ii) a practice of having

regard to the usual practices of parties in the relevant industry when the court

determines the FRAND terms of a licence; and (iii) a willingness to grant an

injunction against infringement of a national patent if the court holds that a SEP

owner’s offer of a licence is FRAND and the implementer refuses to enter into it.

The courts in China have not rejected the proposition that a worldwide licence might

be FRAND, nor have the courts ruled that they do not have jurisdiction to determine

the FRAND terms of a worldwide licence with the consent of the parties, although

it remains a matter of speculation whether they would or would not accept

jurisdiction. We therefore reject the submission that Birss J was out of line with the

approach of courts in most significant jurisdictions.

85. We can then deal briefly with the various arguments which Huawei raises as

to the propriety of the English court’s grant of an injunction, which we have

summarised in para 55 above. Those arguments do not go to the existence of a

jurisdiction to grant an injunction where an implementer refuses a FRAND

worldwide licence but to the consequences of a court’s decision to grant such an

injunction in the exercise of a discretion. As such they overlap with our discussion

of the remedy of injunction (issue 5) in paras 159-169 below.

86. The first argument is that in the context of a global standard it is

disproportionate to exclude an implementer from the UK market unless it enters into

a worldwide licence of untested patents solely because it has infringed a UK patent.

But this argument fails to acknowledge that what the implementer is purchasing in

entering into such a licence with a SEP owner, which has a sufficiently large

international portfolio of patents, is not solely access to the UK market but certainty

that it has the ability legally to manufacture and sell products which comply with

the standard on a worldwide basis.

87. The second argument is that it is anomalous that an implementer should be

liable in damages only for the loss which a SEP owner incurs through the

infringement of one or more of its UK patents if the implementer chooses to

withdraw from the UK market rather than enter into a worldwide licence but that, if

the implementer wishes to market its products in the UK, it must pay global

royalties. It is premised on the misplaced equation of the fixing of a licence which

requires the payment of royalties for past and future use of patented technology and

the separate or alternative award by the court of damages for past infringement of a

UK patent. In our view this argument fails for two reasons. First, the award of

damages is not to be equated with the royalties that are paid under a contractual

licence. If an implementer agrees to enter into a FRAND licence which a SEP owner

offers, it is entering into a voluntary obligation. If the court awards damages it does

so on proof of the loss which the SEP owner has suffered through the infringement

of its patent or patents. It may be that the measure of damages which a court would

award for past infringement of patents would equate to the royalties that would have

been due under a FRAND licence. That does not alter the different nature of the

exercises which the court performs in (i) awarding damages and (ii) determining the

terms of a licence, which will usually contain many important provisions in addition

to the fixing of royalties. Secondly and in any event, as mentioned above, what the

implementer purchases in entering into a worldwide licence is the ability legally to

manufacture and sell standard-compliant products on a worldwide basis.

88. Thirdly, Huawei argues that there is a fundamental difference between what

parties may voluntarily do in reaching agreements with other participants in an

industry to compromise their rights for commercial and other pragmatic reasons and

what a court may properly compel them to do. In our view this argument is without

substance precisely because, as the US courts in particular have recognised, SSOs

such as ETSI have crafted a contractual arrangement which enables the courts to

determine a FRAND licence which, if accepted by the implementer, may prevent a

SEP owner from obtaining a prohibitory injunction to exclude the implementer’s

products from a particular jurisdiction. The implementer has the choice whether to

exclude the risk of injunction by accepting a FRAND licence.

89. Fourthly, Huawei points to the increasing involvement of Patent Assertion

Entities (“PAEs”) in the SEP licensing market and in litigation. Such entities

accumulate portfolios of patents from patent owners which were or are globally

active mobile phone companies, as Unwired has done from Ericsson and Conversant

from Nokia, and derive income from licensing them to implementers, if necessary

after pursuing expensive legal actions. Huawei expresses concern that PAEs may

abuse the power which ownership of SEPs gives. The EC in its Communication

which we mentioned in para 83 above noted the increased involvement of PAEs in

European litigation and the potential for harmful effects from the behaviour of

certain PAEs. In the US Supreme Court, Justice Kennedy in a concurring judgment

in eBay Inc v Mercexchange 547 US 388 (2006) has also expressed concerns about

the risk that PAEs which do not produce and sell goods may use injunctions as a

bargaining tool to charge exorbitant royalties. We are alive to that risk. In our view,

however, the rights which PAEs acquire through the transfer by assignment of

patents are the same as those which the assignor patent owners had held: assignatus

utitur iure auctoris - that which is assigned possesses for its use the rights of the

assignor or cedent. In some cases, the assignment of rights to a PAE and the

reservation of a share of the royalties which it negotiates or obtains through litigation

may be the most straightforward means by which a SEP owner can obtain value

from its intellectual property which is the fruit of its research and innovation, and if

the rights are treated as qualified in the hands of the PAE the consequence will be

that the SEP owner will not receive the reward which its investment merits. In the

exercise of those rights in pursuit of a FRAND licence the assignee PAE, like the

assignor patent owner, must act fairly and reasonably as FRAND is an obligation

which governs the process of negotiation as well as the outcome of the determination

of a FRAND licence. There is no legal basis under the general law for treating PAE

owners of SEPs differently from other SEP owners unless they have different

interests which merit different remedies. In so far as the risk of the grant of

injunctions may be necessary to achieve the balance which the IPR Policy promotes,

it is not evident that a PAE should necessarily be treated differently from a SEP

owner which manufactures and sells telecommunications equipment. SEP owners

have an interest in making sure that the ETSI regime is enforced. In any event the

point does not go to the question of jurisdiction.

90. Finally, Huawei submits that if a national court were prepared to determine

that a worldwide licence is FRAND and that entering into such a licence is a

precondition of the refusal of an injunction to prohibit infringement of a national

patent, there is a risk of forum shopping, conflicting judgments and applications for

anti-suit injunctions. In so far as that is so, it is the result of the policies of the SSOs

which various industries have established, which limit the national rights of a SEP

owner if an implementer agrees to take a FRAND licence. Those policies, which

either expressly or by implication provide for the possibility of FRAND worldwide

licences when a SEP owner has a sufficiently large and geographically diverse

portfolio and the implementer is active globally, do not provide for any international

tribunal or forum to determine the terms of such licences. Absent such a tribunal it

falls to national courts, before which the infringement of a national patent is asserted,

to determine the terms of a FRAND licence. The participants in the relevant

industry, which have pragmatically resolved many disputes over SEPs by the

practice of agreeing worldwide or international licences, can devise methods by

which the terms of a FRAND licence may be settled, either by amending the terms

of the policies of the relevant SSOs to provide for an international tribunal or by

identifying respected national IP courts or tribunals to which they agree to refer such

a determination. In the final analysis, the implementers and the SEP owners in these

appeals are inviting a national court under the current IPR Policy to rule upon and

enforce the contracts into which the SEP owners have entered. If it is determined

that the SEP owners have not breached the FRAND obligation in the irrevocable

undertakings they have given, they seek to enforce by obtaining the grant of

injunctive relief in the usual way the patents which have been found to be valid and

to be infringed. The English courts have jurisdiction to rule upon whether the UK

patents in suit are valid and have been infringed, and also have jurisdiction to rule

on the contractual defence relied upon by the implementers based upon the true

meaning and effect of the irrevocable undertaking the SEP owners have given

pursuant to the ETSI regime. In agreement with Birss J (para 793), we observe that

Huawei is before this court without a licence in respect of infringed UK patents

when it had the means of obtaining such a licence. Subject to the plea of forum non

conveniens, to which we now turn, this court has no basis for declining jurisdiction.

91. Similarly, ZTE’s submission, that if a global licence is FRAND, a FRAND

process would identify the courts of China as the appropriate courts to fix the terms

of such a licence, is an argument which we address under issue 2 below.

Issue 2: Forum non conveniens

92. This issue arises only in the Conversant appeals, where it has two limbs of

unequal size. The first and larger limb, which may be said to be a forum conveniens

issue strictly so called, is whether the High Court should have set aside service out

of the jurisdiction on the two Chinese defendants (Huawei (China) and ZTE (China))

and permanently stayed the proceedings as against the two English defendants

(Huawei (UK) and ZTE (UK)) on the ground that China rather than England was

the appropriate forum. The second much smaller limb, which may better be labelled

case management, is whether the claim for injunctive relief in the English

proceedings should be temporarily stayed or otherwise case-managed so as to enable

relevant matters in dispute first to be litigated to a final conclusion in pending

proceedings in the Chinese courts. We will address them in turn.

93. Both these issues necessarily proceed upon the assumption, with which we

agree, that, contrary to the appellants’ main case, the English court has jurisdiction

to settle a global licence on FRAND terms for a multinational SEP portfolio. This is

mainly because issues as to a global licence need to be determined so as to enable

the court to adjudicate upon a contractual defence to the enforcement of an English

patent by injunction. Nonetheless the main plank in the appellants’ case on forum

conveniens is that, in substance, the real dispute between the parties is as to the terms

of a FRAND licence, with the claim to enforce English patents by injunction being

no more than a convenient peg upon which to hang the dispute so as to attract

English jurisdiction, which it is said (by Huawei and ZTE) that Conversant would

prefer to the less generous outcome likely to be obtained in the Chinese courts.

94. Leaving aside questions as to the burden of proof, at common law the forum

conveniens doctrine requires the English court to decide whether its jurisdiction or

that of the suggested foreign court is the more suitable as a forum for the

determination of the dispute between the parties. The traditional way in which this

question has been framed speaks of the “forum in which the case can be suitably

tried for the interests of all the parties and for the ends of justice” (per Lord Collins

JSC in Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC

7; [2012] 1 WLR 1804, para 88, adopting the language of Lord Goff in Spiliada

Maritime Corpn v Cansulex Ltd (“The Spiliada”) [1987] AC 460). The requirement

in complex litigation to define, at the outset, what is “the case” to be tried runs the

risk that the court will by choosing a particular definition prejudge the outcome of

the forum conveniens analysis, as the Court of Appeal decided had occurred at first

instance in In re Harrods (Buenos Aires) Ltd [1992] Ch 72. Harman J had

characterised “the case” as a petition under the English Companies Act for relief for

unfair prejudice in the conduct of the affairs of an English registered company,

which made it “blindingly obvious” to him that England was the appropriate forum.

But the company carried on business entirely in Argentina. The matters complained

of all occurred there, where there was a parallel jurisdiction to provide relief under

Argentinian legislation. So the Court of Appeal preferred Argentina as the

appropriate forum. Like the Court of Appeal in the present case, we therefore prefer

for present purposes to identify the dispute between the parties as the matter to be

tried, lest reference to “the case” should introduce undue formalism into the analysis

of a question of substance.

95. The question how the dispute should be defined has been the main bone of

contention between the parties, both in this court and in the courts below. Is it, as

the appellants say, in substance a dispute about the terms of a global FRAND

licence, or is it, as the respondent maintains, both in form and in substance about the

vindication of the rights inherent in English patents, and therefore about their

validity and infringement, with FRAND issues arising only as an aspect of an

alleged contractual defence? Thus far the respondent has had the better of that

argument, both before the judge and the Court of Appeal. At the heart of the analysis

which has thus far prevailed is the recognition that the owner of a portfolio of patents

granted by different countries is in principle entitled to decide which patents (and

therefore in which country or countries) to seek to enforce, and cannot be compelled

to enforce patents in the portfolio granted by other countries merely because a

common FRAND defence to the enforcement of any of them raises issues which

might more conveniently be determined in another jurisdiction than that which

exclusively regulated the enforcement of the chosen patents.

96. Were it necessary to choose between the rival characterisations of the

substance of the dispute, we would have agreed with the choice made by the courts

below. But we think, like the judge, that there is a compelling reason why the

appellants must fail on this issue which would apply even if the appellants’

characterisation had been correct, so that the dispute was in substance about the

terms of a global FRAND licence. A challenge to jurisdiction on forum conveniens

grounds requires the challenger to identify some other forum which does have

jurisdiction to determine the dispute. Even in a case where permission is required to

serve out of the jurisdiction, so that the burden then shifts to the claimant to show

that England is the more appropriate forum, that still requires there to be another

candidate with the requisite jurisdiction. In the present case, China is the only

candidate which the appellants have put forward. There may be others, but the court

is not required to carry out its own independent search, and such other jurisdictions

as might exist in theory may not be remotely convenient.

97. After hearing extensive expert evidence, the judge found that the Chinese

courts do not, at present, have jurisdiction to determine the terms of a global FRAND

licence, at least in the absence of agreement by all parties that they should do so.

Even in the event of such an agreement, he described the prospect that the Chinese

courts would embark on the exercise as no more than speculative. Notwithstanding

the admission of fresh evidence on this issue, the Court of Appeal reached the same

conclusion. In sharp contrast, we have decided, for the reasons set out above, that

the English court does have such a jurisdiction, even in the absence of consent by

the parties, and it has of course exercised that jurisdiction in the Unwired case.

Directions have been given in the Conversant case (subject to the outcome of this

appeal) for it to be done again. Furthermore, against the speculative possibility that

the Chinese courts might accept jurisdiction to settle a global FRAND licence by

consent, there is the judge’s finding that Conversant had acted reasonably in refusing

to give its consent, for reasons connected with the conditions which the appellants

sought to impose, a conclusion which was not met with any persuasive challenge in

this court.

98. We therefore agree with the judge that the forum conveniens challenge falls

at this first hurdle, notwithstanding the fresh evidence introduced in the Court of

Appeal. Had it not done, a number of further issues would have arisen, in particular

arising from the application of the Owusu principle (Owusu v Jackson and Others

((Case C-281/02) EU:C:2005:120; [2005] QB 801 (ECJ)) to the English defendants,

set against the possibility that there might be a reflective application of article 24 of

the Brussels I Regulation (Regulation (EU) 1215/2012 of 12 December 2012), and

the recent decision of this court in Lungowe v Vedanta Resources plc [2019] UKSC

20; [2019] 2 WLR 1051. But we consider that those issues, which may well arise in

future if and when other countries decide to exercise jurisdiction to settle global

licences, would best be determined in a context when they might be decisive.

99. We therefore turn to case management. The English courts have wide case

management powers, and they include the power to impose a temporary stay on

proceedings where to do so would serve the Overriding Objective: see CPR 1.2(a)

and 3.1(2)(f). For example a temporary stay is frequently imposed (and even more

frequently ordered by consent) in order to give the parties breathing space to attempt

to settle the proceedings or narrow the issues by mediation or some other form of

alternative dispute resolution. A temporary stay may be ordered where there are

parallel proceedings in another jurisdiction, raising similar or related issues between

the same or related parties, where the earlier resolution of those issues in the foreign

proceedings would better serve the interests of justice than by allowing the English

proceedings to continue without a temporary stay: see Reichhold Norway ASA v

Goldman Sachs International [2000] 1 WLR 173. But this would be justified only

in rare or compelling circumstances: see per Lord Bingham MR at pp 185-186, and

Klöckner Holdings GmbH v Klöckner Beteiligungs GmbH [2005] EWHC 1453

(Comm).

100. No such application has thus far been made in the Conversant case. At first

instance the defendants went all-out to obtain the permanent termination of the

proceedings, by having service on the Chinese defendants set aside, and by having

the proceedings against the English defendants permanently stayed. The whole basis

of their application was that the Chinese courts were the appropriate forum to decide

the whole dispute, or that the dispute should be split into its Chinese and English

parts, leaving only (in England) the question what royalty or compensation for

infringement they should pay in relation to the English patents.

101. At the hearing of case management issues consequential upon Henry Carr J’s

judgment, the appellants did suggest that the FRAND trial should be stayed to await

the outcome of pending proceedings in China. The judge provided some

accommodation by directing that the FRAND trial should not take place before

November 2019, so that the outcome of the Chinese proceedings, to the extent

relevant, could be factored into the determination of a FRAND global licence.

102. A case management alternative was put forward by Huawei in the Court of

Appeal, but still on the basis that the global FRAND issues could and therefore

should first be determined in China, before any determination in England of the

claim for infringement of UK patents. It was rejected by the Court of Appeal first

because the pending proceedings in China sought only to determine the terms of a

FRAND licence for Conversant’s Chinese patents, not a global licence which would

extend to the use of its English patents, and secondly because the age of

Conversant’s portfolio militated against allowing further delay.

103. In this court the case management solution was briefly resurrected during

argument, although not as a distinct ground of appeal. Meanwhile the FRAND trial

had by then been fixed to start in April 2020 and was no doubt the subject of

intensive preparation. It has since then been adjourned due to the Coronavirus

pandemic. We think it sufficient to confine ourselves to the issue whether the Court

of Appeal was wrong to refuse any case management solution, for the reasons it

gave, as summarised above.

104. In our view the Court of Appeal’s reasons cannot be faulted. We have already

concluded that the prospect that the Chinese courts might determine a global

FRAND licence, even if the parties consented, is no more than speculative. The

current proceedings in China relate only to Conversant’s Chinese patents, and

Conversant has been held to have acted reasonably in refusing (even if it were

possible) to confer a wider global jurisdiction on the Chinese courts. Further the

adverse commercial effect of further delay in the enforcement of Conversant’s

elderly patents is a factor which, in a case management context, the Court of Appeal

was plainly entitled to take into account, and to attribute such weight as it thought

fit.

Issue 3: FRAND and non-discrimination

105. Huawei submits that a further error in the judgment of Birss J at first instance

and in the judgment of the Court of Appeal in the Unwired case relates to the non-

discrimination limb of Unwired’s FRAND undertaking. This was dealt with under

Ground 2 in the judgment of the Court of Appeal (paras 130-210). Huawei relies on

the Samsung licence entered into by Unwired on 28 July 2016 (“the Samsung

licence”) as a relevant comparator for the purpose of working out the FRAND

licence terms which should have been offered to Huawei by Unwired. The

worldwide royalty rate under the Samsung licence was much lower, and hence much

more favourable to the licensee, than the worldwide royalty rate which the judge

found was required to be on offer to Huawei pursuant to Unwired’s FRAND

undertaking. Huawei submits that the judge should have held that Unwired’s

FRAND undertaking meant that Unwired should have offered Huawei a worldwide

royalty rate which was as favourable as that agreed with Samsung.

106. Huawei’s case is that the non-discrimination limb of the undertaking must be

given its ordinary and unadorned meaning, which is that like situations must be

treated alike and different situations differently. The non-discrimination limb of the

undertaking means that the SEP owner must grant the same or similar terms to all

similarly situated licensees, unless it can be shown that there are objective grounds

for treating them differently. Huawei says that this corresponds with the usual

meaning given to obligations not to discriminate in other contexts. Birss J used the

term “hard-edged” in relation to the non-discrimination obligation to describe the

interpretation contended for by Huawei. The practical effect of Huawei’s

submission is that the non-discrimination obligation means that a SEP owner is

required to grant licence terms equivalent to the most favourable licence terms to all

similarly situated licensees.

107. Before the judge, Unwired deployed three lines of defence to this part of

Huawei’s case. First, it argued that the Samsung licence was not an equivalent or

comparable transaction such as could engage the non-discrimination obligation.

Secondly, if that was wrong, it said that the non-discrimination element in the

FRAND undertaking did not involve a distinct “hard-edged” discrimination

obligation as submitted by Huawei. Instead, Unwired said that the non-

discrimination element is to be read as part of a single, unitary obligation to license

on terms which are “fair, reasonable and non-discriminatory”. To comply with that

obligation, a licensor has to offer a royalty rate set by reference to the true value of

the SEPs being licensed; that is, a standard fair market royalty rate available to

market participants for use of the SEPs. A rate set in this way, which is available to

all licensees without discriminating between them by reference to their individual

characteristics, does not cease to be FRAND because the SEP owner has previously

granted a licence on more favourable terms. The judge referred to the obligation

interpreted in this way as a “general” non-discrimination obligation. Thirdly, if the

non-discrimination obligation was engaged and if the “general” non-discrimination

interpretation were rejected, Unwired argued that the mere existence of differential

royalty rates is not sufficient to amount to a breach of the obligation. There is an

additional element: Huawei had to demonstrate that the difference is such as to cause

a distortion of competition, which it had failed to do. For this submission, Unwired

said that the non-discrimination part of the FRAND undertaking was to be construed

by analogy with the obligation of non-discrimination as found in EU competition

law in article 102(c) of the TFEU.

108. Birss J rejected the first argument. On the facts, he found that there were

specific economic circumstances applicable in relation to the negotiation of the

Samsung licence which meant that the royalty rates in it were not a good comparator

or basis for assessment of the uniform market royalty rate required under the

FRAND obligation. The Samsung licence was granted by Unwired after it had been

acquired by PanOptis. At that time, Unwired was in a distressed financial position

and Samsung was able to take advantage of this in driving down the royalty rates

under the licence. Also, PanOptis had a wider commercial interest in building trust

with Samsung to develop a strategic relationship with it so as to encourage it to enter

into other transactions, and again this gave special bargaining power to Samsung in

the circumstances in which the Samsung licence royalty rates were negotiated. This

aspect of the judge’s findings was not challenged in the Court of Appeal (paras 137-

146) and is not in issue on this appeal.

109. However, Birss J held that these features of the circumstances in which the

Samsung licence was negotiated did not support Unwired’s argument that the non-

discrimination obligation owed to Huawei was not engaged in relation to the

Samsung licence. He held that Huawei and Samsung were similarly situated and that

the licences available to each of them were equivalent or comparable for the

purposes of engagement of the non-discrimination element in the FRAND

undertaking. Huawei and Samsung were in a similar position as market participants

wishing to be able to make use of Unwired’s SEPs and the licences were directed to

allowing similar forms of use of the relevant SEPs for the provision of products and

services with operability around the world. That ruling was upheld by the Court of

Appeal (paras 160-176). There is no appeal in relation to this aspect of the judgments

below.

110. Birss J accepted Unwired’s second argument. He held that the non-

discrimination element in the FRAND undertaking was “general” in nature rather

than “hard-edged”. The undertaking did not require that royalty rates in the licence

on offer to Huawei should be fixed by reference to the royalty rates in the Samsung

licence. On this basis, the judge found that the worldwide licence on offer to Huawei

was on non-discriminatory terms. The Court of Appeal agreed (paras 177-207). This

part of the judgments below is under challenge on the appeal to this court.

111. Birss J also ruled in favour of Unwired on the basis of its third argument,

should it transpire that he was wrong to hold that the non-discrimination obligation

was “general” rather than “hard-edged”. Since the Court of Appeal upheld his

judgment on Unwired’s second argument, it found it unnecessary to deal with this

alternative part of his reasoning (paras 208-209). Huawei submits in this court that

Birss J erred in this part of his reasoning as well.

112. This court upholds the judgment of Birss J and the Court of Appeal on the

second of Unwired’s arguments. They were right to find that the non-discrimination

element in the FRAND undertaking is “general” and not “hard-edged” and that there

had been no breach of it. Accordingly, the third argument does not arise.

113. The choice between regarding the non-discrimination obligation as “general”

or “hard-edged” is a matter of interpretation of the FRAND undertaking in clause

6.1 of the IPR Policy. The obligation set out in that provision is that licences should

be available “on fair, reasonable and non-discriminatory … terms and conditions”.

In our view, the undertaking imports a single unitary obligation. Licence terms

should be made available which are “fair, reasonable and non-discriminatory”,

reading that phrase as a composite whole. There are not two distinct obligations, that

the licence terms should be fair and reasonable and also, separately, that they should

be non-discriminatory. Still less are there three distinct obligations, that the licence

terms should be fair and, separately, reasonable and, separately, non-discriminatory.

114. The text of clause 6.1 lends itself naturally to being read in this unitary way.

The “non-discriminatory” part of the relevant phrase gives colour to the whole and

provides significant guidance as to its meaning. It provides focus and narrows down

the scope for argument about what might count as “fair” or “reasonable” for these

purposes in a given context. It indicates that the terms and conditions on offer should

be such as are generally available as a fair market price for any market participant,

to reflect the true value of the SEPs to which the licence relates and without

adjustment depending on the individual characteristics of a particular market

participant. Put another way, there is to be a single royalty price list available to all.

115. This interpretation of the FRAND obligation promotes the purposes of the

ETSI regime in general and the IPR Policy in particular, which we have discussed

in paras 4 - 14 above.

116. A powerful indication that the non-discrimination obligation is “general”

rather than “hard-edged” is that ETSI had previously considered and rejected the

imposition of a “most-favourable licence” clause in the undertaking. This was done

in documents which were published and accessible to all market participants. To

interpret the FRAND undertaking as incorporating the “hard-edged” non-

discrimination obligation for which Huawei contends would have the effect of re-

introducing a “most-favourable licence” term by the back door. The fact that ETSI

made a public choice not to incorporate a “most-favourable licence” term into the

FRAND undertaking which it eventually decided to introduce means that any

reasonable person participating in the relevant market, whether as a SEP owner or

as an implementer seeking to enforce the FRAND undertaking, would understand

that the FRAND undertaking as eventually promulgated by ETSI did not incorporate

a “hard-edged” non-discrimination obligation.

117. The background is as follows. In 1993, ETSI published its original proposed

licensing regime, Appendix A of which set out the draft of the then proposed “ETSI

IPR Undertaking”. The proposed undertaking to be given by a SEP owner was to

grant a licence which should “be non-exclusive, on fair, reasonable and non-

discriminatory terms and conditions” (the third indented subparagraph of clause 3.1

in Appendix A) and which, under the fourth indented subparagraph in clause 3.1,

should:

“include a clause requiring the licensor to promptly notify a licensee

of any licence granted by it to a third party for the same IPRs under

comparable circumstances giving rise to terms and conditions that are

clearly more favourable, in their entirety, than those granted to the

licensee and allowing the licensee to require replacement of the terms

and conditions of its licence, in their entirety, either with those of the

third party licence, or with such other terms and conditions as the

parties may agree.”

118. The 1994 and subsequent versions of the IPR Policy did not include this term.

The inclusion of such a “most-favourable licence” term in the 1993 draft IPR Policy

as an obligation distinct from the FRAND obligation in the previous subparagraph

shows that the FRAND obligation (which was expressed in the same terms as in the

later versions of the IPR Policy) was not intended to include a “most-favourable

licence” term itself. Further, the deletion of the relevant “most-favourable licence”

term from the undertaking in 1994 and in the later versions of the IPR Policy shows

that a deliberate choice was made not to subject a SEP owner to an obligation of this

kind.

119. In TCL Communication Technology Holdings Ltd v Telefonaktiebolaget LM

Ericsson Case No 8:14-cv-00341-JVS-DFM (CD Cal, Nov 8, 2017), the US District

Court for the Central District of California noted the deletion and regarded it as

providing guidance regarding the interpretation of the FRAND obligation (pp 13-14

and 91). The Court of Appeal, in the judgment below, took the same view: para 199.

We agree.

120. Ms Ford QC for Unwired made further submissions to the Court of Appeal

in support of Unwired’s proposed “general” non-discrimination interpretation which

were repeated to us (see the Court of Appeal judgment, para 192). They have

considerable force.

121. First, Unwired submits that to interpret the non-discrimination obligation in

the “general” sense for which it contends gives full effect to the non-discrimination

limb of the FRAND undertaking. Non-discrimination between licensees is achieved,

because the FRAND rate is objectively determined based on the value of the

portfolio and it does not take into account the characteristics of individual licensees.

It satisfies the obligation to treat like cases alike, because the same rate is made

available to all licensees who are similarly situated in the sense that they seek the

same kind of licence. We agree. This reflects our reasoning above.

122. Secondly, Unwired submits that the non-discrimination limb of the FRAND

undertaking should not be read in isolation so as to trump all other considerations;

that is to say, as a separate free-standing obligation. Birss J and the Court of Appeal

correctly read it as working together with the fair and reasonable limb of FRAND

as part of a unitary concept. The role of the non-discrimination limb is to ensure that

the fair and reasonable royalty is one which does not depend on any idiosyncratic

characteristics of the licensee. Huawei's approach, by contrast, would mean that the

existence of a prior licence which the judge had expressly and legitimately held did

not represent useful evidence of the value of the portfolio compelled Unwired to

license its SEPs at the same rate, and therefore receive remuneration which was less

than a fair and reasonable return for its portfolio. This would be to give the non-

discrimination limb an unnecessarily extreme effect. Again, we agree. The

conclusion for which Huawei contends cannot be justified with reference to the

intended purposes of the ETSI licensing regime and would conflict with those

purposes.

123. Thirdly, it cannot be said that there is any general presumption that

differential pricing for licensees is problematic in terms of the public or private

interests at stake. The position has been summarised in this way:

“Most important of the lessons that the economics literature has

clearly established is that price discrimination is not always or

necessarily harmful. On the contrary, in some cases, it can increase

efficiency, raise incentives to innovate by easing the recoupment of

necessary upfront investments, broaden the markets served, and

improve consumer welfare. This is a welcome finding, because price

‘discrimination’ is the norm within IP licensing. That is, a typical

comparison of contracts for two or more firms with licenses to the

same IP will generally reveal different royalty rates, terms, and

conditions. As long as the patent holder negotiating these differential

rates and terms has no market power, there is no need for any concern,

because different prices are a natural consequence of the IP licensing

process” (Anne Layne-Farrar, “Nondiscriminatory Pricing: Is

Standard Setting Different?” (2010) Journal of Competition Law and

Economics 1, at p 3)

124. Since price discrimination is the norm as a matter of licensing practice and

may promote objectives which the ETSI regime is intended to promote (such as

innovation and consumer welfare), it would have required far clearer language in

the ETSI FRAND undertaking to indicate an intention to impose the more strict,

“hard-edged” non-discrimination obligation for which Huawei contends. Further, in

view of the prevalence of competition laws in the major economies around the

world, it is to be expected that any anti-competitive effects from differential pricing

would be most appropriately addressed by those laws. It is unnecessary and

inappropriate (and could well be counterproductive) to adopt the “hard-edged” non-

discrimination interpretation of the FRAND undertaking urged by Huawei on the

basis that this might promote competition and hence innovation and consumer

welfare. Any reasonable person who seeks to engage with the ETSI regime, whether

as a SEP owner or as an implementer who is a potential licensee, would understand

this. Those engaging with the ETSI regime are highly sophisticated and well-

informed about economics, practice in the market and competition laws across the

world.

125. Fourthly, the approach of Birss J and the Court of Appeal reflects commercial

reality and sense, in that there may be circumstances in which the owner of a SEP

portfolio would choose to license its portfolio at a rate which does not actually

reflect its true, FRAND royalty rate value. For example, the concept of so-called

first mover advantage in some market circumstances is well recognised. It may be

economically rational and commercially important for the owner of a SEP portfolio

to offer a lower rate to the first implementer to take a licence, because it provides

the owner with initial income on its portfolio and may serve to validate the portfolio

in the eyes of the market and hence encourage others to seek licences as well.

Huawei’s proposed interpretation of the FRAND undertaking would eliminate this

as a viable approach. But since such an approach is well recognised and may have

great commercial importance for a SEP owner, it would have required far clearer

language to be used in the ETSI FRAND undertaking if the intention had been to

eliminate it.

126. Similar points can be made in relation to the elimination of another important

set of commercial options for the owner of a SEP portfolio. If in commercial

difficulties, the owner might seek to engage in a “fire sale” licensing deal at low

royalty rates for a particular licensee in order to secure its (the owner’s) commercial

survival. On the judge’s findings, there was an element of this in Unwired’s grant

of the Samsung licence. But if the “fire sale” royalty rate were to be taken to dictate

the FRAND royalty rate for the portfolio for the rest of the participants in the market,

there would be no incentive for implementers to take advantage of such an

opportunity (as they would gain nothing by comparison with their competitors) and

portfolio owners would be unable to utilise such means of raising funds without, in

effect, permanently devaluing the portfolio. There is nothing in the ETSI scheme or

the language of the FRAND undertaking to indicate that it was intended that the

undertaking should have these effects.

127. For these reasons, we dismiss Huawei’s non-discrimination ground of appeal.

Issue 4: Competition law and the CJEU’s judgment in Huawei v ZTE

128. The fourth issue arises only in the Unwired appeal. It requires consideration

of the CJEU’s decision in Huawei v ZTE.

129. Huawei argues that the CJEU there laid down a series of mandatory

conditions which must be complied with if a SEP owner is to obtain injunctive relief.

If the SEP owner fails to comply, its claim for an injunction will be regarded as an

abuse of its dominant position, contrary to article 102 TFEU. In the Court of Appeal,

Huawei’s argument was that the SEP owner had to have complied before even

issuing proceedings for injunctive relief (see para 231 of the Court of Appeal

judgment). It is not entirely clear whether Huawei continues to pursue its argument

in quite such absolute terms. Although our attention is invited to other respects in

which Unwired failed to comply with the CJEU’s conditions, Huawei’s central focus

now is upon Unwired not having made a FRAND offer at any stage, its offers being

too high to be FRAND. It is not enough, Huawei says, for a SEP owner to be willing

to enter into a licence agreement on terms determined by the court; it has to make a

FRAND licence offer itself. In Huawei’s submission, Birss J therefore erred in

granting Unwired an injunction when it had not complied with the CJEU’s

conditions. It should have been limited to damages.

130. Unwired responds that Birss J and the Court of Appeal interpreted Huawei v

ZTE correctly, and it presented no obstacle to the grant of an injunction. Unwired

accepts the conclusion of the lower courts that the CJEU did lay down one

mandatory condition, namely the notice/consultation requirement in para 60, which

must be observed by the SEP owner, who will otherwise fall foul of article 102. But,

in its submission, that is the sole mandatory condition that the CJEU laid down; the

other steps set out by the court were intended only as a “safe harbour”. If they are

followed, the SEP owner can commence proceedings for injunctive relief without

that amounting to an abuse of its dominant position, but failure to follow them does

not necessarily mean that article 102 is infringed, because it all depends on the

circumstances of the particular case.

Article 102 TFEU

131. So far as material, article 102 provides:

“Any abuse by one or more undertakings of a dominant position

within the internal market or in a substantial part of it shall be

prohibited as incompatible with the internal market in so far as it may

affect trade between Member States.”

The decision in Huawei v ZTE

132. Huawei v ZTE arose in connection with a dispute in Germany between

Huawei, which held a telecommunications SEP and had given an undertaking to

grant licences on FRAND terms, and ZTE which marketed products using the SEP

without paying a royalty or exhaustively rendering an account in respect of the use.

Discussions as to a licence did not bear fruit. Huawei brought an action for

infringement, seeking an injunction prohibiting infringement, accounts, recall of

products and damages. It was not disputed that Huawei was in a dominant position,

for article 102 purposes, but the referring court requested assistance from the CJEU

as to the circumstances in which a SEP owner would abuse its dominant position as

a result of bringing an action for a prohibitory injunction. The referring court

identified two different approaches that might be taken to this question, which would

produce different results on the facts of the case. On the one hand, the

Bundesgerichtshof had held, in 2009, in Orange Book (KZR 39/06) (referred to in

paras 30 to 32 of the CJEU judgment) that the applicant will only breach article 102

if, in essence, the defendant has made an unconditional offer to conclude a licensing

agreement, not limited exclusively to cases of infringement, and, where the

defendant uses the teachings of the patent before the applicant accepts the offer, it

complies with its obligations to account for use and to pay the sums resulting

therefrom. On this approach, there would have been no abuse of Huawei’s dominant

position. On the other hand, the European Commission (in press releases No

IP/12/1448 and MEMO/12/1021, referred to in para 34 of the CJEU judgment)

appeared to take the view that it would be an abuse to bring an action for an

injunction where the infringer is willing to negotiate a FRAND licence, even if terms

cannot be agreed. As ZTE was willing to negotiate, this approach would have made

Huawei’s action for an injunction unlawful under article 102. The referring court’s

central question was therefore whether it was an abuse to seek an injunction “even

though the infringer has declared that it is willing to negotiate concerning … a

licence” or “only where the infringer has submitted to the proprietor of the [SEP] an

acceptable, unconditional [FRAND] offer…and the infringer fulfils its contractual

obligations for acts of use already performed in anticipation of the licence to be

granted” (see para 39 of the CJEU judgment).

133. The CJEU commenced its consideration of the referred questions with the

following observation:

“42. For the purpose of providing an answer to the referring court

and in assessing the lawfulness of such an action for infringement

brought by the proprietor of an SEP against an infringer with which

no licensing agreement has been concluded, the Court must strike a

balance between maintaining free competition - in respect of which

primary law and, in particular, article 102 TFEU prohibit abuses of a

dominant position - and the requirement to safeguard that proprietor’s

intellectual property rights and its right to effective judicial protection,

guaranteed by article 17(2) and article 47 of the Charter respectively.”

134. It went on to note, at paras 48 to 52, the special features that distinguish SEPs

from other patents, namely that the use of the patent is indispensable in

manufacturing products which comply with the standard to which it is linked, and

that SEP status is obtained only in return for the SEP owner’s irrevocable

undertaking to grant licences on FRAND terms. It observed that, in those

circumstances, “a refusal by the proprietor of the SEP to grant a licence on [FRAND]

terms may, in principle, constitute an abuse within the meaning of article 102” (para

53), and “the abusive nature of such a refusal may, in principle, be raised in defence

to actions for a prohibitory injunction or for the recall of products” (para 54). The

court then went on to deal with the situation where the parties could not agree on

what FRAND terms were, observing:

“55. In such a situation, in order to prevent an action for a

prohibitory injunction or for the recall of products from being

regarded as abusive, the proprietor of an SEP must comply with

conditions which seek to ensure a fair balance between the interests

concerned.”

135. It is of particular note that in the following paragraph, before embarking on

its consideration of what conditions might ensure a fair balance, the court

emphasised the need to take account of the specific circumstances of the case,

saying:

“56. In this connection, due account must be taken of the specific

legal and factual circumstances in the case (see, to that effect,

judgment in Post Danmark A/S v Konkurrenceradet [(C-209/10)]

EU:C:2012:172; [2012] 4 CMLR 23 at para 26 and the case law

cited).”

The passage from Post Danmark A/S to which reference is made is as follows:

“26. In order to determine whether a dominant undertaking has

abused its dominant position by its pricing practices, it is necessary to

consider all the circumstances and to examine whether those practices

tend to remove or restrict the buyer’s freedom as regards choice of

sources of supply, to bar competitors from access to the market, to

apply dissimilar conditions to equivalent transactions with other

trading parties, thereby placing them at a competitive disadvantage, or

to strengthen the dominant position by distorting competition (see, to

that effect, Deutsche Telekom v Commission, para 175 and case-law

cited).”

136. The irrevocable undertaking to grant licences on FRAND terms could not,

the court said, negate the entitlement of the SEP owner to have recourse to legal

proceedings to ensure effective enforcement of his exclusive intellectual property

rights (paras 58 and 59), but:

“59. …it does, none the less, justify the imposition on that proprietor

of an obligation to comply with specific requirements when bringing

actions against alleged infringers for a prohibitory injunction or for

the recall of products.”

137. Paras 60 and 61 appear (from para 62) to be inspired by the possibility that

the infringer of a SEP may not be aware that it is using the teaching of a SEP that is

both valid and essential to a standard, and deal, in the following terms, with the need

to alert the infringer:

“60. Accordingly, the proprietor of an SEP which considers that that

SEP is the subject of an infringement cannot, without infringing article

102 TFEU, bring an action for a prohibitory injunction or for the recall

of products against the alleged infringer without notice or prior

consultation with the alleged infringer, even if the SEP has already

been used by the alleged infringer.

61. Prior to such proceedings, it is thus for the proprietor of the

SEP in question, first, to alert the alleged infringer of the infringement

complained about by designating that SEP and specifying the way in

which it has been infringed.”

138. In paras 63 to 69, the court went on to anticipate that, thereafter, there would

be a number of further exchanges between the SEP owner and the alleged infringer.

139. Para 63 deals with the position once the alleged infringer has expressed its

willingness to conclude a licensing agreement on FRAND terms. At this point:

“it is for the proprietor of the SEP to present to that alleged infringer

a specific, written offer for a licence on FRAND terms, in accordance

with the undertaking given to the standardisation body, specifying, in

particular, the amount of the royalty and the way in which that royalty

is to be calculated.”

140. Then, it is for the alleged infringer “diligently to respond to that offer, in

accordance with recognised commercial practices in the field and in good faith”,

with “no delaying tactics”, and “it may rely on the abusive nature of an action for a

prohibitory injunction … only if it has submitted … promptly and in writing, a

specific counter-offer that corresponds to FRAND terms” (paras 65 and 66).

141. And finally, if the counter-offer is rejected, and the alleged infringer is using

the teachings of the SEP already, from the point at which the counter-offer is

rejected, “it is for that alleged infringer … to provide appropriate security, in

accordance with recognised commercial practices in the field, for example by

providing a bank guarantee or by placing the amounts necessary on deposit” (para

67).

142. In paras 68 and 69, the court clarified that:

i) in default of agreement on terms, the parties may, by common

agreement, request that the amount of the royalty be determined by an

independent third party without delay (para 68);

and

ii) the alleged infringer cannot be criticised for challenging, in parallel to

the negotiations relating to the grant of licences, the validity and/or the

essential nature of the patents, and/or their actual use, or for reserving the

right to do so in the future (para 69).

143. The court then went on, in paras 70 and 71 to address itself to the referring

court, and to answer the questions it had referred:

“70. It is for the referring court to determine whether the above-

mentioned criteria are satisfied in the present case, in so far as they are

relevant, in the circumstances, for the purpose of resolving the dispute

in the main proceedings.

71. It follows from all the foregoing considerations that the answer

to [the questions referred] is that article 102 TFEU must be interpreted

as meaning that the proprietor of an SEP, which has given an

irrevocable undertaking to a standardisation body to grant a licence to

third parties on FRAND terms, does not abuse its dominant position,

within the meaning of article 102 TFEU, by bringing an action for

infringement seeking an injunction prohibiting the infringement of its

patent or seeking the recall of products for the manufacture of which

that patent has been used, as long as:

- prior to bringing that action, the proprietor has, first,

alerted the alleged infringer of the infringement

complained about by designating that patent and

specifying the way in which it has been infringed, and,

secondly, after the alleged infringer has expressed its

willingness to conclude a licensing agreement on

FRAND terms, presented to that infringer a specific,

written offer for a licence on such terms, specifying, in

particular, the royalty and the way in which it is to be

calculated, and

- where the alleged infringer continues to use the patent

in question, the alleged infringer has not diligently

responded to that offer, in accordance with recognised

commercial practices in the field and in good faith, this

being a matter which must be established on the basis of

objective factors and which implies, in particular, that

there are no delaying tactics.”

The facts of the present case

144. Turning to the facts of the present case, between 2009 and 2012, Huawei had

a licence from Ericsson which included the SEPs which were assigned to Unwired

in 2013. In 2013, there was brief discussion between Unwired and Huawei about the

possibility of Huawei buying some of the SEPs, but Huawei did not do so. In

September 2013, Unwired wrote to Huawei proposing discussion with a view to

concluding a licence, but received no reply. Unwired then wrote, in November 2013,

to Huawei’s IP department which replied very promptly, and there was

communication between the companies. Before proceedings were begun against

Huawei in March 2014, on Birss J’s findings (see particularly para 750 of his

judgment), the position was as follows:

“Huawei had sufficient notice that Unwired Planet held particular

SEPs and they knew or ought to have known that if the declared SEPs

held by Unwired Planet were indeed valid and essential, then a licence

was required. They did not yet have claim charts. All the same, for

Huawei, the only realistic and foreseeable ways in which the existing

contact with Unwired Planet was going to conclude would be by

Huawei persuading Unwired Planet that they had no good SEPs or

proving it in court or by Huawei taking a licence. Huawei also knew

that Unwired Planet wanted to license Huawei. In these circumstances

the information Huawei had by March 2014 was quite sufficient for

Huawei to understand that issuing proceedings including an injunction

claim did not represent a refusal to license. Quite the reverse.”

145. In April 2014, Unwired made the first of a number of offers of licensing

terms. Huawei responded, saying that no licence was needed, but also denying that

the offered terms were FRAND. Birss J found (para 706) that Huawei never made

an unqualified commitment to enter into a FRAND licence, its stance having always

been that it was willing to enter into what it contended was a FRAND licence. Until

shortly before the trial in front of Birss J, its contention was that only a patent by

patent licence for any patent found valid and infringed would be FRAND, and from

11 October 2016, this was replaced by the contention that a FRAND licence meant

a UK portfolio licence. Birss J contrasted this with Unwired’s stance (para 709).

Whereas Huawei had only been prepared to take a licence with a particular scope,

Unwired’s case in the High Court involved trying to insist on a worldwide licence,

but its approach took account of the possibility that it might not be entitled to

demand that. The position it took was that if the court decided that it was not entitled

to insist on a global licence, it would accept that there be a UK portfolio licence at

a rate and on terms set by the court (Birss J, para 23(i)).

The decisions of Birss J and the Court of Appeal

146. Birss J did not accept Huawei’s argument that it had a defence to the

injunction claim because the proceedings were commenced before FRAND terms

were offered to it by Unwired. He interpreted the CJEU as saying that it would

necessarily be abusive for the SEP owner to bring an action without some kind of

prior notice to the alleged infringer, but otherwise he saw the CJEU’s scheme as

setting out a “standard of behaviour against which both parties’ behaviour can be

measured to decide in all the circumstances if an abuse has taken place”, rather than

imposing mandatory requirements which had to be complied with in all cases (para

744 (iv) and (v)).

147. Measuring the parties’ behaviour against the standard, Birss J was satisfied

that the commencement of the action, including the claim for an injunction, was not

an abuse of Unwired’s dominant position (para 755). It can be seen from the extract

from para 750 which is quoted above that he considered that Huawei had sufficient

notice prior to the commencement of proceedings, that it was clear that issuing the

proceedings did not represent a refusal to license, and that Huawei knew that

Unwired wanted to license it. The issue of the proceedings did not prevent the parties

from negotiating (para 752). Unwired provided key terms of its offer to Huawei a

few weeks after commencing proceedings (para 753), but Huawei never made an

unqualified offer to accept whatever were FRAND terms (para 754).

148. The Court of Appeal agreed with Birss J’s interpretation of the CJEU’s

judgment, which it considered “entirely correct”, and it saw no reason to interfere

with his conclusion that Unwired had not behaved abusively.

Discussion

149. In our view, Birss J and the Court of Appeal interpreted the CJEU’s decision

in Huawei v ZTE correctly.

150. Bringing “an action for a prohibitory injunction … without notice or prior

consultation with the alleged infringer” will amount to an infringement of article

102, as para 60 of the CJEU’s judgment sets out. In that paragraph, the language

used is absolute: the SEP owner “cannot” bring the action without infringing the

article.

151. We agree with Birss J and the Court of Appeal, however, that the nature of

the notice/consultation that is required must depend upon the circumstances of the

case. That is built into the reference to “notice or prior consultation”, which conveys

the message that there must be communication to alert the alleged infringer to the

claim that there is an infringement, but does not prescribe precisely the form that the

communication should take. This is to be expected, given that the CJEU had just

introduced its discussion of the conditions which seek to ensure a fair balance

between the various interests concerned in a SEP case with a very clear statement,

at para 56 (set out above), that account had to be taken of the specific legal and

factual circumstances in the case. In so saying, the court was reflecting its well-

established approach in determining whether a dominant undertaking has abused its

dominant position, as it demonstrated by its reference back to the Post Danmark

case, and the case law there cited. It also makes obvious sense that the court should

have built in a degree of flexibility, given the wide variety of factual situations in

which the issue might arise, and the fact that different legal systems will provide

very different procedural contexts for the SEP owner’s injunction application. In

Germany, for example, as we observed earlier, validity and infringement are tried

separately, so that the alleged infringer faces the risk that the SEP owner could

obtain a final injunction against it without validity first being determined, and in

some member states, an injunction might be granted before a FRAND rate is

determined. In contrast, in the United Kingdom, it is not the practice to grant a final

injunction unless the court is satisfied that the patent is valid and infringed, and it

has determined a FRAND rate.

152. The court’s statement in para 56 also colours the interpretation of the scheme

it set out between paras 63 and 69 of its judgment. As the Court of Appeal observed,

para 56 does not sit comfortably with the notion that the CJEU was laying down a

set of prescriptive rules, intending that failure to comply precisely with any of them

would necessarily, and in all circumstances, render the commencement of

proceedings for an injunction abusive. It is important, it seems to us, to take account

of where para 56 is placed in the judgment. Immediately preceding it, the court had

identified the very real problem that occurs where, as in the case which had

generated the reference to it, there is no agreement as to what terms would be

FRAND, and then said (in para 55, quoted above) that “in order to prevent” an action

being regarded as abusive, the SEP owner must comply with “conditions which seek

to ensure a fair balance between the interests concerned”. This identifies what the

conditions need to seek to ensure, but is no more prescriptive than that, and it is of

considerable significance that para 56 immediately follows, requiring that “[i]n this

connection”, which must surely be a reference back to the conditions which seek to

ensure a fair balance, due account must be taken of the specific legal and factual

circumstances of the case. It would be surprising if the steps then set out by the

CJEU were expected by it to apply in all cases, no matter what their legal and factual

circumstances.

153. Unwired submits that the language used by the CJEU is language intended to

signpost a safe harbour for the SEP owner. We agree that this does lend a degree of

support to Unwired’s argument. In particular, in contrast to the absolute language of

para 60, in para 71, the court speaks of the SEP owner not abusing its dominant

position “as long as” it follows the steps laid out. This does not tell us that if the SEP

owner does not follow the steps, it will be abusing its dominant position. To answer

that, due account has to be taken of the particular circumstances of the case,

although, of course, it is likely to be valuable to compare what occurred with the

pattern set out by the CJEU.

154. By way of further reinforcement for its contention that the CJEU was

providing guidance only, Unwired points to the unfairness that would arise, in a case

(such as the present one) which began before the CJEU gave judgment in Huawei v

ZTE, if the application for injunctive relief were to be condemned as abusive by

virtue of a failure to comply with conditions which had not yet been spelled out

when the proceedings were commenced, but which, once spelled out, operated ex

tunc. The fact that any rigid and prescriptive rules laid down by the CJEU would

necessarily operate in this way makes it unlikely, says Unwired, that the CJEU was

actually seeking to lay down a mandatory protocol. Had the CJEU’s judgment been

in terms clearly intended to lay down universal, immutable, conditions, this point

would not have been sufficient to displace that interpretation of it, but, in our view,

given that the judgment is not in such terms, the point does perhaps provide a degree

of further confirmation that all the circumstances of the case must be taken into

account before concluding that article 102 has been infringed.

155. It is worth noting how the European Commission has interpreted the CJEU’s

decision. In its communication of 29 November 2017, setting out the EU approach

to Standard Essential Patents (see para 83 above), it encapsulated, at para 3, the

conflicting considerations which operate in relation to injunctive relief in SEP cases,

saying that:

“[s]uch relief aims to protect SEP holders against infringers unwilling

to conclude a licence on FRAND terms. At the same time, safeguards

are needed against the risk that good- faith technology users

threatened with an injunction accept licensing terms that are not

FRAND, or in the worst case, are unable to market their products

(hold-ups).”

156. It then went on, at para 3.1 of the Communication, to set out its understanding

of the CJEU’s judgment:

“In its Huawei judgment, the CJEU established obligations applying

to both sides of a SEP-licensing agreement, when assessing whether

the holder of a SEP can seek an injunction against a potential licensee

without being in breach of Article 102 TFEU. SEP holders may not

seek injunctions against users willing to enter into a licence on

FRAND terms, and the CJEU established behavioural criteria to

assess when a potential licensee can be considered willing to enter into

such a licence.”

157. The following paragraphs consider further the various elements in the

negotiation, but make clear that what precisely is required is, in the Commission’s

view, dependent on the facts of the individual case. This coincides with the

interpretation that we would adopt of the CJEU’s decision. As the Commission

pointed out, the objective is to protect both the intellectual property rights of SEP

owners and the interests of what it calls “good-faith technology users”. The scheme

set up by the CJEU, as we would interpret it, does this. It prevents an organisation

which is unwittingly using a SEP without a licence from being ambushed by

injunction proceedings without any prior notification of the problem, provides the

SEP owner with a route map which, if followed precisely, will ensure it can seek an

injunction without risking infringing article 102, and otherwise provides a number

of points of reference to assist in assessing the all-important question of whether

each of the parties is willing to enter into a licence on FRAND terms. Interpreted in

this way, it has sufficient flexibility built into it to cater for the inevitable variations

that will occur from case to case, and from country to country.

158. Given that we share Birss J’s interpretation of the CJEU’s judgment, we see

no reason to interfere with his assessment that Unwired had not behaved abusively.

He found that sufficient notice was given to Huawei before the injunction

application was made. He properly evaluated the course of the negotiations between

the parties in light of what the CJEU had said. There was no mandatory requirement

that Unwired itself make an offer of terms which coincided with those that were

ultimately determined by the court to be FRAND. Apart from the more general

points that we have made earlier, in rejecting the argument that the CJEU’s scheme

was mandatory, such an absolute requirement to hit the target precisely with an offer

could not sit easily alongside para 68 of the CJEU’s judgment, which contemplates

determination of the amount of the royalty by an independent third party. What

mattered on the facts of this case was that Unwired had shown itself willing to

license Huawei on whatever terms the court determined were FRAND, whereas

Huawei, in contrast, had only been prepared to take a licence with a scope

determined by it.

Issue 5: The equitable jurisdiction to award a prohibitory injunction

159. The fifth issue in the appeal raises a point which was not argued in the courts

below. Huawei contends that even if it is infringing the claimants’ UK SEPs, and

even if the claimants are willing to offer a licence on terms which the court has found

to be FRAND, nevertheless the court should not grant the claimants an injunction to

prevent the continuing infringement of their patents, since such a remedy is neither

appropriate nor proportionate. Since the claimants’ only interest in the observance

of the UK SEPs is in obtaining reasonable royalties, and that interest can be fully

recognised by an award of damages in lieu of an injunction, it follows that such an

award, based on the royalties which would reasonably be agreed for a licence of

each of the UK patents infringed, is the appropriate and proportionate remedy.

160. In support of that argument, Huawei refers to the discussion of awards of

damages in lieu of an injunction under section 50 of the Senior Courts Act 1981

(formerly under Lord Cairns’s Act) in One Step (Support) Ltd v Morris-Garner

[2018] UKSC 20; [2019] AC 649, where Lord Reed explained at paras 43-44 and

95(3) that such damages can be awarded in respect of an injury which has not yet

occurred, and that they are a monetary substitute for what is lost by the withholding

of injunctive relief. Reference is also made to Co-operative Insurance Society Ltd v

Argyll Stores (Holdings) Ltd [1998] AC 1, where the House of Lords decided that

damages were normally a more appropriate remedy than a mandatory injunction

requiring the carrying on of a business, and Lawrence v Fen Tigers Ltd [2014]

UKSC 13; [2014] AC 822, where damages were considered to be a more appropriate

remedy, in the circumstances of that case, than an injunction to prevent the

continuation of a nuisance.

161. Huawei also refers to eBay Inc v Mercexchange LLC 547 US 388 (2006),

where the United States Supreme Court vacated a decision by the Federal Circuit

reversing the District Court’s denial of permanent injunctive relief to a PAE. The

Supreme Court held that neither court had exercised its discretion in accordance with

traditional principles of equity, as established in the law of the United States. The

Court of Appeals was held to have erred in applying a rule that courts would issue

permanent injunctions against patent infringement absent exceptional

circumstances. The District Court was held to have erred in adopting a rule that

injunctive relief would not issue where the plaintiff was willing to licence its patents

rather than bringing them to market itself. The Supreme Court took no position on

whether permanent injunctive relief should or should not issue in that case. Huawei

relies in particular on the concern expressed by Kennedy J, in a concurring opinion

in which Stevens, Souter and Breyer JJ joined, that an injunction could be employed

by a PAE as a bargaining tool to charge exorbitant fees. Kennedy J expressed the

opinion that where the patented invention was only a small component of the product

the defendant sought to produce, and the threat of an injunction was employed

simply for undue leverage in negotiations, damages might well be sufficient to

compensate for the infringement, and an injunction might not serve the public

interest.

162. As Lord Neuberger remarked in the case of Lawrence at para 120, the court's

power to award damages in lieu of an injunction involves a classic exercise of

discretion. In most cases of patent infringement, judges have exercised their

discretion in favour of granting an injunction. As Roberts CJ observed in the eBay

case, in a concurring judgment in which Scalia and Ginsburg JJ joined:

“From at least the early 19th century, courts have granted injunctive

relief upon a finding of infringement in the vast majority of patent

cases. This ‘long tradition of equity practice’ [Weinberger v Romero-

Barcelo, 456 US 305, 320 (1982)] is not surprising, given the

difficulty of protecting a right to exclude through monetary remedies

that allow an infringer to use an invention against the patentee’s

wishes”. (Emphasis in original)

163. In the present case, the courts below were not invited to consider the

possibility of awarding damages in lieu of an injunction. We are not in any event

persuaded that there is any basis on which this court could properly substitute an

award of damages for the injunction granted by Birss J and upheld by the Court of

Appeal.

164. There are, in the first place, no grounds in this case for a concern of the kind

expressed by Kennedy J in the eBay case. The threat of an injunction cannot be

employed by the claimants as a means of charging exorbitant fees, or for undue

leverage in negotiations, since they cannot enforce their rights unless they have

offered to license their patents on terms which the court is satisfied are fair,

reasonable and non-discriminatory.

165. This point was clearly in the mind of Birss J. He stated at para 562:

“If a worldwide licence is not FRAND then a putative licensee should

not be coerced into accepting it by the threat of an injunction in one

state. However, if a worldwide licence is FRAND then the situation

changes. The logic of the FRAND undertaking applied in the context

of patent rights is that the remedy of an injunction to restrain

infringement, granted in respect of a patent found valid and

infringed/essential, should present the licensee with a simple choice

either to take a FRAND licence or stop dealing in the products.”

He returned to this point at the end of his judgment, when explaining at para 793

why an injunction was appropriate:

“The relevant patents have been found valid and infringed. Unwired

Planet wish to enter into a worldwide licence. Huawei is willing to

enter into a UK portfolio licence but refuses to enter into a worldwide

licence. However a worldwide licence is FRAND and Unwired Planet

are entitled to insist on it. In this case a UK only licence would not be

FRAND. An injunction ought to be granted because Huawei stand

before the court without a licence but have the means to become

licensed open to them.”

166. Secondly, in a case of the present kind, an award of damages is unlikely to

be an adequate substitute for what would be lost by the withholding of an injunction.

The critical feature of a case of this kind is that the patent is a standard technology

for products which are designed to operate on a global basis. That is why standard

technology is essential, and why the patent-holders whose patents are accepted as

SEPs are required to give an undertaking that licences will be made available on

FRAND terms. Once the patents have been accepted as SEPs, it may well be

impractical for the patent-holder to bring proceedings to enforce its rights against an

infringing implementer in every country where the patents have been infringed. That

is because, as Huawei’s witness Mr Cheng accepted in evidence, the cost of bringing

enforcement proceedings around the world, patent by patent, and country by

country, would be “impossibly high”.

167. In those circumstances, if the patent-holder were confined to a monetary

remedy, implementers who were infringing the patents would have an incentive to

continue infringing until, patent by patent, and country by country, they were

compelled to pay royalties. It would not make economic sense for them to enter

voluntarily into FRAND licences. In practice, the enforcement of patent rights on

that basis might well be impractical, as was accepted in the present case by Huawei’s

witness, and by the courts below. An injunction is likely to be a more effective

remedy, since it does not merely add a small increment to the cost of products which

infringe the UK patents, but prohibits infringement altogether. In the face of such an

order, the infringer may have little option, if it wishes to remain in the market, but

to accept the FRAND licence which ex hypothesi is available from the patent-holder.

However, for the reasons explained in paras 164-165, that does not mean that the

court is enabling the patent-holder to abuse its rights.

168. This point was understood by the courts below. In the Court of Appeal, Lord

Kitchin observed at paras 55-56:

“It may be wholly impractical for a SEP owner to seek to negotiate a

licence of its patent rights country by country, just as it may be

prohibitively expensive for it to seek to enforce those rights by

litigating in each country in which they subsist. This latter point was

accepted by Mr Cheng in the course of his evidence: he agreed that

the costs of such litigation for [Unwired] would be impossibly high …

[I]t seems to us, at least as a matter of principle, that there may be

circumstances in which it would not be fair and reasonable to expect

a SEP owner to negotiate a licence or bring proceedings territory by

territory and that in those circumstances only a global licence or at

least a multi-territorial licence would be FRAND.”.

Lord Kitchin also noted at para 111 the implications of accepting Huawei’s

contention that country-by-country licensing was appropriate:

“The patentee must then bring proceedings country by country to

secure the payment of the royalties to which it is entitled. But unlike

a normal patent action, where an unsuccessful defendant faces the

prospect of an injunction, the reluctant licensee would know that, on

the assumption it could only be required to take licences country by

country, there would be no prospect of any effective injunctive relief

being granted against it provided it agreed to pay the royalties in

respect of its activities in any particular country once those activities

had been found to infringe. So it would have an incentive to hold out

country by country until it was compelled to pay.”

169. That reasoning was criticised by Huawei, but far from being erroneous, it

identifies the central reason why an injunction is necessary in order to do justice,

and why damages in lieu would not be an adequate substitute.

Conclusion

170. Before concluding we would like to record our appreciation of the high

quality of the judgments of the courts below and the help which we gained from the

judgments of the Court of Appeal in each of these cases. It follows from what we

have discussed above that the appeals must fail.

171. We therefore dismiss the appeals.

Neutral Citation Number: [2019] EWHC 3538 (Pat)

Claim No. HP-2019-00006

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INTELLECTUAL PROPERTY LIST (ChD)

PATENTS COURT

The Rolls Building

7 Rolls Buildings Fetter Lane

London, EC4A 1NL

Date: Tuesday, 17th December 2019

Before:

MR. JUSTICE NUGEE

- - - - - - - - - - - - - - - - - - - - - Between:

(1) OPTIS CELLULAR TECHNOLOGY LLC

(A company incorporated under the laws of the State of Delaware)

(2) OPTIS WIRELESS TECHNOLOGY LLC

(A company incorporated under the laws of the State of Delaware)

(3) UNWIRED PLANET INTERNATIONAL LIMITED

(A company incorporated under the laws of the Republic of Ireland

Claimants

- and -

(1) APPLE RETAIL UK LIMITED

(2) APPLE DISTRIBUTION INTERNATIONAL

(A company incorporated under the laws of the Republic of Ireland)

(3) APPLE INC

(A company incorporates under the laws of the State of California)

Defendants

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MR. ADRIAN SPECK QC and MR. THOMAS JONES (instructed by EIP Legal and

Osborne Clarke) appeared for the Claimants.

MR. MICHAEL BLOCH QC and MS. RACHEL JONES (instructed by Wilmer Cutler

Pickering Hale & Dorr LLP) appeared for the Defendants

- - - - - - - - - - - - - - - - - - - - -

Approved Judgment

Digital Transcription by Marten Walsh Cherer Ltd., 2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP.

Telephone No: 020 7067 2900. Fax No: 020 7831 6864 DX 410 LDE Email: [email protected] Web: www.martenwalshcherer.com


http://www.martenwalshcherer.com/

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

MR. JUSTICE NUGEE :

1. I have before me three applications by the defendants, who are all companies in the

well-known Apple group, to stay or set aside these proceedings. The grounds on which they do so are not all identical, but I will explain them in due course. The

proceedings are another example of a claim by a proprietor of a portfolio of standard essential patents (“SEPs”) to seek to enforce its rights. The vehicle by which that is done, as is well-known, is an action for infringement of UK patents; and in this case

the Particulars of Claim plead seven UK patents which are referred to as the Asserted Patents. Among the matters pleaded in the Particulars of Claim is a recognition that

the claimants (who I will refer to collectively as Optis) have given undertakings to the standard setting organisation in Paris, ETSI, under which they were obliged to offe r a licence on fair, reasonable and non-discriminatory or FRAND terms. In the

Particulars of Claim, the claimants allege that they have at all times been willing to offer the defendants a licence to the Asserted Patents that is held by this court to be

FRAND.

2. In the prayer for relief, although certain offers have been made and the claimants claim a declaration that the offers that have been made were made in the course of the

claimant's FRAND obligations, there is an alternative relief sought which is a determination of the FRAND terms for the licensing of the Asserted Patents to the

defendants and a declaration that such terms are FRAND; and then an injunction which is expressed, not to have effect, or to cease to have effect, if the defendants enter into a licence on FRAND terms.

3. The structure of the litigation is a familiar one to anyone who has had the pleasure of reading the judgments in two previous cases: one, the Unwired Planet case (Unwired

Planet International Ltd v Huawei Technologies Co Ltd), with a very detailed judgment by Birss J at [2017] EWHC 2988 (Pat), and a lengthy decision of the Court of Appeal given by Lord Kitchin at [2018] EWCA 2344; and the other the Conversant

case (Conversant Wireless Licensing SARL v Huawei Technologies Co Ltd) in the decision of Henry Carr J at [2018] EWHC 808 (Pat) and in the Court of Appeal in the

judgment given by Floyd LJ at [2019] EWCA Civ 38. It is not necessary for me to yet again explain the background to standard essential patents, to FRAND licences and the standard setting organisations, and the effect of the undertaking given to

ETSI, because as I say it is all set out in those judgments.

4. In this case, the defendants are, as I have said, three companies in the Apple group.

The first defendant is a UK company, Apple Retail UK Limited, which operates retail stores in the UK. The second defendant, Apple Distribution International, is an Irish company and it is said to be -- and I did not understand this to be disputed -- the

company in the Apple group which sells to UK customers products which are bought through a website. The third defendant is a Californian company, Apple Inc.; again it

is alleged in the claim -- and I did not understand this to be disputed -- that Apple Inc. is responsible for the website. All three defendants are therefore said to infringe the UK patents.

5. The aim of the proceedings, I think one can reasonably infer, is an attempt to require the Apple companies to take a FRAND licence from Optis on terms which will be

decided by the court, unless agreed.

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

6. The applications, one by each of the defendants, were brought on a number of grounds. Before me Mr. Michael Bloch QC, who appeared for the defendants,

accepted that in the light of the Court of Appeal's decision in the two cases I have referred to, Unwired Planet and Conversant, many of those grounds cannot in fact

succeed before me, although he wishes to reserve the right to pursue those grounds by taking an appeal to the Court of Appeal if and when the Supreme Court, which has heard argument on appeal from the Court of Appeal, hands down its judgment in

those cases, which is something which is expected at some stage in the New Year. I will come back to that part of the application at the end.

7. The points which were taken that were live are really only two-fold. They both turn on the suggestion that the conduct of the claimants has been an abuse of a dominant position, contrary to Article 102 of the Treaty on the Functioning of the European

Union (“TFEU”). In relation to Apple Inc., on which almost all the argument was concentrated, that is put forward as a ground for setting aside the permission to serve

Apple Inc. out of the jurisdiction which was granted at an earlier stage in these proceedings. That was done by Deputy Master Kaye on 7th March 2019, in which he permitted the claimants to serve the proceedings on Apple Inc. out of the jurisdiction

at an address in California.

8. The application to set that aside is brought pursuant to CPR Part 11, which, as is well-

known, provides an opportunity for a foreign defendant served out of the jurisdiction to apply to set aside the service out on a number of grounds. In the present case, the way in which it has been put by Mr. Bloch -- something which Mr. Adrian Speck QC,

who appears for the claimants, says was not flagged up in the application notices but he takes no point on not being ready to answer it -- was that in order to obtain

permission to serve out of the jurisdiction, it is necessary for a claimant to persuade the court that there is a serious issue to be tried on the merits. Many authorities establish that in England that the test of a serious issue to be tried on the merits

requires the claimant to show a reasonable prospect of success, a test which is of the same standard as that applicable in applications under Part 24. Mr. Bloch says that

given the way in which the claimants have approached the potential licensing of its portfolio to Apple, there is no reasonable prospect of the claimants defeating the defence which Apple Inc. has under Article 102 TFEU. Mr. Bloch recognises that is a

high hurdle, but he says in this case it can be clearly demonstrated to be met.

9. The grounds, and the only grounds that have been put before me, on which the other

two defendants, Apple Retail UK Limited and Apple Distribution International, seek to set aside the proceedings or stay them in this application are also based on the defence under Article 102 TFEU. In their case, as well as the point that there has

been an abuse for the same reasons that Apple Inc. relies on, Mr Bloch also relies on the point that no notice was given to them before proceedings were commenced. That

raises a short point which I will deal with later.

10. The foundation of Mr. Bloch's argument is the judgment of the Court of Justice of the European Union (“CJEU”) in Huawei Technologies Co Ltd v ZTE Corp (Case

C170/13), which is reported at [2016] RPC 4 (“Huawei v ZTE”). In that case the CJEU set out in particular at [60] to [63] and at [71] certain requirements which the

proprietor of an SEP had to comply with in order to ensure that it was not abusing its dominant position. There are, in effect, two requirements and they are summarised in [71] of the CJEU’s judgment as follows:

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

"...Article 102 TFEU must be interpreted as meaning that the proprietor of an SEP, which has given an irrevocable

undertaking to a standardisation body to grant a licence to third parties on FRAND terms, does not abuse its dominant position,

within the meaning of Article 102 TFEU, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for

the manufacture of which that patent has been used, as long as:

- prior to bringing that action, the proprietor has, first,

alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after

the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms,

presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated ..."

11. That judgment was considered both by Birss J in Unwired Planet, and by the Court of Appeal in the judgment of Lord Kitchin in Unwired Planet. I can take the

conclusions from the Court of Appeal judgment where they considered the question whether the CJEU was laying down specific mandatory conditions. That can be seen in [268] and [269] of Lord Kitchin's judgment. At [269] he said the following:

"We have come to the firm conclusion that the CJEU was not laying down mandatory conditions at [70] of its judgment such

that non-compliance will render the proceedings a breach of Article 102 TFEU and that the judge's interpretation of the CJEU's judgment is in this respect entirely correct."

12. They then gave a number of reasons. Birss J's conclusion can be seen in the preceding paragraph at [268], which was that the only mandatory condition is that

contained in the CJEU's judgment at [60] and that the conditions set out in the judgment at [70] will, if satisfied, provide a safe harbour for the SEP owner by ensuring that the commencement of proceedings does not in and of itself amount to an

abuse.

13. The condition in [60] of the CJEU's judgment was the one about giving notice,

expressed in these terms:

"Accordingly, the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without

infringing Article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged

infringer without notice or prior consultation with the infringer, even if the SEP has already been used by the alleged infringer."

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

I have assumed that the reference in [268] and [269] of Lord Kitchin's judgment in Unwired Planet in the Court of Appeal to [70] of the CJEU’s judgment are to the

paragraph that appears in the report I have as [71], which I read earlier.

14. I take it then to be established law, binding on me at this level, that of the conditions

referred to in the CJEU's judgment in Huawei v ZTE, that in [60] of giving notice to, or prior consultation with, the alleged infringer is a mandatory condition, but that the other one of expressing willingness to conclude a licensing agreement on FRAND

terms and presenting a specific written offer for a licence on such terms is not a mandatory condition, but is what in the words of the Commission (as cited by Lord

Kitchin at [267]) were “behavioural criteria” to assess when a potential licensee can be considered to be willing to enter into a licence.

15. What therefore the CJEU has done is to provide a safe harbour for proprietors of SEP

portfolios, but even if they do not manage to get into the harbour because they have not complied with the conditions laid down by the CJEU, that does not mean that they

are then automatically to be condemned as abusing a dominant position. As it was put in argument, if you do not manage to get into the harbour, that leaves you in the open sea. That does not mean you are going to sink because it still may be possible,

depending on all the facts, for you to come safely to land, and that depends on the particular weather you encounter out in the open sea. In other words the question of

abuse or no is one that will turn on the facts.

16. Mr. Speck said that the facts that are relevant in those circumstances include the way in which patent litigation of this type is conducted in the UK, and he told me that

patent litigation in certain other countries is conducted in a different way. That characterisation of the exercise that the court is engaged on, when considering the

question of abuse of dominant position, was not as I understood it disputed by Mr. Bloch.

17. What then are the grounds on which Mr. Bloch says that it can be decided at this stage

that there has been such conduct by the claimants to amount to an abuse of a dominant position, such that there is no real prospect of defeating that defence? What he relies

on are the terms of the licence which were offered by the claimants on 26 February of this year, which was the day on which these proceedings were issued, and which are annexed to the Particulars of Claim and are therefore an open document.

18. That, as is common ground, consists of the licence that was settled by Birss J in the Unwired Planet case, together with some variations. The notable variations, apart

from changing the names of the parties, are firstly a change in the royalty rate to take account of the fact that the claimants in this case assert that they have a very much larger portfolio than the portfolio in issue in Unwired Planet. Indeed, as I understand

it, some of their portfolio does consist of the portfolio that was in issue in Unwired Planet, and they have since acquired it. The effect of that is that for end user devices

compliant with 4G, the royalty rates, which in the licence settled by Birss J were 0.052% of the Net Selling Price for each end user device that was sold in Major Markets and 0.026% for each sold in Other Markets or in China, are substituted in this

offer by 0.41% for Major Markets and 0.161% for Other Markets or China. Those, given the scale of Apple sales globally -- and this of course is a global licence --

amount to very significant sums. The estimate that was put on it in the evidence was that it might amount to some $4 billion going forwards for the next five years from

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

the date of grant, plus another $4 billion for back royalties back to the date of the licence being effective, which, as in Unwired Planet, was 1 January 2013. Apart from

the change in the royalty rate, there is secondly one extra term, which does not appear to have been considered by Birss J, which is a term requiring interest at the rate of 5%

per annum to be paid on the back royalties.

19. The terms are otherwise those that were settled by Birss J. Mr. Bloch says, however, with all respect to him, and in circumstances in which there may or may not have

been detailed engagement with the terms by the implementer in that case (Huawei), that they can be seen to be obviously and incontrovertibly unfair.

20. The particular points which he identified under this head include the following: there is a definition of "Licensed Patents", which includes all patents claimed, declared or otherwise asserted by the owner to be (effectively) essential. There is a definition of

"Patents", which includes claims of licensable patent applications. He says that the effect of that is that the claimants only have to acquire patent applications and assert

them to be essential for Apple to be in a position where it cannot, in practice, avoid paying the back royalties in respect of them and that given the way in which the definition of Major Markets and Other Markets is defined -- and Major Markets for

4G means a market in which there are three or more Licensed Patents -- it would be possible by acquiring 1, 2 or 3 Licensed Patents in a country to move it from being an

Other Market into a Major Market.

21. Mr. Bloch points out that it is not possible for Apple to challenge applications which have not yet matured into granted patents; and there appears to be no mechanism in

the licence for Apple, even if successful in invalidating, or showing not to be essential, patents that have been brought into this licence, to recover the back

payments for the previous six years (plus interest) which will by then have been paid.

22. Mr. Bloch also points out that according to the jurisprudence of the CJEU, the offer should be a reasonable offer at the time it is made. At the time it was made, on 26

February 2019, it was not possible for Apple to have challenged and taken proceedings for invalidity in relation to any particular patents, by reason of some

terms of the arrangements entered into between the claimants and Apple, the details of which are confidential and which I need not go into, but which had the practical effect during the negotiating period that Apple was not in a position to challenge the validity

of any patents.

23. Those features, he says, as well as the feature under this form of licence that Apple

has to pay even for countries in which there are no patents at all, are all features which make this unreasonable, as is the definition of "Licensee" which is defined as referring to all three of the defendants. The effect of that is that because the royalties

have to be paid by the Licensee, it thereby makes all three defendants jointly liable. The total sums estimated to be payable under a licence in this form, being as I say

some $8 billion, are, says Mr Bloch, in excess of anything that the first two defendants could reasonably be expected to undertake liability for.

24. Those are the main points. They may not be all of the points, but certainly the main

points which have been urged by Mr. Bloch as being the grounds on which it can be seen, at this stage, that the licence offered by the claimants could not conceivably be

regarded as on FRAND terms. He went so far as to say that it could not have been

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

sincerely put forward as a FRAND licence, a suggestion which is difficult to reconcile with the fact that a licence in very similar terms has, albeit between different parties

and on different evidence, been held to be FRAND by Birss J. As I understand it, there was no appeal against that aspect of his decision.

25. I can see that all the points which Mr. Bloch has urged are points on which it is entirely possible that a court hearing a FRAND trial in this action may agree with Mr. Bloch. On some of them Mr. Bloch may be said to have the better of the argument

and, in those circumstances, it may very well be right that the offer put forward was not a FRAND offer.

26. Nevertheless, I am persuaded by Mr. Speck that this is not an argument which can lead the court to conclude at this stage that there is no reasonable prospect of the claimants avoiding a finding that they have abused a dominant position.

27. Mr. Speck took the point that, in fact, it does not necessarily follow from the fact that the claimants are the owners of a portfolio of standard essential patents that they have

a dominant position. He accepted on the authorities that the relevant market is the market in the licences for those patents, and since Optis are the only people who own those patents and the only people who can license them, they have 100% of that

market; nevertheless, he said, that does not necessarily mean the claimants are in a dominant position. He pointed to the decision of Birss J, again upheld by the Court of

Appeal, in Unwired Planet, where the decision was not open and shut, but regarded as turning on the facts. Birss J came to his conclusion really on the basis that Unwired Planet had not put forward a positive case that they were not in a dominant position,

at which point a number of presumptions could be relied upon. It is also apparent from his judgment that he heard a considerable amount of expert evidence on the

question. Mr. Speck may be right that there will be a real question in this case as to whether there is or is not a case of the claimants being in a dominant position, although it has to be said that I was not pointed to anything specific in the evidence

which indicates the grounds on which the claimants will dispute the dominance of their position.

28. But even assuming, without in any way deciding, that the claimants are likely to be found to be in a dominant position, I accept Mr. Speck's submission that in order for there to be an abuse, there has to be something which depends on an assessment of all

the facts. Among the other facts, which seem to me very relevant to that assessment, is the question of how the English court, in contrast, it may be, to other courts in other

countries, deals with a proprietor of SEPs who has given an undertaking to ETSI.

29. As reflected in the pleadings which I referred to earlier, it seems to me that Mr. Speck is right. The practice in the cases which have so far taken place is that the English

court will, first of all, require the proprietor to establish that there has been infringement of a UK patent, and only at that stage will consider the question of

whether the terms that have been put forward on either side are FRAND or not. Until it has resolved the question of whether they are FRAND or not, the English court's practice is not to grant an injunction, with the result that the implementer can continue

to sell its technology in the UK, despite the finding of infringement which, by then, will have taken place. It is only at the stage at which the court has settled the FRAND

terms, or they have been agreed, that the question arises whether the implementer will take a licence on those terms or not, it being recognised that there is no legal

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

obligation on the implementer, however much there may be in practice a commercial one, to take a licence on the terms settled by the court.

30. One can see this playing out in the judgment of Birss J in Unwired Planet where, in discussing the question, under the heading of "Remedies", whether an injunction

should be granted at [793], he said this:

"The relevant patents have been found valid and infringed. Unwired Planet wish to enter into a worldwide licence. Huawei is willing to

enter into a UK portfolio licence but refuses to enter into a worldwide licence. However a worldwide licence is FRAND and Unwired Planet

are entitled to insist on it. In this case a UK only licence would not be FRAND. An injunction ought to be granted because Huawei stand before the court without a licence but have the means to become

licensed open to them."

31. That, as I understand it, represents the practice in these cases. At any rate, it has not

been suggested to me that there is any other practice. It has not been suggested to me that there are circumstances in which this court will grant an injunction before it has resolved the question what terms of a licence are FRAND and before the implementer

has had an opportunity to take a licence on those terms or not.

32. As I read the CJEU decision, the concern which the CJEU was addressing in Huawei

v ZTE was the concern whether actions for injunctions could be brought which could effectively amount to an abuse of a dominant position. In circumstances where the outcome of any trial, if the claimant is entirely successful, will be that the defendant

will be offered an opportunity to take a licence on terms that, by definition, the court has found to be fair and reasonable and non-discriminatory, and where the court will

only be willing to grant an injunction in circumstances where the defendant, having been given such an opportunity, has chosen not to take such a licence, I find it difficult to say at this stage that that outcome is necessarily something which makes

the launching of these proceedings, even if accompanied by an offer which was not fair and reasonable, an abuse of process such as to give the defendants the ability not

only to argue that other terms should be held to be FRAND, but to say that the action as a whole was an abuse and should be struck out, or that there was a defence to the claim for an injunction. As Mr. Speck pointed out, the injunction sought in the prayer

for relief is not a straightforward injunction but is a qualified injunction, and the claimants themselves have expressed their willingness to grant a licence on FRAND

terms, in compliance with the undertaking that they gave to ETSI.

33. It may be that Mr. Bloch is right and that the terms offered were not fair and reasonable. It may be that Mr. Bloch is right also that offering terms that were so

unfair and unreasonable amounts to an abuse of a dominant position such as to give a defence to the claim for an injunction, even if the court were otherwise willing to

settle FRAND terms. But I do not think that I can conclude on this application, at this stage of the proceedings, that that is the only reasonable outcome of the way in which the proceedings have been brought. I do not think, therefore, that I can conclude that

there is no serious issue to be tried on the merits such as to justify, on that ground, setting aside the permission to serve out that was granted by Deputy Master Kaye. I

Mr. Justice Nugee

Approved Judgment

Optis v Apple

17.12.19

therefore propose to dismiss the application of the third defendant, Apple Inc., to set aside the permission to serve out on those grounds.

34. That leaves the separate point taken in relation to the first two defendants, being the point, which is a mandatory requirement, that notice or prior consultation with the

alleged infringer is required before an action is brought. Here, Mr. Bloch takes a stand on the facts (which do not appear to be disputed in themselves) that what the claimants did was negotiate with Apple Inc. on behalf of, it is said, all the Apple

entities, whereas he says that the requirement to give notice or prior consultation, found in [60] of the CJEU's judgment in Huawei v ZTE, requires notice to be given

separately to each legal entity that is proposed to be sued.

35. Again, he may be right about that, but I do not I think can conclude on this application that he is so clearly right about that that the suggestion that the first two defendants

have an unanswerable defence to the claims is one which can be said to be established at this stage. It does seem to me that there is a reasonable prospect, at the very lowest,

of the claimants persuading the court at trial that it was sufficient for them to comply with the requirements laid down by the CJEU to have spent, on the evidence, some two years negotiating with Apple Inc. on the understanding, on both sides, that the

negotiations with Apple Inc. were not simply for a licence to be taken by Apple Inc. for itself, but were for a licence to be taken by Apple Inc. for all the Apple companies

involved in relevant sales, whether physical sales in retail shops by the UK company, or sales through the website by the Irish company. As I say, that seems to me to be something which I need not decide at this stage, but there is, at the lowest, a

reasonable prospect that the claimants are right about that.

36. Those are the only points which have been argued before me. As I alluded to earlier,

a number of other points were advanced in support of the applications, but Mr. Bloch has not argued them. He recognised that it is not possible for any of them to succeed at this level on the current state of the law. What I propose to do, in the

circumstances, is simply to dismiss the applications of all three defendants. Although I canvassed with counsel the idea of dismissing particular grounds, it seems to me that

that is unnecessary. What the court does is either accede to an application or not. Since I have held that all the grounds failed, some, that have been argued, because I am not persuaded by them, some because they have not been argued, I will simply

dismiss all three applications.

37. Mr. Bloch has asked for the time for seeking permission to appeal that decision to be

extended until 21 days after the Supreme Court hands down judgment in the cases which are awaiting judgment before it. Subject to anything further that Mr. Speck wants to say, it seems to me that it is simplest and convenient to accede to that

application.

38. I will say, because it was a point raised by Mr. Speck, that I have before me no

application for a stay of these proceedings generally pending the Supreme Court decision so I give no encouragement to the notion that extending the time for applying for permission to appeal has any implication for the future conduct of the action

which, on the law as it currently stands, will, in my judgment, proceed in the normal way.

- - - - - - - - - -

Neutral Citation Number: [2020] EWHC 2533 (Ch)

IN THE HIGH COURT OF JUSTICE

Case No: HP-2018-000032

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane

London EC4A 1NL

Date: 25/09/2020

Before :

MR JUSTICE MANN

- - - - - - - - - - - - - - - - - - - - -

Between :

KONINKLIJKE PHILIPS NV (a company incorporated under the laws of The

Netherlands)

Claimant

- and -

(1) TINNO MOBILE TECHNOLOGY CORPORATION

(a company incorporated under the laws of China)

(2) WIKO SAS

(a company incorporated under the laws of France)

(3) TCL CORPORATION

(a company incorporated under the laws of China)

(4) TCL COMMUNICATION TECHNOLOGY

HOLDINGS LIMITED

(a company incorporated under the laws of the Cayman Islands)

(5) TCL COMMUNICATION LIMITED

(a company incorporated under the laws of Hong

Kong)

(6) TCL MOBILE EUROPE SAS

(a company incorporated under the laws of France)

(7) TCL MOBILE UK LIMITED

Defendants

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

Meredith Pickford QC and Andrew Scott (instructed by Bristows LLP) for the Claimant

Geoffrey Hobbs QC and Henry Forbes Smith (instructed by Kirkland & Ellis International LLP) for the Third to Seventh Defendants

Hearing dates: 27th & 28th July, 6th August 2020

- - - - - - - - - - - - - - - - - - - - -

Approved Judgment I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this

Judgment and that copies of this version as handed down may be treated as authentic.

.............................

MR JUSTICE MANN

MR JUSTICE MANN

Approved Judgment Philips v TCL

Mr Justice Mann :

Introduction

1. This is a patent action in which the claimants (“Philips”) patents are said to be, and are

now accepted to be, standard essential patents (“SEPs”) for the purposes of operating

mobile phone handsets in the 3G and 4G standards. Philips alleges infringement against

the third to seventh defendants (together “TCL”), and claims the usual relief claimed

by patentees in respect of infringement but has declared itself willing to grant a licence

on FRAND (fair, reasonable and non-discriminatory) terms in order to enable the

allegedly infringing defendants to avoid those consequences of infringement. This is

pursuant to worldwide procedures coordinated by ETSI, a French organisation, in

relation to SEPs. For a description as to how this works, see the judgment of Birss J in

Unwired Planet International Ltd v Huawei Technologies Co Ltd (No 3) [2018] RPC

8. In these English proceedings Philips seek inter alia, a declaration that the terms it has offered are FRAND, or alternatively that FRAND terms be determined. Its

injunction claim accepts that the injunction will only come into force if a worldwide

FRAND licence is not accepted by TCL.

2. TCL originally challenged the validity of the patents and denied infringement, but it

has now abandoned both those postures. It now seeks to take the benefit of the FRAND

regime and, subsequently to the commencement of this action, it has commenced

proceedings in France which, inter alia, seem to seek to have FRAND terms

determined. Philips attempted to have those proceedings stayed on the footing that

they were second-started proceedings dealing with the same point, pursuant to Article

29 of the Brussels I Regulation ((EU) 1215/2012 - “the Brussels Regulation), but that

attempt failed, as did an application for a stay under Article 30.

3. That has led to another jurisdictional tussle arising out of TCL’s application before me.

TCL seeks a stay of these proceedings, including, crucially, the vacation of a trial date

in November which is intended to determine FRAND issues, in favour of its French

proceedings pursuant to Articles 29 and/or 30 of the Brussels Regulation. In a cross-

application, Philips seeks declarations in respect of essentiality and infringement;

disclosure of TCL’s sales; and a payment on account of damages, though two of those

matters were not live by the time of the hearing.

4. In these applications Mr Meredith Pickford QC led for Philips and Mr Geoffrey Hobbs

QC led for TCL. In what follows I shall ignore the position of the first two defendants,

who have not participated in the action, and for ease of exposition will refer to TCL as

though it were one body, not several.

MR JUSTICE MANN


The English proceedings

5. Philips commenced its English proceedings by a claim form issued on 30 th October

2018 with Particulars of Claim annexed. The claim form says it is for infringement of

two of its European patents (called the 525 patent and the 511 patent). Paragraph 2 of

what is effectively the prayer claims a declaration of infringement and then an

injunction in these terms:

“(2). Save insofar as the Defendants and each of them are

entitled to and take a licence to the Patents on FRAND terms (in

accordance with the Claimant's undertakings and the ETSI IPR

Policy) and insofar as the Claimant is and remains required to

grant such a licence:

a. an injunction to restrain the Defendants and each of them (whether acting by their directors, officers, servants, agents or

any of them otherwise howsoever) from infringing the Patents;

b. an order that the Defendants take all steps as are in their power to retrieve from the channels of distribution all products

the sale, disposal or keeping of which would infringe the Patents

or any of them; and

c. an order for delivery up or destruction upon oath of all articles and materials in the possession, custody or control of the

Defendants (or each of them) which infringe the Patents or any

of them.”

The remainder of the prayer seeks an inquiry as to damages or an account of profits,

and other ancillary relief (including a prayer for “Further or other relief”).

6. The Particulars of Claim avers the patents and then refers to FRAND in extensive terms

which it is convenient to set out in an appendix to this judgment rather than in its body.

Those paragraphs demonstrate a very clear pleading of the FRAND obligation.

Paragraph 16 acknowledges that Philips is prepared to grant a lince on FRAND terms

and there are two sentences of paragraph 17 which are of particular significance so I set

them out here:

MR JUSTICE MANN


“The terms "fair, reasonable and non-discriminatory” fall

properly within the province of judicial interpretation. They will

form the subject of a FRAND Statement of Case in due course.”

7. So far as the TCL defendants are concerned, the Particulars plead:

“ 33. The Claimant has pursued negotiations with TCL CTH and

TCL Corp seeking to license the Patents on FRAND terms but

has thus far been unsuccessful… In summary Philips first

notified TCL CTH and TCL Corp that Philips was aware of the

TCL Defendants' infringing acts in [various particularised

correspondence]. Philips received no response to these letters

and is, accordingly, under the impression that the TCL

Defendants are not presently willing to take a licence on FRAND

terms.”

8. The pleading then goes on to allege infringement and the prayer is to the same effect as

in the claim form.

9. TCL’s initial response was to challenge the English court’s jurisdiction. It did so on

the footing that it had no objection to the English forum if the reach of the FRAND

licence required to avoid the injunction were confined to patents which excluded US

and Chinese patents within the same patent families as the patent in suit. However, if

(as seemed to be the case) the licence sought was world-wide then jurisdiction was

challenged on the footing that it was inappropriate to litigate here when a large portion

(said to be 95%) of the royalties under the proposed licence were not justified by UK

patents. The connections of the case to England were said to be insufficient to make it

fair or appropriate, or FRAND, for a truly global licence to be determined here.

Furthermore, the validity of non-UK patents in the portfolio, which was challenged,

was not justiciable here either.

10. Some of this appears from a witness statement of Katharine Coltart, a solicitor for TCL:

“13. …Although the Claimant has not yet produced a Statement

of Case on FRAND, the Claimant pleads that its “standard terms

and conditions…are FRAND”.

15. Philips’ case in these proceedings appears to be that if

infringement of the two UK patents in suit is shown the TCL

Defendants should enter into this Draft Agreement and thereby

MR JUSTICE MANN


licence some 1,253 patents, at royalty rates settled by the English court, in order to avoid an English injunction.

16. The TCL Defendants would have no commercial or

jurisdictional objection to Philips’ choice of this English forum

if the reach of the patent licence required to avoid an English

injunction if UK patent infringement is shown is limited to

European patents within the same patent families as the UK

patents in suit, or indeed simply excludes US and Chinese

patents and is limited to “rest of world” patents within the same

patent families as the UK patents in suit.

17. Provided that Philips accepts and agrees not to argue in

these English proceedings that the required FRAND licence

includes US and Chinese patents or reaches US sales or sales in

China or countries where Philips has no patents, the TCL

Defendants are willing (and hereby offer) to enter into a global

patent licence in respect of patents in the same families as the

UK patents in suit, excluding the US and China (and US and

Chinese patents) on terms determined by the English court in the

event that the UK patents in suit are found to be infringed. If this

offer is accepted, the Jurisdictional Challenge now made will no

longer be required and the case will be able to progress on the

merits.”

11. Shortly after the application to challenge jurisdiction was launched, on 19 th February

2019 TCL launched its French proceedings. I describe those proceedings in the next

section of this judgment. For present purposes it should be noted that TCL did not add

the existence of the French proceedings as a challenge to English jurisdiction.

12. 2 months later TCL changed its posture in relation to jurisdiction. On 18th April 2019

it filed a second acknowledgment of service stating it intended to defend Philips’ claims

and on the same day filed a Defence and Counterclaim. The jurisdiction application

was disposed of in an order of Birss J stamped on 29th May 2019 which recites the

jurisdiction application, and various applications by the claimants to serve out of the

jurisdiction (and other matters), it recites the service of the Defence and Counterclaim

“thereby accepting that the Court has jurisdiction to try the claim”, and it declares that:

“1. The Court has jurisdiction to try the claim.”

MR JUSTICE MANN


This part of the order is not recorded as being made by consent. These events are relied on by Philips as being a submission to the jurisdiction which cannot now be resiled

from.

13. The Defence and Counterclaim pleaded to the FRAND pleading in the Particulars of

Claim. Because the form of pleading may be relevant to a resolution of this matter,

the relevant paragraphs (paragraphs 6-16), are set out in the Appendix to this judgment.

They are set out in their Re-Amended form. Of particular relevance are the averments

that the French proceedings will determine a licence on FRAND terms and that Philips’

future FRAND Statement of Case in the English proceedings would relate “to matters

which are the subject of the French proceedings and which accordingly should not be

addressed in the current proceedings.”. Further, in paragraphs 21 and 22, TCL say that

they raise their ‘plea in bar’ defence to the effect that Philips are not entitled to relief

due to TCL’s intention to take a licence on FRAND terms as determined in the French

proceedings.

14. On 30th May 2019, Philips filed its Reply and Defence to Counterclaim. In that pleading

Philips challenged TCL’s averment that FRAND terms should not be determined in the

English proceedings and denied its ‘plea in bar’ defence.

15. The matter came before Arnold J on 1st July 2019, who, inter alia, set directions for

two technical trials, one in respect of each patent. These trials were subsequently listed

to commence on 13th July and 5th October 2020 respectively. The October trial slot

remains reserved though by agreement of the parties it is no longer necessary and will

be vacated. By the same order, TCL were required to file a reply to Philips’ FRAND

Statement of Case, once served, and a trial was listed to determine the issues as defined

in the FRAND Statements of Case together with any aspects of Philips’ defence to

TCL’s claim for a declaration of non-infringement that related to Philips’ FRAND

obligations (“the FRAND Trial”). A case management conference was listed to provide

for further directions for the FRAND Trial.

16. On 5th July 2019, Philips filed and served its FRAND Statement of Case. This pleading to some extent reproduced its position as originally set out in paragraphs 8 to 22 of the

Particulars of Claim. Otherwise, the pleading set out Philips’ position as to what

FRAND terms were and an averment that should TCL not take a licence on FRAND

terms, Philips were entitled to damages or an account of profits calculated by reference

to FRAND terms i.e. to ensure that Philips is left no worse off than had TCL taken a

licence on FRAND terms. The FRAND Statement of Case included a section on relief

as follows:

“63. In the premises, Philips requests that the Court:

MR JUSTICE MANN


a) declare that the terms on which Philips is willing to license the Philips Portfolio as set out at paragraph 17 above are in the FRAND

range; in the alternative,

b) determine the adjustments required to the terms set out in paragraph

17 above that are required for those terms to fall within the FRAND

range for a licence to the Philips Portfolio; and

c) once the Court has found that TCL has infringed EP'511 or EP'525,

in the event that TCL declines or refuses to enter into a licence on

the terms set out at paragraph 17 above, or in the alternative, to

undertake to enter into a licence on terms within the FRAND range

as adjusted by this Court and offered to it by Philips:

i. grant injunctive relief prohibiting in the United Kingdom

TCL, (whether acting by its respective directors, officers,

servants, agents and third parties with whom it is jointly liable

or any of them or otherwise howsoever), from (i)

manufacturing, disposing of, offering to dispose of, using,

importing or keeping mobile devices that are held out as

implementing HSPA functionality, or (ii) otherwise infringing

EP'511 and/or EP'525; and

ii. award damages, alternatively an account of profits, in respect of the past acts of infringement of EP'511 and/or EP'525 by

TCL (whether committed by its directors, officers, servants,

agents, third parties with whom it is jointly liable or any of

them or otherwise howsoever) in relation to devices that have

been held out as implementing HSPA functionality.”

17. As ordered by Arnold J, TCL filed and served its reply to Philips’ FRAND Statement

of Case on 27th September 2019. That reply merely referred to paragraphs of TCL’s

Amended Defence and Counterclaim, including some of those set out in Appendix 2

and its ‘plea in bar’ defence. Effectively, TCL did not set out its position as to what

FRAND terms were but instead indicated that such terms would be determined in the

French proceedings.

18. The case management conference to provide directions for the FRAND Trial was heard

on 26th November 2019 by Nugee J. At that hearing, TCL asked that no directions be

made but that a further case management conference be listed after the French court

had given judgment on Philips’ jurisdictional challenge in the French proceedings.

Philips asked that directions be made for the FRAND Trial which had by then been

listed to commence on 23 November 2020. Nugee J decided to give directions to trial

and it is convenient to reproduce his short judgment in that regard in full.

1. I will give a very short judgment on the question of principle. I have listened

to what has been said on both sides with great care, and there is, as is so

often with discretionary matters, something to be said on both sides. It is

possible that if I put things off at this stage matters will be rather clearer by

the time matters come back at some stage in February or March. It is possible

that the decision of the Supreme Court [in the Unwired Planet case] might

MR JUSTICE MANN


affect matters and be available. It is possible that the Court of Appeal [in other litigation involving these patents] might say that these patents are

invalid altogether, which would put an end to these things. It is possible that

the decision of the Paris court will provide at least some reason for thinking

that the shape of the FRAND trial will be rather different, either more

extensive or less extensive, than is currently envisaged. Nevertheless, I am

persuaded by Mr. Pickford that the appropriate thing to do is to proceed on

the basis laid down by Arnold J's order of July, which is to proceed on the

basis that there will be a trial of the FRAND issues, as currently pleaded in

November next year, and that there is in the end no good reason why this

CMC, which was directed by paragraph 32 of that order, in order to set

directions for that trial, should not do what it was intended to do, which is to

set directions for that trial.

2. That will, of course, be subject to being revisited, and in certain circumstances if Philips takes steps in reliance on the directions I am going

to make, and they turn out to be completely wasted that will be money that is

just thrown away, but Philips want to get on with it and I have considerable

sympathy with the idea that what should be done is to proceed on the basis

that there will be an effective trial in November and put in place now

directions intended to achieve that end rather than put matters off to a date

which is not yet known, which runs at least the risk that things will be

squeezed next year. Therefore, I prefer Mr. Pickford's submissions and I will

make directions. I will revisit the points of detail at 2 o'clock.

19. The discussions between counsel and the judge at the hearing of 26 th November 2019

are also relevant to this application. Of particular relevance are the following passages:

“MR. JUSTICE NUGEE: I do not I think either side is asking me to resolve that

question.

MR. PICKFORD: No.

MR. JUSTICE NUGEE: Because that question will have to be resolved at some

stage, and it may be something resolved in Paris for all I know. You are not asking

me today to decide this question of whether you had put in issue the FRAND terms

originally?

MR. PICKFORD: No, I do not.

…

MR. JUSTICE NUGEE: As I understand the defendant's position, it is that this

claim did not initially raise the question of whether -- did not seek a declaration

that your worldwide terms were FRAND. So, they managed to get in first, in

Paris, by raising that issue that the two are not the same issue and therefore the

French court is the first court seized. That is their position.

MR. PICKFORD: That is what they say.

…

MR PICKFORD: … I need to come on to make some short submissions about the

underlying premise for the alternative which is advanced by TCL. Their whole

MR JUSTICE MANN


case effectively depends on saying, "Do not worry about this here. We are going to sort it out in France".

MR. JUSTICE NUGEE: It is all going to be sorted out in Paris, and we should

not really be doing it at all.

MR. PICKFORD: Yes, indeed. There are two immediate points that can be made

in response to that without actually having to determine the Brussels regulation

issues today. As I said to your Lordship at the beginning, we are not asking you

to.

MR. JUSTICE NUGEE: I do not think anybody is asking me to.

MR. PICKFORD: No.

…

MR TAPPIN: … We say our position is entirely consistent in France and here.

My learned friend does not invite my Lord to decide any of this today, and rightly

so. That is a matter which is being heard by the French Court next week, I think.

It is the 2nd or 3rd December. My Lord, just to put the record straight, we do not

accept an inconsistency between the way we put matters here and the way we put

matters in France. My Lord, no one is asking you to second-guess what the

French Court will do.”

20. On 17th December 2019 in separate proceedings, the Court of Appeal upheld the

validity of the two patents in suit in the English proceedings. Following from that, TCL

agreed to not pursue its previous allegations of non-infringement or invalidity and the

parties reached a compromise in that regard. On 7th April 2020, Nugee J approved a

consent order providing for the various counterclaims dealing with non-infringement

and non-validity to be dismissed and for the parties to file amended statements of case

to reflect the new positions. The parties did this, by way of Re-Amended Defence and

Re-Amended Reply on 14th April 2020.

21. Thereafter the applications before the court at this hearing were made. In terms of

preparation for the FRAND Trial in November, Philips state that they have complied

with the directions set by Nugee J, and have in particular served factual witness

statements and expert evidence on French law. TCL have not served any factual witness

statements or any expert evidence.

The French proceedings

22. As appears above, the French proceedings were issued on 19 th February 2019. Using English expressions, the claimants were the same parties as the fourth, fifth and sixth

defendants in the English proceedings and the defendants were Philips, Philips

MR JUSTICE MANN


International B.V. and European Telecommunications Standards Institute (ETSI). The writ, as translated into English, asks the French court to:

Hold and adjudge that the declarations made by the PHILIPS companies

to the ETSI constitute a promise to grant a licence to the member

companies of the TCL group for all of the patents of the PHILIPS

companies which are declared to be essential to the UMTS and LTE

standards and to any developments thereto, on fair, reasonable and non-

discriminatory terms and conditions, and therefore, to:

Instruct the PHILIPS companies to grant the member companies of the TCL group a licence for all of the patents of the PHILIPS companies

which are declared to be essential to the UMTS and LTE standards and

to any developments thereto, on fair, reasonable and non-discriminatory

terms and conditions, with the Court determining such fair, reasonable

and non-discriminatory terms and conditions.

Instruct the ETSI to contribute to the member companies of the TCL group

being granted a licence for all of the patents of the PHILIPS companies

which are declared to be essential to the UMTS and LTE standards and

to any developments thereto, on fair, reasonable and non-discriminatory

terms and conditions.

Hold and adjudge that the terms and conditions proposed by the PHILIPS companies to the TCL companies for the licence for the patents of the

PHILIPS companies, which are declared to be essential to the UMTS and

LTE standards, are not fair, reasonable and non-discriminatory.

In the alternative, the Court is called upon to instruct the PHILIPS

companies to conduct FRAND negotiations resulting in the granting of

licences for these patents on fair, reasonable and non-discriminatory terms and conditions.

Should the PHILIPS companies fail to conduct negotiations that result in

the granting of licences for patents on fair, reasonable and non-

discriminatory terms and conditions, the Court is called upon to

determine the terms and conditions of the licences for these patents on

fair, reasonable and non-discriminatory terms and conditions.

In the further alternative, the Court is called upon to order the PHILIPS companies to pay, jointly and severally, 15 million euros by way of

advance on damages to indemnify the losses sustained by the TCL

companies, subject to adjustment.

23. Philips challenged the jurisdiction of the French court under Article 29 of the Brussels

Regulation, alternatively asking for a discretionary stay of the French proceedings

under Article 30 of the Brussels Regulation. Philips also challenged jurisdiction under

Articles 7 and 8 of the Brussels Regulation but that is not relevant to this application.

At a Scheduling Conference on 28 May 2019, the judge gave directions for pleadings

to be filed in respect of that challenge.

24. On 11th July 2019, Philips submitted its written challenge to the jurisdiction. In respect of Article 29, Philips averred that there was an identity of parties, cause of action and

MR JUSTICE MANN


object of action between the English proceedings and the French proceedings, that the English court was first seised and therefore the French court was bound to decline

jurisdiction in favour of the English court. In respect of Article 30, Philips averred that

if its case on Article 29 was not accepted, the French court should nevertheless decline

jurisdiction in light of the risk of irreconcilable judgments arising from the English and

French proceedings which it said were related (Article 30).

25. In written submissions Philips developed its case are as follows (so far as relevant):

“36…This is indeed because the lawsuit pending before the England and Wales High Court from the outset involved a request for determination of the FRAND

terms and conditions for a licence on a global portfolio of patents held by the

company Philips, beyond the infringement solely of the English parts of two

European patents.

The England and Wales High Court remains the jurisdiction before whom all the

claims and applications of the company Philips NV have been brought, including

the FRAND related claims, in respect of which the jurisdictional objections

raised by the TCL companies have been purged.

It is therefore in vain that these companies now maintain that the court in France

is the first court before whom these claims were brought or that “the court in

England has never had jurisdiction and should not deem itself to have jurisdiction

to determine the FRAND licence terms and conditions in the context of the UK

proceedings".

37 The jurisdiction of the court in England to rule on the claims of the company Philips NV having by now been established, the proceeding before that court is

continuing along its course.

…

38 Although they have attempted to disguise their claims in the form of a

contractual dispute disconnected from any infringement proceeding, the TCL

companies intend to bring before this very court a dispute that is identical or, in

any case, closely related to the one already pending before the England and

Wales High Court .

The juge de la mise en état/pre-trial judge preparing the case will not be taken in and will state that this court (TGI) ought to decline jurisdiction over the case in

favour of the England and Wales High Court, if the latter has jurisdiction.

…

111 If, by some extraordinary circumstances, the jurisdiction of this court (TGI

Paris) were retained, the juge de la mise en état/pre-trial judge would declare

the lis pendens, arising between the claims brought by the TCL companies against

the company Philips NV before the England and Wales High Court (EWHC) and

before TGI Paris, requiring that the judge decline jurisdiction in favour of the

EWHC.

…

MR JUSTICE MANN


114 The proceedings brought before the court in the United Kingdom and the present court combine this triple identity of parties…, cause of action… and

subject matter… .

The identicalness (identity) of cause and subject matter must be assessed on the

basis of only the claims contained in the two documents initiating proceedings,

to the exclusion of subsequent claims or counterclaims.

For the purposes of his analysis, the juge de la mise en état/pre-trial judge

preparing the case must therefore compare the claims contained in the

Particulars of Claim filed on October 30, 2018 before the England and Wales

High Court (Philips Exhibit no 4) and the summons of the TCL companies filed

before this very court dated February 19, 2019.

The juge de la mise en état/pre-trial judge must in particular not take into account the defence briefs filed by the TCL companies in the UK proceedings, as well as

the pleadings on the merits of the case submitted by the latter and by ETSI in the

proceedings in France.

The FRAND Statement of Case served by the company Philips NV in the UK

proceedings on July 5, 2019 (Philips Interlocutory Proceeding Exhibit no 8) only

details the FRAND claims of which the England and Wales High Court has been

seized by the Particulars of Claim: these submissions therefore do not constitute

subsequent claims.

In this regard, account is to be taken of the specific features of the English

procedural system, wherein referral of the dispute is done by a first form (the

Claim form), followed by the filing of Particulars of Claim which briefly describe

the facts and circumstances of the dispute and list the claims brought before the

court, followed again by Statements of Case which go on to detail these claims.”

…

115… Whereas it is certain that the parties to the two proceedings must be

identical, this identity is understood in a manner independent of their respective

procedural positions, “the claimant in the first proceedings may be the defendant

in the second”.

116 Furthermore, the identicalness of the parties between the two proceedings

does not have to be total: the presence or absence of certain parties in one or

other of the proceedings does not destroy the lis pendens.

This is not disputed by the TCL companies.

…

122… The two proceedings initiated therefore have the same legal basis, having

their origin in the FRAND undertaking made by the company Philips NV to ETSI

and its consequences for the holder of patents declared to be essential and for the

third party who exploits the same.

…

132 The claims of the TCL companies, according to the terms of their summons

dated February 19, 2019 would lead this court to examine identical questions…

133 The action brought before the court (TGI Paris) is indeed the mirror image

of the one already brought before the UK court and also has the same object.

MR JUSTICE MANN


…

144 The TCL companies have justified their ability to select the court jurisdiction

of their choice for this same request for FRAND licence determination by the

decision ZyXEL v. TQ Delta …

…

152 By bringing before this court, the present proceeding against the company

Philips NV, relating to the same dispute as the one already submitted by the latter

to the court in England, several months earlier, the TCL companies have

positioned themselves within the scope of Article 29 of the Brussels I Bis

Regulation.

Save for this court (TGI Paris) declaring its lack of jurisdiction, the same dispute has therefore been submitted to the courts of two Member States of the European

Union, who equally have jurisdiction under their own rules of jurisdiction, the

court in England having already declared itself to have jurisdiction

26. TCL submitted that there was no identity of parties, cause or object. TCL relied on

differences between the legal foundations of the actions, the patents in suit, the relief

sought, the territories concerned, the type of liability relied upon, the reasons for the

respective proceedings and the respective parties. In respect of the lack of identity of

parties, TCL’s case was put as follows:

“581. It is clear…that there is no identification of the parties.

…

584. To justify the alleged identity of the parties, PHILIPS indicates in its

pleadings that the identity of the parties can only be partial, basing this on

community case-law.

585. However, if in some cases, they can only be partially identified, it is only on

the assumption that there is also an identity of object and cause.

586. This is not the case here: it has been shown that neither the identity of the

object nor the identity of the cause can be reported, as has been demonstrated

above.”

Overall, TCL based its case, in part at least, on an argument that the FRAND Statement

of Case dated 5th July 2019 was a subsequent claim and was to be disregarded when

considering identity of cause, object and parties.

27. ETSI’s submissions, for its own reasons, were that Articles 29 and 30 of the Brussels

Regulation were not fulfilled.

28. The French court delivered its judgment on 6th February 2020. In the “Statement of

Claim”, the judgment records the English proceedings and the relief sought therein and

MR JUSTICE MANN


in particular quotes the proviso to the injunctive relief sought in the Particulars of Claim. The parts of the judgment relevant to the arguments on Article 29 are as follows:

“The PHILIPS companies maintain in this regard that the condition of triple

identity of the parties, cause, and subject matter is fulfilled. They state that the

parties are the same, and that the cause is the same, the claims, both in France

and in Great Britain, having the same basis, namely the commitment entered into

with ETSI in application of Article 6.1 of the intellectual property policy. They

point out that, on the basis of this text, they require the UK jurisdiction to

determine the terms of a FRAND licence and to set a timeframe for TCL

companies to subscribe to such a licence and in the absence thereof, to impose

prohibition measures. The PHILIPS companies also maintain that the

applications before the English and French courts have the same purpose of

determining the terms of a FRAND licence.

The TCL companies conclude that this objection should be rejected. They claim that the suit lodged in Great Britain is an action of tort law in relation to patent

infringement, while the suit lodged in France is not an action in declaration of

non-infringement, but an action of a contractual nature with the intention of the

PHILIPS companies performing their obligation. They point out that the decision

rendered in the Zyxell case by the English court shows that the TCL companies

can give up their right to a FRAND licence for the British territory and even their

right to have the terms of such a licence determined, so that, according to the

defence of the TCL companies, the claim of the PHILIPS companies only seeks

to obtain a prohibition measure in Great Britain.

They add that the English courts could stay proceedings pending the future decision on the merits of this court. With regard to the identity of the cause, the

TCL companies point out that their claim concerns the patent portfolio and the

English proceedings, only two patents, and that the territory concerned by the

two proceedings is not the same. They conclude on this point (lack of identity of

cause and subject matter) by indicating that the other English decision cited by

the PHILIPS companies (Unwired planet versus Huawei) is the subject of an

appeal before the Supreme Court.

The TCL companies finally indicate that the parties are not the same, ETSI not

being a party to the English dispute.

ETSI contends that the objection of lis pendens should be rejected.

…

In the present case, the claim before the High Court of Justice of England and

Wales is based on the infringement of the English part of the European patents

EP 1 440 525 B1 and EP 1 623 511 B1 and the claim of the PHILIPS companies

aims to obtain an injunction and compensation for the damage suffered after

expert assessment. It only concerns the PHILIPS and TCL companies.

This dispute concerns the PHILIPS and TCL companies, as well as ETSI. It

consists in determining whether, in application of the procedural rules relating

to intellectual property rights drawn up by ETSI, the PHILIPS companies have

offered a worldwide licence relating to a portfolio containing, among others,

European patents EP 1 440 525 B1 and EP 1 623 511 B1 on “fair, reasonable

and non-discriminatory” terms.

MR JUSTICE MANN


It follows that, since the condition of triple identity of cause, subject matter and parties is not fulfilled, there is no reason to relinquish jurisdiction in favour of

the English Court.”

29. The parts of the judgment relevant to the arguments on Article 30 are as follows:

“In the further alternative, the PHILIPS companies maintain

that the disputes submitted to the English and French courts can only lead these two courts to examine the same questions of fact

and of law likely to lead to irreconcilable solutions, contrary to

the objectives of the Brussels I bis Regulation.

The TCL companies claim that the objection based on related

actions should be dismissed and claim that, in light of the

development of the claims submitted to it, the English court

should stay the proceedings pending the decision of the Paris

Court.

ETSI similarly concludes that the objection based on related

actions should be rejected.

…

As noted by the TCL companies, the proceedings on the question

of the FRAND licence will only be held in Great Britain if the

TCL companies do not waive seeking such a licence (Court of

Appeal, 18 July 2019, TQ Delta LLC v. ZyXEL Communications

UK Limited and ZyXEL Communications: “I can see no basis

whatsoever for saying that such a waiver should be treated as

ineffective or invalid. To say that the waiver is ineffective is

equivalent to saying that the proceedings must go on as if ZyXEL

were still relying on the RAND undertaking to resist the grant of

the injunction in the UK, when ZyXEL are prepared to give an

irrevocable undertaking not to do so.” Translation of the

decision authorising the appeal from the judgment in that it had

authorised the continuation of the “FRAND process” despite the

waiver of the ZyXEL companies to request the determination of

the terms of such a licence).

Given that no risk of irreconcilable decisions within the meaning

of Article 30 of the Regulation has yet been characterised, the

objection based on related actions cannot be accepted in this

case, and there is no reason to order the relinquishment of this

jurisdiction.”

30. The judgment concludes with a “dispositif” which, so far as it is relevant, states “The pre-trial judge rejects all procedural objections raised by KONINKLIJKE PHILIPS NV

and PHILIPS INTERNATIONAL BV”.

MR JUSTICE MANN


31. A certificate under Article 53 of the Brussels Regulation in respect of the judgment of

6th February 2020 was obtained on 3rd March 2020. That certificate records the French

court’s decision, again so far as relevant, as:

“Decision of the juge de la mise en état [pre-trial judge preparing the case]

dismissing all the exceptions relating to procedural issues (exceptions in respect

of jurisdiction, lis pendens and correctedness) raised by the companies

KONINKLIJKE PHILIPS NV and PHILIPS INTERNATIONAL BV…”.

32. On 2 June 2020, Philips filed an appeal in respect of the judgment of 6th February 2020. Philips are challenging the French court’s decision in respect of Articles 7, 8 and 30 of

the Brussels Regulations. Philips is not appealing in respect of the decision on Article

29. The appeal is due to be heard on 15 February 2021. Philips, on advice from its

French lawyers, estimates that the decision on the appeal will be delivered around

March 2021.

33. In relation to the substantive determination of the French proceedings, Philips, on

advice from its French lawyers, estimates that the decision will be delivered in late 2022

or early 2023 if the substantive proceedings recommence after Philips’ current appeal

on jurisdiction. It is relevant to observe that one of the patents in suit in the English

proceedings (and also in the French proceedings) expires before then, on 15 th October

2022.

Applications before the Court

34. Following the French decision on 6th February 2020, the parties have issued three applications which have been heard together.

35. The first is an application by TCL, issued on 9th April 2020, for a stay of “all aspects

of these proceedings concerning the Claimant’s FRAND licensing obligations,

including its claims set out in its Statement of Case on FRAND dated 5 July 2019” and

a vacation of the FRAND Trial.

36. The second is an application by Philips, issued on 28th April 2020, for (i) declarations

that the patents in suit are essential; (ii) declarations that TCL has infringed the patents

in suit and continue to do so; (iii) orders that TCL disclose by 22nd May 2020 the

MR JUSTICE MANN


number of infringing devices sold in the UK and the rest of the world by TCL and its agents; and (iv) a payment on account of damages for infringement. This application

is said to be the consequence of TCL’s admissions as to infringement and validity.

37. There is also an application by Philips, issued shortly before this hearing, on 24 th July

2020. This application is for permission under CPR 17.1(2)(b) to amend Philips’ Reply

to reflect the fact that Philips is not pursuing an appeal against the French court’s

decision in respect of Article 29 of the Brussels Regulation. TCL do not object to this

application.

The basis of the stay application by TCL

38. Against that background TCL applies for stay under Article 29 of the Brussels Convention Re-stated, and/or under Article 30. The issues on this application turn on

those two articles. There is no application for a “case management” stay, although

some of Mr Hobbs’ submissions seemed to suggest there was.

The Article 29 point – the arguments

39. Article 29 provides:

“1. Without prejudice to Article 31(2), where proceedings

involving the same cause of action and between the same parties

are brought in the courts of different Member States, any court

other than the court first seised shall of its own motion stay its

proceedings until such time as the jurisdiction of the court first

seised is established.

2. In cases referred to in paragraph 1, upon request by a court

seised of the dispute, any other court seised shall without delay

inform the former court of the date when it was seised in

accordance with Article 32.

MR JUSTICE MANN


3. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline

jurisdiction in favour of that court.”

40. At the heart of Mr Hobbs’ case is the proposition that the French proceedings involve

the French court being seised of the FRAND issues in the case, and is the court first

seised of those issues. He submits that the English court was not seised, or perhaps not

sufficiently seised, of those issues in the originally constituted proceedings, and they

were not properly or effectively introduced until the FRAND statement of case by

Philips, and that came after the French proceedings had been commenced. Accordingly

the English court ought to stay its FRAND proceedings, which means vacating the

November trial of FRAND and relief issues. Furthermore, he claims that not only is

that the correct analysis; it has also been held to be the correct analysis by the French

court in the French proceedings in its determination of Philips’ application in those

proceedings, and this court must acknowledge and give effect to that decision. Article

36 provides that the English court must recognise the French judgment without any

special procedure and Article 52 prevents the French judgment being reviewed in this

jurisdiction.

41. Mr Hobbs originally maintained that the key part of the French disposition is the

"dispositif", which dismisses all Philips jurisdictional, lis pendens and “connectedness”

procedural objections. The wording appears above. That, he said, was the operative

part, though he modified his case in his reply submissions by accepting that one could

look more widely into the French judgment. The effect of the dispositif was confirmed

by the certificate issued under Article 53. One can see what was rejected by looking at

the written submissions of Philips in paragraph 36, again set out above - the submissions

say that the English claim involves a request for the determination of FRAND and

makes it clear that the case of Philips was that the FRAND determination claim was in

the proceedings from the outset and were not introduced subsequently (paragraph 114).

The real point was whether the “objets” were the same. Philips maintained that they

were throughout its submissions.

42. The judge in France is said by Mr Hobbs to have held against that view. She held that

the claims were different and there was no prior FRAND claim in England. That is

determined by looking at the "dispositif" part of the judgment, measured against the

submissions made to her. That is the crux of what she held, and Philips is not even appealing that. If one looks at the wider judgment, there is a “baked in” finding that

there was no prior FRAND case in England. Accordingly the English proceedings

ought now to be stayed. All this was anticipated as being possible by Nugee J in his

ruling, and what he anticipated might happen has happened. TCL is applying under the

liberty to apply in paragraph 25 of his order of 26th November 2019 in precisely the

circumstances that were anticipated by that liberty.

MR JUSTICE MANN


43. Although Mr Hobbs based his submissions firmly on the French court’s determination, he was prepared to justify the analysis. He supported his submission that there was no

FRAND case articulated in this jurisdiction until the service of Philips’ FRAND

statement of case by reference to Barclays Bank v Ente Nazionale [etc] 2016 EWCA

Civ 1261 (“Enpam”).

44. Mr Pickford’s case is that when one looks to see what happened in the French

proceedings, and what the French court actually decided, the court did not decide that

it was first seised of FRAND issues which were then invoked in England, making

England second seised of them. One had to look at the French judgment properly to

work out what the ratio was, and not confine oneself to the "dispositif" and the

certificate. The French court decided that Article 29 was not engaged and the two sets

of proceedings involved different matters (and parties). That being the case, it cannot

have decided that Article 29 required the French proceedings to continue over the

English proceedings as being the court first seised of the same issue, and i t did not do

so. Some common issues might be raised, but that did not mean the same cause of

action was involved for the purposes of Article 29.

45. He went on to submit that Philips accepted that that was the correct view. The

proceedings in the two jurisdictions were different - in England and Wales the

proceedings were tort proceedings - infringement of patents seeking consequential

relief. That relief involved a FRAND determination if TCL wished to avoid the

injunction, and it involved a damages claim in which a FRAND licence fee was said to

form the basis of the damages calculation, but that is as far as FRAND went. In France

the proceedings were contractual - TCL were seeking to enforce a contract requiring

the grant of a FRAND licence. The French court therefore did not decide that there

were two relevantly similar sets of proceedings of which it was first seised, either

expressly or by implication.

46. Furthermore, if it became necessary in this jurisdiction actually to consider whether the

courts of this jurisdiction were first seised of the FRAND issue or not (irrespective of

the French decision), then the answer was that they were. If the issue arises in the

present proceedings, then it arose from the outset and not from the date of Philips’

FRAND statement of case. That document merely provided particulars of a case that

was already there, notwithstanding the absence of a claim for a declaration that Philips’

terms were not FRAND in the Claim form and Particulars of Claim (which Mr Hobbs

accepted in his reply submissions would have made all the difference and would have

meant that the FRAND claim, on his arguments, would have been raised first in this

jurisdiction). But even if that is wrong, and the FRAND statement of case introduced

a new cause of action, the old one, with its dependency on FRAND in terms of a means

of avoiding the injunction and the measure of damages, would still have to proceed, and

should proceed.

MR JUSTICE MANN


47. In addition to those points about the proper operation of Article 29, Mr Pickford also

submitted that it was too late for TCL to take these points even if they would otherwise

have been sound. He submitted that they were jurisdictional points, and this court has

already ruled (apparently without opposition, though not by consent) that it has

jurisdiction to try the claim - see the order of Birss J above. Furthermore, TCL has

submitted to the jurisdiction by filing a further acknowledgment of service and serving

a Defence and Counterclaim. It is now too late for TCL to backtrack and claim that

there is no jurisdiction. At the time of the decision to submit to the jurisdiction, and of

Birss J’s order, the French proceedings had been started, and if jurisdictional objections

were to be taken based on those proceedings they ought to have been taken then. They

were not, and the contrary stance of submitting to the jurisdiction was taken.

The proper way to view the French judgment

48. Although I do not think there was much between the parties on this point by the end of the hearing, I will deal with it briefly.

49. Mr Hobbs’s original position on this (that one looks at the “dispositif” to find out what the judge decided) seems to have been based on some alleged principle of French law

which was not established by any expert evidence. In fact the question of what is the

ratio of a decision on these European matters is a matter of European, not domestic,

law. In Gothaer [etc] v Samskip [2013] QB 548 the ECJ held:

“40. Moreover, the concept of res judicata under European Union law does not attach only to the operative part of the

judgment in question, but also attaches to the ratio decidendi of

that judgment, which provides the necessary underpinning for

the operative part and is inseparable from it …. As observed in

para 35 above, given that the common rules of jurisdiction

applied by the courts of the member states have their source in

European Union law, more specifically in Regulation No

44/2001, and given the requirement of uniform application

referred to in para 39 above, the concept of res judicata under

European Union law is relevant for determining the effects

produced by a judgment by which a court of a member state has

declined jurisdiction on the basis of a jurisdiction clause.

41. Thus, a judgment by which a court of a member state has

declined jurisdiction on the basis of a jurisdiction clause, on the

ground that that clause is valid, binds the courts of the other

MR JUSTICE MANN


member states both as regards that court’s decision to decline jurisdiction, contained in the operative part of the judgment, and

as regards the finding on the validity of that clause, contained in

the ratio decidendi which provides the necessary underpinning

for that operative part.”

50. In accordance with those findings, it is both appropriate and necessary to look beyond

the bare sentence at the end of the judgment and see what the reasons for that decision

were. That involves looking at the earlier parts of the judgment, and in this case it is

useful, and probably necessary, to go back into what the parties’ submissions were as

well. Mr Hobbs himself did not shrink from referring to those matters in the course of

his submissions and, as I have observed, he seemed to have expressly resiled from his

narrow view by the time he came to his reply submissions.

51. I shall therefore, so far as necessary, refer to that material myself.

The effect of Article 29 in this case

52. I start by considering the French judgment. The end result is that the “procedural

objections” taken by Philips were rejected. Working backwards through the judgment

to find the ratio, one finds the reasons for the rejection in the section headed

“Whereupon”. The judge started this section by citing Article 29, and then cited The

Tatry (Case C-406/92), specifically citing (amongst other things):

“41. The “objet of the action” for the purposes of Article 21 means the end the action has in view …”

It therefore appears that the end result of the action was something she very much had

in mind. She also went on to cite passages about the identity of the parties in two

parallel actions.

53. Then she went on to rule as appears above, ending with the conclusion the identity of

the cause, subject matter and parties is not fulfilled. Her conclusion seems to be that

none of the three identities were fulfilled, but I shall not dwell on the question of the

identity of parties. In referring to the need to find the same “objet” the judge clearly

indicated that she had that point in mind. Accordingly, when she described the nature

MR JUSTICE MANN


of the two actions in the first of the two paragraphs cited above (“In the present case …” and “This dispute concerns …”) she was, in my view clearly contrasting the two

“objets” of the action. So when she finds the triple identity is not fulfilled, she is finding

that the identity of the “objets”, and in my view also the subject matter or identity of

the actions, was not there. In other words, they had different “objets” and subject

matter.

54. That is not a sound foundation for Mr Hobbs’s submission that the French judge decided

that it was first seised of the FRAND issue. It seems only to hold that there were

different “objets”, and if that is right it would seem that it supports the reverse of Mr

Hobbs’s case. If there are different “objets”, then whether an Article 29 point is taken

in this jurisdiction or in France, it becomes impossible for Mr Hobbs to establish the

identical “objets” which he needs to succeed.

55. On analysis it appears that Mr Hobbs’ position depends on establishing that Philips’

submission was that the English court was first seised of the FRAND issue, and that in

rejecting all Philips’ procedural challenges the French court was inevitably determining

that the English courts were not seised of that issue and that the French court was. That

exercise seems to me to involve an expansion of the apparent express reasoning in the

“Whereupon” section of the judgment but one needs to consider whether the judgment

is capable of bearing that interpretation.

56. In this context the judge recorded the position of Philips as being as follows (which

appears above but which I repeat here):

“The PHILIPS companies maintain in this regard that the

condition of triple identity of the parties, cause, and subject

matter is fulfilled. They state that the parties are the same, and

that the cause is the same, the claims, both in France and in

Great Britain, having the same basis, namely the commitment

entered into with ETSI in application of Article 6.1 of the

intellectual property policy. They point out that, on the basis of

this text, they require the UK jurisdiction to determine the terms

of a FRAND licence and to set a timeframe for TCL companies

to subscribe to such a licence and in the absence thereof, to

impose prohibition measures. The PHILIPS companies also

maintain that the applications before the English and French

courts have the same purpose of determining the terms of a

FRAND licence.”

MR JUSTICE MANN


57. This was apparently the position that the French judge rejected. She was faced with a case in which Philips was saying that the commitment to grant a FRAND licence, and

a determination of its terms, was what the English proceedings were about. That was

the basis on which Philips said the French proceedings ought to be stayed. She seems

to have rejected that as a description of what the English proceedings were for the

purposes of Article 29 - she analysed them differently in the passage above, saying they

were proceedings in tort for infringement. That is what TCL actually submitted they

were (that is apparent from their extensive written submissions), and that is what the

French judge held. That does not involve an implicit finding that the English court was

not seised of FRAND issues.

58. Accordingly, what the French judge held was that the proceedings in England and the proceedings in France did not (for the purposes of Article 29) have the same subject

matter. That means that the question of first seised becomes irrelevant. Each court was

first seised of the Article 29 subject matter of its own actions. That in turn means that,

at least at this stage of the reasoning, Mr Hobbs cannot rely on the French judgment as

having established what he says it establishes, namely that the French court was first

seised of FRAND proceedings so that the English court cannot proceed with the

FRAND aspects of its action. The French judge did not expressly or by implication

find that the English proceedings contained the same cause of action, or “objet”, as the

French proceedings but was second seised. She did not make a finding that they were

the same at all - in fact the contrary. Nor did she make a finding about which court was

first seised of FRAND issues. So in rejecting Philips’ arguments she was not making

an implicit finding that in Article 29 terms there was a relevant identity.

59. That means that Mr Hobbs’ reliance on the French judgment fails unless he can

somehow establish that it is implicit in the judgment that the judge found that the

“objets” and/or subject matter of the proceedings were or had become the same, but not

until after the French proceedings were commenced so that the French court was first

seised. I am not sure that Mr Hobbs went quite that far, but in any event it is too much

of a stretch. He puts much store on the FRAND statement of case introducing a new

case into the English proceedings which did not exist before, and that new case came

after the commencement of the French proceedings. His argument is that the French

court was first seised over the English court in relation to the FRAND claim when one

looks at that later English event. Philips’ case was that there was an English FRAND

claim from the outset and the FRAND statement of case did not introduce a new one.

Both those arguments were in the parties’ submissions before the French judge, though

Philips did not articulate it quite as clearly as that. Mr Hobbs (I think) submits that in

making her findings that all Philips procedural objections failed the judge was rejecting

Philips’ submissions that its FRAND case was always present in the English

proceedings and therefore must be taken to find the case was introduced subsequently,

and then deciding that the French court was first seised of that matter.

MR JUSTICE MANN


60. That line of argument is at least one, if not more, implication too far. It is true that the question of whether a FRAND case was raised in the English proceedings from the

outset or only from the FRAND statement of case was referred to in the two sets of

submissions, but it was not dealt with, or even referred to, in the French judgment, and

it is not implicit in the judgment that the judge made any finding about it. In fact, it

would seem to be most likely that she did not regard the point of significance to her

determination. She described the English proceedings as having a certain nature, with

no indication that the FRAND statement of case made any difference. In those

circumstances Mr Hobbs’ implication is not open to him.

61. In short, Mr Hobbs’ reliance on the French judgment fails. In order to succeed on his

reliance he needs it to establish, clearly, that the French judge found that the English

and French judgments contained the same cause of action, and the French action came

first. She did not do so. She found that they did not contain the same cause of action

or “objet”, so there is no ruling as to whether one similar claim was prior to another.

Having decided that the claims were not the same, questions of priority did not arise.

Mr Hobbs invited me to determine that the French court found there was no prior

FRAND claim in the UK, and then give him victory. What the judge in fact found is

that there was no FRAND claim in England equivalent to the French claim, without

reference to priority. The claims were different. That is a not a “stilted” interpretation

of the French judgment as suggested by Mr Hobbs; it is the correct one.

62. After the argument in this case, and when this judgment was pending, the Supreme

Court delivered its judgment in the Unwired Planet case ([2020] UKSC 37) in which

Birss J delivered the first instance judgment. I agreed to receive further submissions

on it and postponed finalising this judgment until I had received them. The Supreme

Court affirmed the decisions of Birss J and the Court of Appeal, but other than a

confirmation of Birss J’s analysis of the interaction between relief and the ETSI

undertaking, there was little of direct relevance to the matters before me. However, the

judgment of the Court did contain a reference to the appropriate characterisation of the

English claim in that case, which applies to the present one, albeit not in the context of

Article 29. The Court said:

“95. The question how the dispute should be defined has been

the main bone of contention between the parties, both in this

court and in the courts below. Is it, as the appellants say, in

substance a dispute about the terms of a global FRAND licence,

or is it, as the respondent maintains, both in form and in

substance about the vindication of the rights inherent in English

patents, and therefore about their validity and infringement, with

FRAND issues arising only as an aspect of an alleged

contractual defence? Thus far the respondent has had the better

of that argument, both before the judge and the Court of Appeal.

At the heart of the analysis which has thus far prevailed is the

recognition that the owner of a portfolio of patents granted by

MR JUSTICE MANN


different countries is in principle entitled to decide which patents (and therefore in which country or countries) to seek to enforce,

and cannot be compelled to enforce patents in the portfolio

granted by other countries merely because a common FRAND

defence to the enforcement of any of them raises issues which

might more conveniently be determined in another jurisdiction

than that which exclusively regulated the enforcement of the

chosen patents.

96. Were it necessary to choose between the rival characterisations of the substance of the dispute, we would have

agreed with the choice made by the courts below.”

63. In so suggesting the Court was in agreement with the French court in the present

litigation, that is to say the action is about the vindication of UK patent rights. The

French proceedings obviously cannot be characterised in that way. Those factors point

to the correctness of Philips’ arguments on this aspect of the case.

When was the English court first seised of a FRAND issue?

64. Mr Pickford advances this point, so far as he needs to, as an alternative ground for not staying under Article 29. He says that this English court has always been seised of a

FRAND issue, so if that were a touchstone then his client’s claim should be allowed to

proceed here as being in the court first seised. That, of course depends on a different

characterisation of the English action from that found by the French court. Since Mr

Hobbs fails under his principal claim that the French court’s finding determines this

matter in his favour, the point does not strictly arise under this head. However, it has

been argued, and it may have some relevance to the next point (the Article 30 point) so

I will make some determinations about it.

65. It is the case of the claimants that what I will call their FRAND case has been properly

encompassed within these proceedings from the outset and that the FRAND statement

of case did not introduce a new case - it provided particulars of an existing case. TCL

disputes that. It maintains that the claimant’s FRAND case, which includes claim for

a determination of what was FRAND if Philips offer was not FRAND, was effectively

introduced as a new element of the claim in the FRAND statement of case and not

before.

MR JUSTICE MANN


66. The claim form contains a short statement of the relief as referred to above, but it also refers to the annexed Particulars of Claim, so those two documents need to be read

together. The relevant parts are set out above and below. There is no claim in the

prayer for a declaration that the Philips terms are FRAND, and the appropriate measure

of damages is not set out.

67. The FRAND statement of case was served on 5th July 2019. Paragraph 1 summarises

its contents:

“1. This is Philips’ FRAND Statement of Case with respect to the Third to Seventh Defendants (“TCL”). Philips addresses the

following issues in this FRAND Statement of Case:

a) Without prejudice to any fuller statement of case on French Law, should it be required, the essential propositions of French

Law which govern the European Telecommunications Standards

Institute (“ETSI”) IPR Policy and the Philips Licensing

Declaration;

b) An overview of Philips’ portfolio of patents that have been

declared essential … (“SEPS”) to the 3G/UMTS and 4G/LTE

telecommunications standrds …

c) The key fair, reasonable and non-discriminatory

(“FRAND”) terms on which Philips is willing to licence the

Philips Portfolio to TCL;

d) The principles and approach to be applied in determining whether the terms for a licence to the Philips Portfolio are

FRAND;

e) The principles to be applied in determining whether the

approach of Philips and TCL to negotiations has been FRAND;

f) The conduct of Philips and TCL in advance of this litigation,

and whether that conduct was FRAND; and

g) The relief sought by Philips at the FRAND trial in these

proceedings.”

68. That is an accurate summary of the sections which then follow. The next section largely

repeats and amplifies (to a limited extent) the section of the Particulars of Claim which

describes the ETSI Policy and the effect of Philips signing up to it. The section

described at (c) annexes Philips’ terms said to be FRAND, and then says:

MR JUSTICE MANN


“18. For the reasons set out in this Statement of Case, Philips'

licence offer satisfies all the necessary requirements of FRAND.

In the alternative, if the Court determines that adjustments are

required for the Philips' licence offer to fall within the FRAND

range, Philips is willing to grant a licence on those terms, as

adjusted.”

69. The section described at (d) sets out principles and techniques for arriving at FRAND terms, including various techniques said to be established by authority, and invites their

application so as to give rise to a worldwide licence. There is then a section entitled

“FRAND approach”, which describes an appropriate approach to a FRAND negotiation

and the process of referring to a third party to determine terms if negotiation does not

succeed. The section described at (f) does indeed describe the conduct of the parties,

accusing TCL of delaying tactics and of “hold out”. It ends with the following two

paragraphs:

“61. In the premises, once the Court has found that TCL has

infringed EP(UK) 1 623 511 (EP'511) or EP (UK) 1 440 525

(EP'525), Philips is entitled to injunctive relief as described in

paragraph 63 below in the event that TCL declines or refuses to

enter into a licence on the terms set out at paragraph 17 above,

or in the alternative, to undertake to enter into a licence on terms

within the FRAND range as adjusted by the Court and offered to

TCL by Philips.

62. Further, in the event that TCL declines to take or undertake to take a FRAND licence on the terms set out at paragraph 17

above or as adjusted by this Court and offered to TCL by Philips,

the FRAND Commitment is not applicable and Philips is entitled

to damages unconstrained by its normal FRAND royalty rate,

alternatively, an account of profits derived by the infringement.

Damages should be calculated so as to ensure that Philips is left

no worse off than had TCL taken a licence on FRAND terms

when it was able to do so. An account of profits, if elected, should

be calculated so as to ensure TCL does not profit from

committing acts of infringement and then refusing to take a

FRAND licence instead of taking a licence at the time it was able

to do so.”

70. The latter paragraph introduces a claim that the measure of damages should correspond

to, or be no less than, a FRAND licence would have generated. That did not appear

MR JUSTICE MANN


in the Particulars of Claim. Under “Relief” the document claims a declaration that the Philips terms are FRAND, or alternatively that they be adjusted to FRAND terms, and

then claims an injunction restraining infringement in the event that TCL does not enter

into a licence or undertake to enter into a licence which the court says is in the FRAND

range.

71. Based on that material, one then has to consider whether the FRAND statement of case

is merely amplifying the original claim or making a new one.

72. I consider it to be clear that the former of those, that is to say amplification, is the case.

In terms of relief, and comparing it with the prayer, it adds a declaration that the Philips

terms are FRAND, a head of relief which is not explicit in the prayer in the claim form

or the Particulars of Claim. Mr Hobbs seems to think that that made all the difference,

because he accepted that if the declaration were in the claim from the outset then his

Article 29 point would fail because the English court would have been seised of the

relevant FRAND claim from the outset and therefore would have been first seised. His

argument was that its later introduction introduced an equation between the proceedings

that had not hitherto been there.

73. I disagree. It is true that the declaration was not sought, in terms, from the outset, but

the argument that Philips’ terms were FRAND was there from the beginning. It was

clearly articulated in the last sentence of paragraph 17 of the Particulars of Claim, which

falls to be read with the claim form because of the cross-reference within the latter.

That sentence, to which I have already drawn attention above, reads:

“The Claimant's standard terms and conditions pursuant to

which it offers a worldwide licence to its portfolio of standard

essential patents, which licence has been offered to the

Defendants, are FRAND.”

So that point was plainly there from the beginning. The claim for a declaration was

merely an attempt to identify the key plank in Philips’ case. It was not a new claim,

and did not expand the original claim. I would test the position in this way. Suppose

that TCL had challenged the claim for a declaration as introducing a new claim which

required amendment of the claim form. Would that argument have succeeded? I

consider that it clearly would not. Nor would Philips have been required technically to

seek an amendment to get a declaration had the FRAND statement of case not contained

a request for a declaration. Philips would have been entitled to seek one at the end of

the trial as part of the general relief to which they were entitled on the basis of the facts

MR JUSTICE MANN


proved (assuming, of course, that they had managed to demonstrate that Philips’ terms were FRAND).

74. Accordingly the presence of the claim for a declaration is not something which makes

any difference at all. Are there any other matters set out in the FRAND statement of

case which mean that a new or further claim should be taken as being introduced?

Again, I consider clearly not. The FRAND statement of case was a document

anticipated by the Particulars of Claim in paragraph 17 as providing particulars of the

case then pleaded. That paragraph indicated that Philips’ positive case of what was

FRAND would appear in a separate document, and it does. The FRAND statement of

case purports to be, and is, a particularisation of an existing case, and not the

advancement of a new one, on its true construction. It contains newly pleaded facts,

but not newly pleaded claims. This applies even to the averment of a FRAND measure

of damages. Damages was always pleaded; FRAND is now pleaded as the measure (or

rather, a minimum measure).

75. That is consistent with the general structure of the claim, which has clear FRAND

elements inherent within it. The claim acknowledges that an injunction will not be

appropriate if TCL takes or agrees to take a FRAND licence, but it also makes clear

that the terms of a FRAND licence have not been agreed or negotiated. It avers that its

terms are FRAND, but paragraph 1 of the prayer speaks of FRAND terms generally,

and not just Philips’ terms. Paragraph 16 indicates Philips’ willingness to enter into a

licence on FRAND terms. It seems to me to be obvious that the court will be asked to

grant an injunction unless TCL take or agree to take a FRAND licence, the terms of

that licence to be determined by the English court as being the price of avoiding the

injunction. All that was always inherent in the English proceedings, and there is no

newly introduced claim in the FRAND statement of case. FRAND is also a necessary

factor as a minimum amount of damages. That is not set out in the original claim, but

it is not a new claim when the FRAND statement of case identifies the matter. And

again, if one tests the matter by considering whether any of the FRAND case would

require an amendment of the claim form or Particulars of Claim, the answer in my view

is clearly No.

76. Accordingly, and insofar as it matters for the purposes of the applications before me, I

determine that the FRAND statement of case is an amplification of an existing case and

not an articulation of a new case.

The Article 30 point

MR JUSTICE MANN


77. Article 30 enables a national court second seised of an action which is “related” to a prior action in another member state to stay its own proceedings, particularly to avoid

the risk of inconsistent findings. It reads:

“1. Where related actions are pending in the courts of different

Member States, any court other than the court first seised may

stay its proceedings..

2. Where the action in the court first seised is pending at first instance, any other court may also, on the application of one of

the parties, decline jurisdiction if the court first seised has

jurisdiction over the actions in question and its law permits the

consolidation thereof.

3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient

to hear and determine them together to avoid the risk of

irreconcilable judgments resulting from separate proceedings.”

78. The test for there being related proceedings is in paragraph 3. It is accepted. by both

sides in this case that the English and the French proceedings are related for these

purposes, but not when they became related.

79. Mr Hobbs’ case is that the actions are related, and they became related when the

FRAND statement of case was served in these proceedings and the FRAND claim was

raised for the first time in England. The claim had already been raised in France in the

French proceedings. On the authorities a court is not seised of a new claim subsequently

added until the date of its addition - Enpam, supra. As the court second seised, the

English court could, and on the facts should, exercise its Article 30 jurisdiction to stay

its proceedings for the following reasons:

(a) The French proceedings will still carry on because they are not stayed, and

there is a serious risk of inconsistent judgments and/or duplicate determination

activities.

(b) If complaint is made by Philips about costs being wasted if there is a stay

now, then they wasted them with their eyes open to that possibility, as was pointed

out by Nugee J when he gave directions.

MR JUSTICE MANN


(c) The French courts are in the best position to apply and interpret the French

law of the obligation to grant a licence.

(d) TCL would wish to have ETSI in the proceedings to explain how they

understand the relationship; or, as it was put in his skeleton argument, so that all

ETSI’s members know where they stand.

(e) On the authorities TCL have the right to choose where to enforce the

obligation to give them a licence. The FRAND licence is a “defendant’s thing”

which it is entitled to pursue when, where and how it likes. In this case it has

chosen France.

(f) The French court can compel the grant, and determine the terms of, a

worldwide licence.

80. Mr Pickford analysed the point differently. His first point was that the French court had actually decided the point against TCL. Next, he submitted that under Article 30

the date for considering first seisin is the date when each action was commenced, not

when they became related. Even assuming for these purposes that they became related

only on service of the FRAND statement of case, nonetheless the English action was

started first, so it is not the English court which should be considering stays under

Article 30. See FKI Engineering Ltd v Stribog Ltd [2011] 1 WLR 3264. Third, in fact

the correct view is that the actions were related as soon as the French proceedings were

started - the service of the FRAND statement of case did not create the relatedness

because the FRAND issues were already raised in the original form of the English

proceedings. On that footing the English court is first seised, making it inappropriate

for the English court to be considering a stay. Fourth, the point taken by TCL is a

jurisdictional point, and it is now too late for it to take the point in the light of the

provisions in CPR 11 and the declaration that has already been made that these courts

have jurisdiction. Fifth, on the question of discretion all the relevant factors point away

from a stay.

The Article 30 point - decision

81. I will start with Mr Pickford’s first point - that the French court has effectively decided the case against Mr Hobbs. He does so on the footing that the French court has decided

that the actions are not related, and that is binding on TCL.

82. I do not consider this to be a basis on which I can safely decide this point at this stage

of these proceedings. The basis of the French decision seems to be that no risk of

irreconcilable decisions (which is a feature of Article 30 much emphasised by the judge

MR JUSTICE MANN


in the preceding paragraphs) has “yet been characterised” (which I take to mean has “yet been established”). I am not sure that, as such, that is the position of either party

in this litigation (though I note that Philips has appealed this aspect of the French

decision). It is certainly not the position of TCL, which makes its application on the

footing that there is such a risk (something which was not exactly in the forefront of its

submissions before the French court). I am not sure why the French judge reached the

decision that she did, but looking at the matter I do not consider that she should be

taken as having deciding anything that I would otherwise have to decide now. If

necessary and appropriate I would, of course, defer to a French decision clearly made,

and which covers issues before me. However, I do not consider that to be the case here.

83. It is therefore necessary to consider the effect of the submissions made to me without

the benefit of a prior French decision on the point.

84. Mr Hobbs’ case for an adjournment is based on the fact that the English court was

second seised of the FRAND issues which were first raised in France. In this

jurisdiction they, or a necessary equivalent, were not raised until and by virtue of

Philips’ FRAND statement of case.

85. Mr Hobbs is wrong about this because he is wrong on the point of when the FRAND issues were first raised and whether, for these purposes, they were not raised until

Philips FRAND statement of case. I have found that the FRAND statement of case is

not something which introduces a new case. It proposes a specific new remedy, but

the determination which would have underpinned that remedy was always within the

original claim (so far as the court thought it correct to declare accordingly on the facts).

86. That means that the English court was first seised for the purposes of Article 30. It has

no jurisdiction under the Article to stay its action (in the terminology of the decided

cases - eg FKI Engineering v Stribog Ltd [2011] 1 WLR 3264).

87. As I have summarised above, Mr Pickford mounts an alternative argument on the

alternative footing that the English court was not first seised in the sense just found,

and that the actions became related only when Philips served its FRAND statement of

case. On that footing the French court was first seised of the issue; though the English

court was first seised of the actions in the context of which the point arose.

MR JUSTICE MANN


88. In those circumstances Mr Pickford relies on FKI Engineering v Stribog Ltd , supra.

In that case the Court of Appeal had to consider the following chain of events - (1)

Claim brought in German courts; (2) Claim brought in English courts - actions not

“related” at that point; (3) a new issue (but not a new cause of action - see para 70)

introduced into the German proceedings which made the actions “related”. An

application was brought to stay the English proceedings on the footing that the court

first seised of the related issues was the German court where the matter was first raised.

The Court of Appeal considered that in those circumstances the problem was not

answered by seeking to identify which court was first seised of the issues which made

the actions related (see most clearly the judgment of Wilson LJ at paragraph 135); one

asks “which of the two courts was the first to achieve seisin of one or other of those

actions?” (per Rix LJ at para 119). That was the German court, so the English

proceedings were the proceedings to be subject to the stay.

89. I consider that on the basis of this clear authority, even if the actions only became

related on the service of the FRAND statement of case, the English court was first seised

for the purposes of Article 30 because the English action was started first.

90. Part of Mr Hobbs’ case on this point is that I should not reach this conclusion on the basis of that decision, but instead I should make a reference to the CJEU. He advances

that argument on the basis that the decision in The Alexandros T [2014] 1 Lloyds Rep

223 strongly suggests that a reference would be appropriate to deal with the question of

how one determines which court is first seised when new matters arise in an existing

action:

“90. It is never easy to decide what is an entirely new claim,

what is a new claim and what is an expansion of an old claim.

These claims are not new or entirely new because they are

brought by way of enforcement of the outcome of the original

dispute, in the same way as execution on a money judgment. In

these circumstances it makes sense to hold that these claims,

which largely arise out of the settlement agreements, arise out of

the attempts made by the owners to avoid the effect of those

agreements and, in particular, the exclusive jurisdiction

agreements. This solution would, as I see it, be consistent with

the overall policy of the Regulation to avoid a multiplicity of

proceedings. However, I can see that there is scope for argument

under this head and, if the issue of first seised were critical to

the decision, it might be appropriate to refer an appropriate

question to the Court of Justice of the European Union. I

therefore turn to the issue of discretion on the assumption that

the English court is second seised for the purposes of article 28.

(per Lord Clarke)”

MR JUSTICE MANN


91. Mr Hobbs constructed elaborate submissions around, and to justify, his proposition, and

sought to demonstrate that the reasoning that led to the decision in FKI v Stribog was

based on a distinction between the word “proceedings” in Article 29 and “actions” in

Article 30 which is misplaced. To support that he produced the wording of the Articles

in a number of different languages to demonstrate that in those languages the same

word was used in each Article where the English version uses the two different words,

and submits that in construing the Articles one has to take account of the languages

used other than English, as well as English. That, he says, reinforces the

appropriateness of a reference.

92. I shall not exercise my discretion to refer a point to the CJEU on this. First, I consider it right that I should follow the English Court of Appeal authority, which is binding on

me in this jurisdiction. In doing so I follow the decision of Blair J in SET Energy GmbH

v F&M Bunkering Ltd [2014] 1 Lloyds Rep 652 at paragraph 25, in which he considered

it right to follow English binding authority on the point before him even though a

reference had been suggested by a higher court. Mr Hobbs sought to demonstrate that I

could refer if I thought it right to do so, and I will assume that if I thought the case was

appropriate I could do so. However, I do not consider that it would be appropriate in

the circumstances, and that a decision to refer, if it is to be taken, should be taken by a

higher court in the circumstances of this case.

93. Furthermore, in the light of my decision as to which court was first seised of relevant

issues, the question would be academic and not determinative of the action. For the

reasons appearing above, I consider that the FRAND issue was already in play in the

English proceedings when the French proceedings were commenced, so that, looking

at that issue, the English court was first seised of the issue that made the actions related.

There would therefore be no point in a reference because, on that analysis, it would not

be determinative of anything, or anything useful, in these proceedings. Even if Mr

Hobbs won on the referred point and established that the relevant date for considering

relatedness was when the common issues first arose, he would still lose because this

English court was first seised of the sort of FRAND issues raised in the French

proceedings and which make the actions related.

94. There is another potential reason why a reference would not be usefully determinative

of anything in these proceedings, and that is the discretion which would arise if Mr

Hobbs is right about his analysis of Article 30. If he is right then the court second seised

(the English court, on his analysis) has a discretion, but not an obligation, to stay its

action. It will therefore be useful, if not appropriate, to consider whether a stay should

be granted on the working assumption that Article 30 confers a jurisdiction to grant a

stay in the circumstances of this case.

MR JUSTICE MANN


95. The useful starting point for this consideration is paragraph 92 of The Alexandros T which sets out various factors which are particularly relevant:

“92. In Owens Bank Ltd v Bracco (Case C-129/92) [1994] QB

509, at paras 74-79, Advocate General Lenz identified a number

of factors which he thought were relevant to the exercise of the

discretion. They can I think briefly be summarised in this way.

The circumstances of each case are of particular importance but

the aim of Article 28 [the then equivalent of Article 30] is to

avoid parallel proceedings and conflicting decisions. In a case

of doubt it would be appropriate to grant a stay. Indeed, he

appears to have approved the proposition that there is a strong

presumption in favour of a stay. However, he identified three

particular factors as being of importance: (1) the extent of the

relatedness between the actions and the risk of mutually

irreconcilable decisions; (2) the stage reached in each set of

proceedings; and (3) the proximity of the courts to the subject

matter of the case. In conclusion the Advocate General said at

para 79 that it goes without saying that in the exercise of the

discretion regard may be had to the question of which court is in

the best position to decide a given question.”

96. Relying on this formulation, Mr Pickford said there should be no stay. He particularly relied on the advanced stage of the English proceedings when compared with the

French, doubts expressed by his side’s expert as to whether the French court would

actually determine FRAND terms, the existence of issues which only this court can

decide (infringement and (now critically) relief) and the ability of the English courts to

determine FRAND terms. He submitted that the likelihood of inconsistent judgments

was low. Furthermore, one of the patents was due to expire on 15th October 2022, and

if (which is said to be likely) there is no decision in France until after that date then his

clients would be deprived of the possibility of an injunction for the rest of the period of

the patent.

97. Mr Hobbs, propounding the desirability of a stay, relied on the close connections of the FRAND contract with France - France is the home forum of ETSI, and there were key

contractual interpretation questions arising out of the ETSI contract which were

governed by French law and which are appropriately and better decided by a French

court (possibly with the benefit of travaux preparatoires which were at ETSI’s French

headquarters) for the benefit of the parties in this case and for the benefit of all other

parties to the ETSI arrangements. Furthermore, TCL had the contractual right to decide

whether and where to claim a licence - TQ Delta LLC v Zyxel Communications UK Ltd

[2019] EWCA Civ 1277; it had chosen France and that wish was to be respected. The

stay should encompass all aspects of the proceedings, because the French FRAND

determination would effectively resolve the dispute.

MR JUSTICE MANN


98. I will deal first with one of Mr Hobbs’ points which, on one analysis, is capable of being

completely determinative of whether there should be a stay, namely his claim that he

has a contractual right (an absolute right, on one interpretation of his submissions) to

decide where to have FRAND determined under TQ Delta. I consider that this

submission mis-states the effect of that decision. What happened in that case was that

a defendant faced with an injunction unless it took a FRAND licence decided to waive

unequivocally its right to enforce the claimant’s obligations to grant a FRAND licence

in the United Kingdom (see paragraph 9). The Court of Appeal held that the defendant

was entitled to do that, and once it had done it the claimant was no longer entitled to

come to court for the determination of a FRAND licence. That is as far as the decision

goes. It does not go further and decide that the defendant had a contractual right to

decide whether, where and when to apply for a FRAND licence, so as to be able to

exclude the English (or another) court from considering FRAND if the point arose in

those domestic proceedings. If the defendant had not made its concession, it would

apparently have been open to the court to consider FRAND terms as the price for

limiting the injunction which would otherwise be likely to have followed (assuming

infringement was established). The question in that case was not whether the court

could consider FRAND terms in the face of an application to have them determined

elsewhere; it was whether the court could (or should) determine FRAND terms in the

face of a potential licensee which said it did not want them on any footing. Those are

two distinct questions. TQ Delta says nothing about the former.

99. I can therefore leave that point of Mr Hobbs out of account. His other points cannot be dismissed in that way and fall to be assessed in the overall assessment exercise which I

am conducting on the assumption that the English court has a discretion (but not an

obligation) to stay under Article 30.

100. I have concluded that, if I have a discretion to stay, I should exercise it against a stay.

It is true that the contract to which Philips is a party is one subject to French law, with

connections to a French body, and I shall assume that questions of construction arise

under that contract. However, English courts are well used to construing foreign

contracts, with the aid of evidence from foreign lawyers, and this contract is no

exception. The English court can determine the scope and effect of the contract, and

(if it thinks fit to do so) can determine FRAND terms under a worldwide licence if

appropriate (see the decision in Unwired Planet in the Supreme Court), or under a

different form of licence. It would determine those terms as the price of not granting

an injunction to restrain infringement. There is nothing inherently inappropriate in that

process.

101. What weighs most heavily in the balance in this case is the question of timing. There

is a trial date for the trial of these issues in November of this year. The proceedings are

at an advanced stage. On the evidence about the French proceedings, a decision can

MR JUSTICE MANN


apparently be expected in France in late 2022 or early 2023, not allowing for an appeal. That 2 year difference is a very material one in commercial terms. It is true that the

proceedings have been held up by Philips’ unsuccessful jurisdictional challenges, and

Philips still have an outstanding appeal on the Article 30 point, but I do not consider

that that detracts much from the essential fact that an answer can be obtained from a

November trial which is much sooner than an answer in the French proceedings. I also

give some weight to Mr Pickford’s point about the expiry of one of the patents before

the likely result in the French proceedings.

102. Mr Pickford emphasised the fact that the English proceedings were the proceedings in

which the patent remedies were being sought and in which infringement was relevant,

so to that extent the English court was more “proximate” to the question of relief. If

validity and infringement had still been in issue those points would have been much

more telling. However, since they are no longer in issue, realistically the main question

becomes whether it is appropriate to stay the FRAND determination so that it can be

tried in France. I consider that it is not. There is still a close proximity between the

English proceedings and the determination of FRAND terms, since the determination

of the latter, and the entering into of a licence on those terms, are closely linked to the

nature of the relief to be granted and its effectiveness.

103. I have to consider the possibility of inconsistent judgments which Article 30 is intended to avoid or reduce. The mere possibility of inconsistent judgments is not a complete

answer in every case, though it is obviously a very important point. It cannot be ruled

out that there could be inconsistent judgments were the French court to reach a different

conclusion as to the terms of the FRAND licence which Philips should grant. However,

I do not consider that possibility to be so great as to weigh against the desirability and

fairness of the prompt resolution of an essentially commercial dispute in this

jurisdiction. In reaching this conclusion I have borne in mind the suggestion that there

is serious doubt as to whether the French court would actually determine FRAND

terms. Philips’ expert has said that it would be more in keeping with the practice of the

French courts to order the parties to negotiate and consider imposing damages if a party

has failed to act in good faith. If accurate this would be a very uncomfortable and

undesirable end result for this litigation, but not a decision which is inconsistent with

an English court’s determination of actual terms. If it were clearly established that

the French court would not determine terms that would be a compelling reason for not

staying the English proceedings, but the notion has not really been tested and I am

uncertain as to the weight to be given to this opinion. I therefore do not bring it into

the calculation.

104. In all the circumstances, therefore, and taking into consideration the factors referred to

in The Alexandros T, I find that if I had a discretion to stay under Article 30 I would

not exercise it. For the same reasons I would not order a case management stay, the

possibility of which from time to time raised its head in argument but which was not

the basis of the formal application before me.

MR JUSTICE MANN


The jurisdiction point

105. Mr Pickford had an additional riposte to the stay application in the form of a jurisdiction

point. His point was that reliance on those Articles was essentially a jurisdictional

point, and in the events that have happened TCL has lost the chance to take those points

and has submitted to the jurisdiction. In this respect Philips relied on the order of Birss

J and the declaration as to jurisdiction therein, and the filing of revised

acknowledgments of service on 18th April 2019. It submits that the effect of those

events is to preclude the challenges that are now made.

106. Mr Hobbs submitted that this was a very poor point which was (he said) rightly

relegated in Mr Pickford’s submissions to one made at the end. He disputed that there

was any jurisdictional point and said that what he was seeking to do was to bring the

French judgment back to this jurisdiction and have effect given to it. He was entitled

to do that without any special procedure (see Article 36) and nothing in CPR 11

prevented his doing what the legislation required.

107. I have remained a little puzzled as to how Mr Pickford’s arguments are supposed to

work bearing in mind the way that the stay application is mounted, but I will deal with

it as best I can. It is probably necessary to consider the applications under Articles 29

and 30 separately.

108. So far as Article 29 is concerned, it seems to be common ground that in principle an objection to jurisdiction under Article 29 can be barred by the workings of CPR 11 if

the defendant does not invoke the ability to challenge jurisdiction under that rule. Mr

Hobbs accepted as much in oral argument. It is apparent from Texan Management Ltd

v Pacific Electric Wire and Cable Company Ltd [2009] UKPC 46 that the rule is

applicable to jurisdiction-related applications for a stay as well as pure jurisdiction

applications. In Office Depot International BV v Holdam SA [2019] 4 WLR 120 Vos

C treated CPR 11 as applying to article 29 challenges but not Article 30 challenges (see

paragraph 39).

CPR 11 reads, so far as material:

“11—(1) A defendant who wishes to—

MR JUSTICE MANN


11.1

(a) dispute the court’s jurisdiction to try the claim; or

(b) argue that the court should not exercise its jurisdiction,

may apply to the court for an order declaring that it has no such jurisdiction or should not exercise any jurisdiction which it may

have.

(2) A defendant who wishes to make such an application must first file an acknowledgment of service in accordance with Part

10.

(3) A defendant who files an acknowledgment of service does not, by doing so, lose any right that he may have to dispute the court’s

jurisdiction.

(4) An application under this rule must—

(a) be made within 14 days after filing an acknowledgment of service; and

(b) be supported by evidence.

(5) If the defendant—

(a) files an acknowledgment of service; and

MR JUSTICE MANN


(b) does not make such an application within the period specified in paragraph (4), he is to be treated as having accepted that the

court has jurisdiction to try the claim.”

109. As appears above, TCL invoked its right to challenge jurisdiction within the timeframe

of the provision. The challenge was on the basis that TCL disputed the validity of some

of the non-UK patents in the portfolio which Philips was proposing to make the subject

of a FRAND inquiry and that validity was not justiciable here, that England was not the

appropriate forum to decide questions involving a worldwide licence (the US and China

were said to be more appropriate), and service had not been validly effected - see the

summary in the first witness statement of Katharine Jane Coltart at paragraph 25. Then

TCL, having commenced its French proceedings, abandoned its jurisdictional

challenge, as recorded in the order of Birss J. It also filed amended acknowledgments

of service on 18th April 2019 which indicated an intention to defend but did not tick the

box which indicated an intention to challenge jurisdiction.

110. It is quite plain that, as at this stage of the proceedings, TCL would not be entitled to

challenge jurisdiction under Article 29. By then the French proceedings had been

commenced. TCL did not dispute the jurisdiction of the court to determine the English

proceedings as they were then constituted, and would not be able to use Article 29 to

challenge the ability of the court to entertain them. Logic would defeat such a challenge

- Article 29 could only apply at that stage if the proceedings were the same, and if they were then the English court would be first seised anyway. There would be, and could

be, no Article 29 point available to the defendant then, and its present Article 29 point

had not then arisen (because the FRAND statement of case had not been served).

111. The acceptance of jurisdiction would not affect any subsequent event to which

jurisdiction might again become relevant, but Mr Pickford did not rely on any

subsequent acceptance of jurisdiction, so if jurisdiction had raised its head again he

would not have that particular answer to it. If somehow jurisdiction became relevant

afresh as a result of the service of the FRAND statement of case then Mr Pickford did

not propose an acceptance of jurisdiction answer in relation to it. But in any event there

was no subsequent event which brought Article 29 into play because the only candidate

(service of the FRAND statement of case) did not do so.

112. The end result of this part of the debate is that if an Article 29 challenge had arisen by the time of the order of Birss J, then it would have been lost as a result of what happened

at the hearing and the filing of new Acknowledgments of Service. That would mean

that an application to stay the proceedings as then formulated would fail. However, on

the way the stay application is mounted such a challenge had not arisen then, so the

point becomes academic.

MR JUSTICE MANN


113. So far as Article 30 is concerned, for the reasons given by Vos C in Office Depot at

paragraph 40 a CPR 11-type jurisdictional point is unlikely to arise in relation to that

part of the application. Vos C was minded to hold that the CPR 11 jurisdictional

challenge provisions did not apply to Article 30 challenges. However, even if those

provisions are capable of so applying, I do not see how Mr Pickford’s jurisdictional

arguments work in relation to such a challenge. On Mr Hobbs’ case, the proceedings

did not become related until service of the FRAND particulars. That occurred after the

acts of acceptance of jurisdiction relied on by Mr Pickford. No other act accepting of

jurisdiction was relied on by Mr Pickford, so CPR 11 would not be a jurisdictional

answer to the application.

114. There is, however, another way in which the jurisdiction acceptance demonstrates the

poverty of the Article 29 challenge. TCL expressly accepted that the court had

jurisdiction to hear the action as it was constituted at the date of the acceptance. For

the reasons given above the action as then constituted involved the determination of

whether Philips’ licence terms were FRAND, and also what other terms might be

FRAND – see in particular paragraphs 16 and 17 of the Particulars of Claim, and the

prayer. On any footing, therefore, it has been accepted that the court has jurisdiction to

determine that claim and there would be no jurisdictional basis for staying it.

Philips’ application

115. On the footing that there will be what we are calling a FRAND trial in November,

Philips made a three-pronged application. The first prong was a claim for declaratory

relief at this stage to reflect the admissions of essentiality, validity and infringement of

the relevant patents which flow from the abandonment by TCL of those attacks, but at

the beginning of the hearing Mr Pickford changed this part to an application for an order

formally recording the admissions that had been made by TCL. He sought this record

so as to make it quite clear that the issues are withdrawn from the fray and that the

dispute in November takes place on the relevant factual footing. The second is a claim

for an interim award of damages, and the third is a claim for disclosure which is said to

go to some of the issues at the November FRAND trial.

116. The first of those seemed to be in issue until Mr Hobbs made a series of apparent mini-

concessions during his submissions, and afterwards I was told that the parties had

agreed a form of order on those issues which, as I understand it, means I do not have

decide anything in relation to them. The proposed order now records admissions rather

than declarations.

MR JUSTICE MANN


117. The second matter (interim damages) was not pursued by Mr Pickford at the hearing before me and he was content to leave that matter over for another occasion. That

leaves the third - disclosure.

118. Philips seeks disclosure by way of a vouched schedule of the annual number of devices

that implement the various mobile telephony technologies, broken down by product

name, and broken down into UK sales figures and worldwide figures. The proposed

order is not limited to sales within the limitation period which would be applicable to

the infringement action.

119. The reason why it is said that this disclosure is relevant is because it is said to go to

damages. The present action includes a claim for damages, and infringement is now

conceded. Philips, on at least one way of putting its case, will say that the appropriate

measure of damages is the sum to which it would have been entitled under a licence

had the sales been licensed, and that the appropriate licence for these purposes would

be a worldwide licence because that is the only licence which Philips would have

granted, and it would have extended back to before the limitation period appropriate to

the infringements; it would not have granted a purely UK territorial licence confined to

the limitation period. In order to calculate those damages it is necessary to understand

what sales have taken place worldwide; and if damages fall to be calculated by UK

sales only (contrary to Philips’ primary case) then it is necessary to know the UK sales.

It is said to be necessary to break down sales by specified models of phones in order to

enable Philips to understand or confirm which models fall within the claims of the

patents and which do not. If Philips is right in its reasoning the damages awarded will

reflect the number of infringing phones. That is why it needs the numbers. It proposes

a strict confidentiality regime to protect the confidentiality of the sales data. I am no t

aware of any issue as to that regime if the disclosure is ordered.

120. Mr Hobbs starts by saying that there is no order for a damages inquiry in November (or

any other date), so there is no inquiry to which the disclosure is relevant. However, at

the heart of his objections is the proposition that the disclosure is unnecessary and

inappropriate because there will not be, or should not at the moment be, a da mages

assessment at all because it cannot be said that there is an infringement. He says his

clients are committed to the French FRAND inquiry and when that is finalised his

clients will enter into a licence which Philips is obliged to grant. Because of that chain

of reasoning a damages claim is inappropriate. Infringement of the patent involves use

without consent, but Philips are obliged to grant that consent and will have to do so,

and it will operate retroactively so as to mean there was consent to the usage after all.

Thus there will not have been an infringement on which to hang any damages claim.

The damages claim cannot be uncoupled from the FRAND determination. That

determination will satisfy the proviso which he says is pleaded in relation to the

damages claim on the claimants’ own pleaded case - “Save insofar as the Defendants

MR JUSTICE MANN


and each of them are entitled to and take a licence to the Patents on FRAND terms”. Since the defendants are entitled to and will take a licence, damages cannot be granted.

He also takes the point that even if damages are awarded, they can only be awarded for

UK infringements of UK patents, so damages calculated on the basis of a worldwide

FRAND are inappropriate. In addition, he maintains that the November hearing is not

the hearing of a damages inquiry - it is a FRAND determination.

121. I will deal first with the question of whether the orders for the November trial have

ordered an inquiry as to damages or whether it is just for a FRAND determination. As

will appear in a moment, the November trial was fixed and described by reference to

issues arising out of Philips’ FRAND statement of case. Paragraph 62 of that document

says:

“Further, in the event that TCL declines to take or undertake to

take a FRAND licence on the terms set out at paragraph 17

above or as adjusted by this Court and offered to TCL by Philips,

the FRAND Commitment is not applicable and Philips is entitled

to damages unconstrained by its normal FRAND royalty rate,

alternatively, an account of profits derived by the infringement.

Damages should be calculated so as to ensure that Philips is left

no worse off than had TCL taken a licence on FRAND terms

when it was able to do so. An account of profits, if elected, should

be calculated so as to ensure TCL does not profit from

committing acts of infringement and then refusing to take a

FRAND licence instead of taking a licence at the time it was able

to do so.”

122. That pleading therefore expressly brings in a damages claim. In its very short “Reply”

to that document TCL merely cross-references to certain paragraphs of its Amended

Defence and Counterclaim, in which it pleads to the damages claim by saying that the

court should not be entertaining it because of TCL’s right to a licence. Issue is thereby

joined on the damages claim, but TCL did not plead specifically to the particular

formulation of the damages claim in Philips’ FRAND statement of case.

123. An order of Arnold J of 1st July 2020 provided for a trial

“of issues as defined by Philips FRAND SoC and the TCL

FRAND SoC”.

MR JUSTICE MANN


124. The order of Nugee J of 26th November 2020 recites:

“AND UPON a FRAND Trial to determine the issues arising on

Philips’ FRAND Statement of Case (“SoC”) and the TCL

FRAND SoC (the “FRAND SoC Issues”) … [and other matters]

having been listed for 15 days to begin in a 5-day window

commencing on 23 November 2020”.

Paragraph 10 of that order provides that Philips shall elect as between an account of

profits and damages by 2nd October 2020, and in the event of an election for an account

of profits paragraph 11 provides for some additional disclosure by 9th November, which

is obviously timed to be available for the trial. In fact, Philips has now elected for

damages and not for an account of profits.

125. In my view it is clear that the November trial is to encompass the question of damages.

The original pleadings contain such a claim. Mr Hobbs is wrong to say that the proviso

about FRAND licensing to which he refers relates to damages; it does not - it relates to

the injunction only, though logically a licence, if and when entered into, would be

capable of affecting a damages claim if it was retrospective. The FRAND statement of

case clearly raises the question of damages, and the Reply to that document leaves

damages in issue. On a proper construction of Arnold J’s order, the issues for the

FRAND trial would therefore include damages, and it would seem that Nugee J’s order

assumed the same. Accordingly, the FRAND trial in November will include the

damages claim as well as the licensing terms issues.

126. That therefore requires a consideration of Mr Hobb’s next point to the effect that the

obligation to grant a licence, TCL’s indication that it will accept one and the existence

of the French proceedings in which the terms will be sufficiently determined mean that

there cannot be a damages claim because (in essence) there cannot be an infringement

on which to hang it. If there is no damages claim, there is no need to give disclosure.

127. This argument seems to be related to the “plea in bar” defence (as it has been called) in

paragraphs 21 and 22 of the Defence. It seems to require a conceptual discussion as to

whether there can be a present infringement of a patent where there is to be a licence in

the future which will operate retrospectively to cover what was an infringement at the

MR JUSTICE MANN


time (absent the licence). It is not an analysis which I accept. The plea in bar defence is a point which will be dealt with at the November trial.

128. The only authority relied on by Mr Hobbs for this analysis was a combination of section

60 of the Patents Act 1977 and a statement in Zino Davidoff SA v A & G Imports Ltd

EU :C:2001:617. Section 60 describes an infringement as being an offending act done:

“without the consent of the proprietor of the patent”.

129. In Davidoff the at paragraph 47 the CJEU said that: “consent may be implied, where it

is to be inferred from facts and circumstances prior to, simultaneous with or subsequent

to the placing of the goods in the market” (Mr Hobbs’ emphasis).

130. From this Mr Hobbs builds his theory that the obligation to grant a licence, and TCL’s

indication it will accept one, means there can be no infringement for the purposes of a

damages claim because retrospective consent “subsequent to” an otherwise infringing

act means there is no breach now.

131. I am unable to accept this proposition. The legal logic of the position stands in its way.

As things stand, there is an admission of infringement, so there is an infringement. As

things stand, that entitles the owner of the patent to the usual relief, namely (in this

case) an injunction and damages. Because of the agreed ETSI protocols, Philips is

obliged to offer and grant a licence, but TCL does not have to accept it. At all times

until it is accepted there has been infringement. The licence is the means to avoid the

remedy of an injunction, and that is made clear by Philips’ Particulars of Claim and

FRAND statement of case, but at this stage of the reasoning there is still an

infringement. If a licence is granted and taken then it becomes the case, from that point,

that acts which might have been treated as an infringement can no longer be treated as

an infringement, whether historic or future, but that state of affairs operates only from

the date of the effective licence. That would mean that historic damages could no

longer be proved or recoverable. It does not mean that legally there was no recoverable

loss provable up to that point.

132. Mr Hobbs had no authority to back up his analysis other than Davidoff, and I do not

consider that that case assists him. It concerned what would amount to consent for the

purposes of Article 7 of the Trade Marks Directive. A mark’s proprietor is not entitled

MR JUSTICE MANN


to prohibit the use of the mark on goods put on the market with its “consent”. The court’s dictum indicates that consent can be retrospective for those purposes, but its

reasoning says nothing about the state of affairs which existed for the time being before

that consent, which is what Mr Hobbs has to deal with in the present case. So I do not

consider the case helps him.

133. Mr Hobbs would doubtless rely on the fact that there has been some form of

commitment on the part of TCL to take a licence. His argument, if it is to succeed at

all, would probably require some form of complete contract in which it can be seen that

there is in effect something in the nature of a current binding arrangement from which

TCL cannot resile. However, I do not consider that that degree of commitment has

been established. The commitment, such as it is, appears in TCL’s defence at

paragraphs 13 and 21 in which TCL expresses its “intention” to take a licence on the

terms determined to be FRAND by the French court. That does not seem to me to be

the sort of final and binding commitment which Mr Hobbs is really relying on, and the

statements are not made more binding by Mr Hobbs’ repetition of the intention in his

submissions.

134. Mr Hobbs sought to reinforce his position on this point by referring to some passages

in the Unwired Planet decision in the Supreme Court. In written submissions made

after the delivery of that decision he relied on the following passages as supporting his

position that there can be no infringement when a licence is granted pursuant to the

ETSI arrangement, and as therefore demonstrating that his client’s saying it will take a

licence pursuant to the French proceedings means there is no infringement now.

“14 …. Secondly, the SEP owner’s undertaking, which the

implementer can enforce, to grant a licence to an implementer

on FRAND terms is a contractual derogation from a SEP

owner’s right under the general law to obtain an injunction to

prevent infringement of its patent.

….

Fourthly, the only way in which an implementer can avoid

infringing a SEP when implementing a standard and thereby

exposing itself to the legal remedies available to the SEP owner under the general law of the jurisdiction governing the relevant

patent rights is to request a licence from the SEP owner, by

enforcing that contractual obligation on the SEP owner.”

135. He also relied on references to the right to licence being a “contractual defence” in

paragraphs 90 and 93.

MR JUSTICE MANN


136. I do not consider those passages assist Mr Hobbs. The central issue in the Unwired

Planet case was whether an English court could make a worldwide FRAND licence, on

terms to be determined by the English court, as a condition of avoiding the grant of an

injunction. Damages did not figure largely in the discussion (though there was

reference to them), and the issues involved did not require (or receive) a consideration

of the status of an infringing act when a licence is apparently to be sought and taken.

Care must therefore be taken before reading too much about that into statements made

in the judgment, and I do not consider that, as they stand, they sufficiently address

issues which are sufficiently close to Mr Hobbs’ point to be determinative or useful. In

fact they seem to be directed to other points. When the passages in question are looked

at closely they seem to be looking to the future - the passage beginning “Fourthly …”

seems to be considering how it is that an implementer can avoid being an infringer in

the future. It is obvious that once a licence is granted, there can be no liability for

infringement thereafter, but that does not address the position before the licence is

granted. The reference to an injunction in the cited passages also suggests a focus on

the future without consideration of what the contemporaneous status of infringing acts

is prior to the grant of a licence.

137. In short, therefore, I do not consider that those passages, or any other passages, assist

Mr Hobbs. In fact there are passages which might be said to work against him. In

paragraph 61 the court said:

“61. The possibility of the grant of an injunction by a national

court is a necessary component of the balance which the IPR

Policy seeks to strike, in that it is this which ensures that an

implementer has a strong incentive to negotiate and accept

FRAND terms for use of the owner’s SEP portfolio. The

possibility of obtaining such relief if FRAND terms are not

accepted and honoured by the implementer is not excluded either

expressly or by necessary implication.”

The emphasis is mine. The words suggest that nothing material happens until the

licence is at least completed (“accepted”), if not more, and that certainly does not assist

Mr Hobbs’ analysis. But the same observation can be made as I have made in relation

to Mr Hobbs’ passages - the court was not really focusing on the quasi-metaphysical

debate as to the present state of an “infringement” when it is said a licence will be taken

in the future.

138. Thus far, therefore, Mr Hobbs’ arguments fail.

MR JUSTICE MANN


139. Next Mr Hobbs has his arguments as to the relevance of worldwide sales to an inquiry

as to damages for infringement of UK patents. He asks rhetorically how such sales can

be recoverable in a claim which covers merely UK infringements. Philips’ response

to that is that it will be argued that damages should be assessed by reference to the sort

of royalties which would have been payable under a FRAND worldwide, not UK-only,

licence, because that is the only licence which Philips would have given, and that is

therefore an appropriate measure.

140. Mr Hobbs’ point requires a determination, on a disclosure application, that the way in

which the claimants put part of their case is hopeless. It is akin to a striking out or

summary judgment application. There is no doubt that the court could determine a

disclosure application on that basis, but where it amounts to a huge part of the

claimant’s case then particular care must be taken before doing so. I would have to be

satisfied that, as a matter of principle, and frankly on the basis of only relative short

argument amounting to little more than assertion and counter-assertion, that the

claimant’s case is unsustainable. I am unable to come to that conclusion. It might fairly

be described as ambitious, but it is arguable and in Philips v Asustek [2020] EWHC 29

(Ch) Marcus Smith J declined to hold that the terms of a worldwide licence were

sufficiently irrelevant to a damages assessment as to justify striking out a claim which

seemed to involve an averment of relevance. In that case the judge considered that the

correct measure of damages and how one got there was a matter for trial in his case.

The same is true of the present case. I also note that in Unwired Planet the Supreme

Court said (at para 87):

“If the court awards damages it does so on proof of the loss

which the SEP owner has suffered through the infringement of

its patent or patents. It may be that the measure of damages

which a court would award for past infringement of patents

would equate to the royalties that would have been due under a

FRAND licence.”

In the light of that it can hardly be said at this stage that the case of Philips is unarguable.

141. That means that one cannot simply say that that the terms and effect of a potential

FRAND worldwide licence, and the moneys which would flow from it, are irrelevant

to a damages assessment. It is clearly Philips’ pleaded case that damages should be no

less than they would have received under a worldwide FRAND licence, and that is not

a plea which can be struck out or ignored. If it remains in then the worldwide sales of

phones incorporating relevant technology are capable of being relevant because the

MR JUSTICE MANN


FRAND licence amounts payable in respect of worldwide sales would be potentially relevant to the damages payable in respect of historic sales of those phones. That

means that the disclosure sought of TCL is relevant, though of course it will be a matter

for the trial judge what the measure of damages is. It is not unduly onerous or

disproportionate to provide the disclosure (and Mr Hobbs did not contend otherwise -

his point was one of principle). In my view it should be provided.

Conclusion

142. It follows from the above that I make the following rulings:

(a) TCL’s application for a stay is dismissed.

(b) Philips’ application for disclosure is allowed.

(c) Philips’ application for an interim payment is adjourned with liberty to apply.

MR JUSTICE MANN


APPENDIX

Paragraphs 8 to 22 of the Particulars of Claim

ESSENTIALITY AND FRAND

8. The Patents are the subject of an IPR Licensing Declaration, ISLD-2011001-011

dated 26 November 2009 (the "Philips Licensing Declaration") (attached hereto as

Annex 7) made by the Claimant to the European Telecommunications Standard Institute

("ETSI") in the following terms:

"In accordance with Clause 6.1 of 'the ETSI IPR Policv the Declarant and/or

its AFFILIATES hereby irrevocably declares the following ...

To the extent that the IPR(s) disclosed in the attached IPR Information

Statement Annex are or become, and remain ESSENTIAL in respect of the ETSI

Work Item, STANDARD and/or TECHNICAL SPECIFICATION identified in

the attached IPR Information Statement Annex, the Declarant and/or its

AFFILIATES are prepared to grant irrevocable licences under this/these

IPR(s) on terms and conditions which are in accordance with Clause 6.1 of

the ETSI IPR Policy.

The construction, validity and performance of this IPR information statement and licensing declaration shall be governed by the laws of France.

Terms in ALL CAPS on this form have the meaning provided in Clause 15 of the ETSI IPR Policy."

9. Clause 6.1 of the ETSI IPR Policy of 8 April 2009 in force at time of the Philips

Licensing Declaration provided as follows:

"When an ESSENTIAL IPR relating to a particular STANDARD or

TECHNICAL SPECIFICATION is brought to the attention of ETSI, the

Director-General of ETSI shall immediately request the owner to give within

three months an irrevocable undertaking in writing that it is prepared to grant

irrevocable licences on fair, reasonable and non-discriminatory terms and

conditions under such IPR to at least the following extent:

- MANUFACTURE, including the right to make or have made

customized components and sub-systems to the licensee's own design

for use in MANUFACTURE;

- sell, lease, or otherwise dispose of EQUIPMENT so

MANUFACTURED;

- repair, use, or operate EQUIPMENT; and

MR JUSTICE MANN


- use METHODS. The above undertaking may be made subject to the condition that those

who seek licences agree to reciprocate."

10. The terms "fair, reasonable and non-discriminatory" are hereafter referred to as

"FRAND".

11. By Clause 15, paragraph 6 of the ETSI IPR Policy:

"ESSENTIAL" as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and

the state of the art generally available at the time of standardization, to make,

sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or

METHODS which comply with a STANDARD without infringing that IPR. For

the avoidance of doubt in exceptional cases where a STANDARD can only be

implemented by technical solutions, all of which are infringements of IPRs, all

such IPRs shall be considered

ESSENTIAL. "

12. The term "essential" as used hereafter has the meaning ascribed to it above.

13. Pursuant to Clause 12 of the ETSI IPR Policy and Article 3(1) of the Convention

on the law applicable to contractual obligations opened for signature in Rome on 19th

June 1980 and signed by the United Kingdom on 7th December 1981 (the "Rome

Convention"), as implemented in the United Kingdom by section 2(1) of the Contract

(Applicable Law) Act 1990, the construction, validity and performance of the ETSI IPR

Policy and the Philips Licensing Declaration is governed by French law.

14. By (i) signing the Philips Licensing Declaration and (ii) returning that signed

Declaration to the Director-General of ETSI, the Claimant:

(a) has declared to ETSI its belief that the Patents maybe or may become

essential to at least the following UMTS telecommunications standards and/or

technical specifications, the relevant sections of which relate to HSPA

functionality:

i. EP 525: UMTS TS 25.214 v6.11.0 citing illustrative paragraph

§5.1.2.5A; and

MR JUSTICE MANN


ii. EP 511: UMTS TS 25.214 v6.11.0 citing illustrative paragraph

§5.1.2.6; and

(b) entered into a contract with ETSI whereby the Claimant is bound to

enter into negotiations with a view to concluding, alternatively, to grant,

licences of its ESSENTIAL IPR on terms and conditions which are in

accordance with Clause 6.1 of the ETSI IPR Policy (the “FRAND

Commitment”).

15. Pursuant to Article 1205 of the new French Civil Code (Article 1121 of the old

French Civil Code), the FRAND Commitment is enforceable against the Claimant by a

person that wishes to take a licence to the Claimant's relevant IPR in accordance with

Clause 6.1 of the ETSI IPR Policy. Once a contract has been formed, it is enforceable

and considered as a private law between the parties, following Article 1103 of the new

French Civil Code (Article 1134, al. 1 of the old French Civil Code). Moreover, the

contract must be negotiated, formed and executed in good faith (Article 1104 of the new

French Civil Code; Article 1121 of the old French Civil Code).

16. The Claimant is accordingly prepared to grant such FRAND licences of the Patents

in accordance with the FRAND Commitment.

17. The FRAND Commitment is to be interpreted in accordance with, inter alia,

Articles 1188 to 1192 of the new French Civil Code Civil (Articles 1156 to 1164 of the

old French Code Civil). The terms "fair, reasonable and non-discriminator}' fall properly

within the province of judicial interpretation. They will form the subject of a FRAND

Statement of Case in due course. The Claimant's standard terms and conditions pursuant

to which it offers a worldwide licence to its portfolio of standard essential patents, which

licence has been offered to the Defendants, are FRAND.

18. The Patents are and remain essential to certain versions and releases ("Relevant

Versions and Releases") of the technical specifications and standards. The Claimant

relies on the following:

MR JUSTICE MANN


(a) In respect of claims 1, 10, 13, 14 and 15 of EP 525 as granted, the

sending of acknowledgements at power levels specified in paragraph 5.1.2.5A

of the UMTS standard technical specification 3GPP TS 25.214, v5.9.0. T'he

Relevant Versions and Releases in respect of EP 525 are all versions of releases

5, 6, 7, 8, 9, 10, 11 and 12 made available on or after 18 June 2004;

(b) In respect of claims 1 and 3 of EP 511 as amended, the power level

limits specified in paragraph 5.1.2.6 of the UMTS standard technical

specification 3GPP TS 25.214, v6.11.0. The Relevant Versions and Releases

in respect of EP 511 are all versions of releases 6, 7, 8, 9, 10, 11 and 12 made

available on or after 14 December 2006.

19. It is the Claimant's case that there is no material difference between the

functionality of the sections of the releases and versions of the technical specifications of

the standards relied upon and the corresponding sections of the other Relevant Versions

& Releases. Insofar as any further releases are made available in respect of which there

is no such material difference, the Claimant will rely at trial on such further releases as

being included in the Relevant Versions & Releases.

20. As recorded in the 525 Judgment as between the Claimant and (1) Asustek

Computer Incorporation, (2) Asustek (UK) Limited, (3) Asus Technology Pte. Ltd (4)

HTC Corporation and (5) HTC Europe Co. Ltd, (collectively the ASUS and HTC

Defendants), the Honourable Mr Justice Arnold held that ASUS and HTC Defendants

had infringed EP 525 since their phones complied with Release 5 of UMTS 3GPP

Technical Specification 25.214 and it thereby follows that EP 525 Patent is essential,

within the meaning of the ETSI IPR Policy and Rules of Procedure, in relation to UMTS

3GPP Technical Specification 25.214, v5.9.0 and all subsequent relevant versions and

releases of that specification including without limitation all versions for releases 5, 6, 7,

8, 9, 10, 11 and 12 published on or after 27 September 2002.

21. As recorded in the 511 Judgment as between the Claimant and the ASUS and HTC

Defendants the Honourable Mr Justice Arnold held that ASUS and HTC Defendants had

infringed EP 511 since their phones complied with Release 6 of UMTS 3GPP Technical

Specification 25.214 and it thereby follows that EP 511 is essential, within the meaning

MR JUSTICE MANN


of the ETSI IPR Policy and Rules of Procedure, in relation to UMTS 3GPP Technical

Specification 25.214, v6.11.0 and all subsequent relevant versions and releases of that

specification including without limitation all versions for releases 6, 7, 8, 9, 10, 11 and

12 published on or after 21 June 2005.

22. Further and for the avoidance of doubt in the 525 Judgment and in the 511

Judgment the Honourable Mr Justice Arnold found that HTC and ASUS sample mobile

telephones which had been commercially dealt with in the United Kingdom and which

supported HSDPA and HSUPA technology infringed EP 525 and EP 511 respectively.

Paragraphs 6 to 16 of the Re-Amended Defence

6. Paragraph 14(a) is admitted.

7. As to paragraph 14(b), it is admitted that by signing the Philips Licensing Declaration

and returning it to the Director-General of ETSI, the Claimant entered into a contract with

ETSI. All aspects of the implementation and operation of that contract are governed by French

law. The Claimant and its Affiliates are accordingly obliged by their stipulation pour autrui to

grant irrevocable licences of the intellectual property rights the subject of the Philips Licensing

Declaration (including the Patents) on FRAND terms to any person wishing to obtain such a

licence. This takes effect as a tripartite contractual arrangement in which the declarant is the

promisor, ETSI is the promisee and the prospective licensee is the beneficiary of the stipulation

pour autrui.

8. Paragraph 15 is admitted and averred. The process of seeking and obtaining the grant of

a licence begins when (and not before) a prospective licensee invokes its right to enforce the

stipulation pour autrui embodied in a FRAND commitment. The prospective licensee has the

right to decide for itself when, where, how and to what extent to enforce that stipulation in

relation to relevant IPR.

MR JUSTICE MANN


9. The right to enforce the stipulation pour autrui of the Claimant and its Affiliates in

relation to the IPR (including the Patents) relevant to the ETSI Universal Mobile

Telecommunications System (UMTS) standard and the ETSI Long Term Evolution (LTE)

standard has been invoked for the benefit of the TCL Defendants and their Affiliates in

proceedings for the grant of a worldwide licence in respect thereof on FRAND terms brought

by the Fourth, Fifth and Sixth Defendants against the Claimant, Koninklijke Philips Electronics

N.V., Philips International B.V. and ETSI before the Tribunal de Grand Instance in Paris, filed

on 19 February 2019 (“the French proceedings”). The IPR the subject of the French

proceedings includes patents of which the Claimant is not a proprietor, patents of which the

Claimant is co-proprietor with an Affiliate and patents of which the Claimant is co-proprietor

with an unrelated entity.

10. Paragraph 16 is noted and the Claimant’s preparedness will, if it extends to its own and

its Affiliates’ IPR relevant to the UMTS and LTE standards, assist with the determination of

the claim for a licence to be granted on FRAND terms in the French proceedings.

11. The first and second sentences of paragraph 17 are admitted. They raise matters of French

law which are expected and intended to be addressed in the French proceedings.

12. The third and fourth sentences of paragraph 17 relate to matters which are the subject of

the French proceedings and which accordingly should not be addressed in the current

proceedings.

13. The TCL Defendants and their Affiliates wish and intend to take a licence in relation to

the IPR (including the Patents) of the Claimant and its Affiliates relevant to the UMTS and

LTE standards on the terms ultimately determined to be FRAND in the French proceedings.

MR JUSTICE MANN


14. As to paragraph 18, it is admitted that claims 1, 10, 13, 14 and 15 of EP 525 as granted

are essential to the UMTS standard technical specification 3GPP TS 25.214 v5.9.0 and all

versions of releases 5, 6, 7, 8, 9, 10, 11 and 12 made available on or after 18 June 2004. It is

also admitted that claims 1, 3, 12, 13 and 15 of EP 511 as amended are essential to the UMTS

standard technical specification 3GPP TS 25.214 v6.11.0 and all versions of releases 6, 7, 8, 9,

10, 11 and 12 made available on or after 14 December 2006.

15. Paragraph 19 is noted.

16. Without prejudice to paragraph 14 above, paragraphs 20-22 are admitted (save that the

dates of 27 September 2002 and 21 June 2005 are not admitted as they are inconsistent with

the dates pleaded in paragraph 18).

….

21. As to paragraphs 34-37, it is denied that the Claimant has suffered loss and damage by any

wrongful act of the TCL Defendants or any of them. It is admitted that the Fifth and Sixth

Defendants intend to continue to act as set out in paragraphs 19(3)-(4) above, but it is denied

that that will cause the Claimant to suffer loss and damage for which the TCL Defendants or

any of them are liable. If, contrary to the TCL Defendants’ case as set out above, the TCL

Defendants or any of them are liable to the Claimant for acts of infringement of EP 525 and/or

EP 511, no relief should be granted in respect thereof in the light of the TCL Defendants’

intention to take a licence as pleaded above on the terms ultimately determined to be FRAND

in the French proceedings.

22. As to paragraphs 1-6 of the Claimant’s prayer for relief: (1) since the French proceedings

are expected and intended to result in the grant of a licence on FRAND terms retroactively and

for the future (inter alia) in relation to the United Kingdom and the subject matter of the claims

of the Patents, it would be contrary to the requirements of the General Obligation set out in

Article 3 of the Enforcement Directive (Directive 2004/48/EC) for the Claimant to be granted

relief to the effect claimed in those paragraphs or any of them; and additionally or alternatively

MR JUSTICE MANN


(2) it is not within the power or discretion of this Court under any applicable principle or rule

of law or practice in the United Kingdom to grant relief for infringement of a United Kingdom

patent subject to or conditional upon the defendant invoking in the courts of this country rather

than in the courts of another country such as France, its right to enforce the stipulation pour

autrui embodied in a FRAND commitment of the claimant or its affiliates pertaining to the

subject matter of the claims of the patent in suit.”

License to All or Access to All? A Law andEconomics Assessment of StandardDevelopment Organizations’ Licensing Rules

Dr. Anne Layne-FarrarVice President in Competition Economics at Charles River Associates and an Adjunct Professor atthe Northwestern University Pritzker School of Law.

Richard J. StarkPartner in the Litigation Department of Cravath, Swaine &Moore LLP.

July 2020Summary by 4iP Council

4iP Council is a European research councildedicated to developing high quality academic

insight and empirical evidence on topics related tointellectual property and innovation. Our research

is multi-industry, cross sector and technologyfocused. We work with academia, policy makers

and regulators to facilitate a deeperunderstanding of the invention process and of

technology investment decision-making.

www.4ipcouncil.com

Layne-Farrar, Anne and Stark, Richard, License to All or Access to

All? A Law and Economics Assessment of Standard Development

Organizations’ Licensing Rules (May 18, 2020). George Washington

Law Review, Forthcoming, Available at SSRN:

https://ssrn.com/abstract=3612954

Suggested citation

This summary is drawn from the following paper:License to All or Access to All? A Law andEconomics Assessment of Standard DevelopmentOrganizations’ Licensing Rules. Available at SSRN:https://ssrn.com/abstract=3612954

License to All or Access to All? A Law and Economics Assessment of Standard Development

Organiza�ons’ Licensing Rules1

Anne Layne-Farrar2 and Richard J. Stark3

Summary by 4iP Council

Neither the law nor economic welfare jus !es a “license to all” interpreta on of FRAND commitments.

Such a regime is not supported by patent, contract or an trust law, and likely would be harmful to social

welfare. License-to-all is a strategy to try to force SEP holders to license their patents to component

makers, in an e+ort to drive royalty nego a ons (and li ga ons) toward lower numbers. Essen ally, it is

a tac c to game FRAND obliga ons and exhaus on law to the detriment of SEP holders.

*************************************************************************************

Proponents of “license-to-all” argue:

All en es in the chain of produc on of standardized products need licenses to SEPs to be able

to par cipate in the relevant industries.

Because of the need for licenses, the FRAND commitments entered into by SEP holders should

be interpreted to require the holders to grant licenses to all comers to carry out their part of the

produc on chain.

Proponents of “access-to-all” argue:

Not all en es need SEP licenses

FRAND commitments do not necessarily require that SEP holders grant licenses to all comers,

only that they make their patented technologies available by gran ng licenses on FRAND terms

and condi ons.

At its root, the license-to-all argument concerns the amount of royal es to be paid.

The license-to-all argument is a strategy to try to force SEP holders to license their patents, to

component makers, in an e+ort to focus discussions about royal es on the prices of components rather

than end-user devices. This would be desirable for implementers.

1 Layne-Farrar, Anne and Stark, Richard, License to All or Access to All? A Law and Economics Assessment of Standard

Development Organiza ons’ Licensing Rules (May 18, 2020). George Washington Law Review, Forthcoming, Available at

SSRN: h?ps://ssrn.com/abstract=3612954 or h?p://dx.doi.org/10.2139/ssrn.3612954

2 Dr. Anne Layne-Farrar is a Vice President in Compe on Economics at Charles River Associates and an Adjunct Professor at the

Northwestern University Pritzker School of Law.

3 Richard J. Stark is a partner in the Li ga on Department of Cravath, Swaine & Moore LLP.

1

https://dx.doi.org/10.2139/ssrn.3612954

https://ssrn.com/abstract=3612954

This debate is also over how the fruits of technology standardiza on will be shared across industries and

across players within any given industry.

Also, will have signi!cant implica ons for end consumers and for the wider economy.

************************************************************************************

Applicable principles of patent law and patent licenses

A. Patents and Patent Infringement

A patent confers only a nega ve right: the right to exclude others from prac cing the covered inven on.

Whether to enforce exclusivity through an injunc on at discre on of the court and the amount of

damages must be proved.

The scope of the exclusive right granted in a patent is de!ned by the claims of the patent. The patent

holder must show that all of the elements of one of his patent claims are present in the accused

product.

Whenever there are mul ple levels of players in an industry, each of which uses a patented technology,

a patent owner may, make a strategic choice as to the level at which it will asserts its patent.

Defendants can contest the claim of infringement. The claims of a patent may be found to be invalid.

An alleged infringer may choose to enter into a license agreement, avoiding claims of infringement by

contractual means.

Poten�al remedies:

Monetary damages – quan !ca on is done by the !nder of fact. Process can involve

appor onment via these means:

o smallest salable patent prac cing unit approach. Seldom used as a royalty base.

o Royalty rate adjustment

Injunc on

B. Patent Licensing

License is a contracted-for defense to claims of patent infringement. It is not the ability to make and sell

some product. That is actually a technology transfer, which oLen accompanies a patent license.

Taking a license is a good way to mi gate patent infringement risk, but it may make no sense to take a

license to every patent that might be asserted. For many businesses, administra ve burden too great.

Out of the hundreds of thousands of patents granted by the U.S. Patent OMce each year, only a ny

frac on of them will be asserted in li ga on. The same holds true for standard essen al patents.

Patent licensing is an important means for innovators to mone ze their inven ons and earn a return on

their investments. In designing a licensing program, a patent owner, has the op on to determine at

what level of the supply chain the license is granted.

Not all licensing should be at the end device level. Component licenses may make business sense in

many circumstances.

2

C. Patent Exhaus on

Patent exhaus on, or the “!rst sale” doctrine, is a defense to a claim of patent infringement.

A patent owner likely can collect royal es from only one level of a supply chain. If a patent owner has

chosen to license at the device level it has already signaled that it does not seek to license at the

component level.

D. SEPs and FRAND

SDOs commonly incorporate technologies developed by private sector par cipants. To protect their

investments, companies typically apply for patents on their innova ons. Logically they will then seek to

earn a return on their investment through licensing (in addi on to or instead of selling standards-

compliant products).

When the claims of a patent read on an aspect of a standard, such that it is not possible to prac ce the

standard without infringing, the patent is “essen al” and is referred to as an SEP.

IPR policies usually ask that the SDO’s members iden fy their patents that may be essen al to the SDO’s

standards. When a member iden !es a poten al SEP, it is also asked to declare whether it will agree to

license the patent on FRAND terms and condi ons.

Under U.S. caselaw, FRAND declara ons are contractual in nature. Each FRAND declara on is a contract

between SEP holder and the SDO. Implementers of the relevant industry standard are third party

bene!ciaries of the contract.

The relevant contract will list a party’s FRAND obliga ons in a par cular case. This language resides in

the relevant FRAND declara on, along with the IPR policy under which the declara on was made.

IPR policies at the SDOs such as ETSI and IEEE

One needs an understanding of the IPR policies in place at key SDOs, as these comprise the contracts

relevant for any claim that FRAND imposes a license-to-all obliga on on SEP holders. These policies,

while sharing some common elements, di+er across organiza ons.

ETSI:

1. Policy Objec ves

ETSI IPR POLICY seeks a balance between the needs of standardiza on for public use in the !eld of

telecommunica ons and the rights of the owners of IPRs.

ETSI par cipants evidently foresaw that the use of patents to block the use of a standard would be

counterproduc ve and indeed counter to the en re idea of an industry standard. Thus, the IPR Policy

focuses on the “availability” of ETSI standards. Furthermore, ETSI highlights that any access that IPR

holders provide should be “adequately and fairly rewarded,” meaning that IPR holders are free to

charge adequate and fair royal es (however one de!nes those terms).

2. Availability of Licenses

3

Owner of an essen al IPR must state in wri ng that it is prepared to grant irrevocable licences on fair,

reasonable and non-discriminatory (“FRAND”) terms and condi ons

3. Discussion

The ETSI IPR Policy does not state any obliga on to license each and every en ty along the en re

produc on chain. Instead, the Policy merely asks that the patent owner not simply keep its technology

to itself and refuse to license anyone at all (as is the right of any patent holder absent a contrary

commitment to an SDO).

The ETSI IPR Policy does not state how many licenses the patent owner should grant, or to whom it

should grant them. Rather, the ETSI IPR Policy de!nes the scope of the license rights to be granted in

terms of the subject ma?er (!eld of use) that is to be licensed. Essen ally, licensees should be granted

at least the right to “MANUFACTURE EQUIPMENT.” SEP holders are asked to commit that they will grant

licenses for the manufacture of only “fully conforming” devices and systems.

No speci!c commercial terms for licenses are set forth. Commercial terms are to be nego ated bi-

laterally between each SEP holder and each poten al licensee.

The ETSI IPR Policy leaves FRAND terms and condi ons unde!ned.

The Ins tute of Electrical and Electronics Engineers (IEEE)

Its Patent Policy di+ers signi!cantly from ETSI’s.

Licensing Policy: IEEE de!nes “Compliant Implementa on” as “any product (e.g., component, sub-

assembly, or end product) or service that conforms to any mandatory or op onal por on of a norma ve

clause of an IEEE Standard.” This contrasts with ETSI’s requirement that equipment be “fully conforming

to a STANDARD.”

IEEE’s “Reasonable Rates” term also takes a more stringent approach:

“Reasonable rate” appropriate compensa on to the patent holder for the prac ce of an Essen al Patent

Claim excluding the value resul ng from the inclusion of that Essen al Patent Claim’s technology in the

IEEE Standard.

Should include considera on of:

The value that the func onality of the claimed inven on or inven ve feature within the

Essen al Patent Claim contributes to the value of the relevant func onality of the smallest

saleable Compliant Implementa on that prac ces the Essen al Patent Claim.

The value that the Essen al Patent Claim contributes to the smallest saleable Compliant

Implementa on that prac ces that claim, in light of the value contributed by all Essen al Patent

Claims for the same IEEE Standard prac ced in that Compliant Implementa on.

Exis ng licenses covering use of the Essen al Patent Claim, where such licenses were not

obtained under the explicit or implicit threat of a Prohibi ve Order, and where the

circumstances and resul ng licenses are otherwise suMciently comparable to the circumstances

of the contemplated license.

4

IEEE states in its Policy that “Nothing in this policy shall preclude a licensor and licensee from voluntarily

nego a ng any license under terms mutually agreeable to both par es.”

Discussion:

The IEEE Patent Policy does not expressly state any obliga on to license each and every en ty along the

en re produc on chain. However, the Policy di+ers from the ETSI IPR Policy in these ways:

It states that the patent holder must make licenses available to an unrestricted number of

applicants.

It de!nes the scope of the license rights to be granted as covering any “Compliant

Implementa on”—a term that is de!ned to include components, sub-assemblies and end-

products.

The IEEE Patent Policy a?empts to add some speci!city to the idea of FRAND terms and

condi ons, by iden fying factors to be considered in determining reasonable rates.

While the ETSI IPR Policy expressly avoids any discussion of commercial terms, the IEEE Patent

Policy invokes the SSPPU approach for determining patent infringement damages directly within

its IPR rules.

IEEE’s adop on of the above rules in 2015 was controversial. Some members have submi?ed so-called

“nega ve LOAs” in which they select an op on on the Le?er of Assurance form sta ng that they decline

to provide a licensing assurance pursuant to IEEE’s Reasonable Rate guidelines, and instead agree to

make licenses available pursuant to a less rigid de!ni on of FRAND.

Legal basis for license-to-all proposal and analysis of expected economic impact

Proponents of the “license-to-all” posi on contend all en es in the chain of produc on of standardized

products need licenses to SEPs to be able to par cipate in the relevant industries.

There simply is no law that requires anyone to take a license under any patent.

Licenses are not required as a prac cal, technical ma?er to make standard compliant products. It is

possible for a company with suMcient resources and exper se to design and manufacture products

without any patent licenses. The standards’ speci!ca ons give detailed descrip ons of each element of

the standard.

An implementer does not need to seek out SEP licenses to show good faith. Rather, in typical

nego a ons, implementers respond to SEP owner FRAND o+ers. So long as implementers respond in a

mely and good faith manner, they should have li?le or no concern about being deemed an “unwilling

licensee.” This is the process that is envisioned by the European Court of Jus ce’s decision in Huawei v.

ZTE.

The level of risk in not having a license depends on who owns the SEPs and what their licensing prac ces

are. Most likely scenario for component-level implementers, the relevant SEPs are owned by a number

of en es with di+ering policies and prac ces. Patent holders seeking to mone ze their patents have to

iden fy themselves to make their claims.

5

There is no legal or prac cal basis for the blanket claim that all en es in the chain of produc on need

patent licenses or face meaningful risks by not proac vely seeking them.

Thus, to the extent that the license-to-all argument depends on an assump on that all en es in a

produc on chain absolutely require licenses to SEPs, that predicate is false.

Do SDO policies require licenses for all en��es (and all purposes)?

Proponents of license-to-all may reply, they should not have to rely on the non-asser on of SEP holders

and that SDOs’ IPR policies require SEP holders to grant a license to anyone who requests one and for

any scope desired by the requester.

What exactly a par cular SDO policy requires of SEP holders is a ques on of contract interpreta on,

which depends on the language of the par cular policy at issue. An across-the-board interpreta on of

“FRAND” obliga ons that applies in all cases is not possible.

An en ty that declares a patent to be poten ally essen al to an ETSI standard is asked to commit that

“it is prepared to grant irrevocable licences.” This language indicates that the patent holder is asked to

state that it will not keep its patented inven on exclusively to itself and is prepared to grant “licences,”

meaning that it will not restrict its licensing to a single exclusive licensee. Nothing says that the patent

holder will grant licenses to anyone and everyone who asks.

Even if that were the case, the patent holder is asked to state that it is prepared to grant licenses “at

least” to manufacture fully standard-compliant devices. The patent holder may, but need not, o+er

broader licenses. There is no requirement in the ETSI IPR Policy that a patent holder grant licenses for

the manufacture of components.

The Policy states the goal of reducing the risk that the investment in developing a standard “could be

wasted as a result of” essen al patents “being unavailable.” The Policy also states as one of its

objec ves that patent holders “should be: adequately and fairly rewarded for the use of their patents.

It is clear that the intent of the ETSI IPR Policy is only to require licensing the manufacture of standard-

compliant devices, not upstream components. The Policy does not impose a blanket obliga�on to license

anyone who asks, for whatever scope they may request.

IEEE is di+erent.

Whether an SEP holder’s FRAND commitments require it to grant licenses to all comers and for all

purposes is a ques on that depends on the language of the relevant FRAND policy and the of the

speci!c individual commitments made to an SDO.

The IEEE Patent Policy can be read as suppor ng a broad obliga on. The ETSI IPR Policy cannot.

Arguments Based on An�trust Law

Some par es have argued that an trust law may impose a duty to license all comers to FRAND-

commi?ed SEPs, or that a refusal to grant licenses to such SEPs could lead to an an trust viola on.

It has been argued that when an SEP holder promises to grant licenses to its SEPs, but then refuses to do

so, there may be a claim for monopoliza on based on a “inten onally false promise” as in Broadcom v.

6

Qualcomm. But in Rambus v. FTC, based on Supreme Court precedent, deceiSul conduct of the type

alleged in Broadcom is not ac onable as an an trust viola on absent exclusion of rivals

Another angle that has been considered is a claim of “refusal to deal.” Under Aspen Skiing Co. v. Aspen

Highlands Skiing Corp, !rms do not generally have any duty to help their compe tors, and Aspen Skiing

is “at or near the outer boundary of [Sherman Act] § 2 liability.” For these reasons, “refusal to deal”

claims based on Aspen Skiing succeed rarely, if ever.

The Federal Trade Commission argued that Sherman Act Sec on 2 liability applies where “a monopolist

SEP holder commits to license its rivals on FRAND terms, and then implements a blanket policy of

refusing to license those rivals on any terms, with the e+ect of substan ally contribu ng to the

acquisi on or maintenance of monopoly power in the relevant market.” This argument a hybrid of the

“inten onally false promise” theory (without requiring evidence of any inten onally false statement)

and the “refusal to deal” theory (without sa sfying the requirements of Aspen Skiing).

Under any Sec on 2 theory, a plain + would have to demonstrate that a refusal to license an SEP

actually had the e+ect of excluding it from the industry. For the reasons men oned above, the mere lack

of a patent license is not exclusionary.

So long as the SEP holder has a+orded others the freedom to par cipate in the manufacture of devices

compliant with the relevant standard there would be no exclusion.

Important Economic Issues:

Ul mate goal of the patent system is “[t]o promote the Progress of Science and useful Arts.”

The arguments in support of a license-to all FRAND interpreta on assume that SEP holders will be

overcompensated if FRAND rates are set at the end product level. This depends on di+erent factors

such as how the technology is deployed. Neither the prices nor the pro!t margins at the component

level will be an appropriate royalty base for determining FRAND payments when historically licensing

has not occurred at the component level.

The Patent Act provides that damages for infringement shall be no less than “a reasonable royalty for

the use made of the inven on by the infringer made of the inven on by the infringer.” Royal es set on

a base that does not reWect the value to end users of the patented technology are likely to

undercompensate the SEP holder.

The poten al to undercompensate SEP holders would a+ect the economy.

If inventors and investors expect royalty rates for their new patented technology to be

undervalued, that a+ects their ROI calcula ons.

If SEP holders expect to be undercompensated, they will reduce investments in innova ons

targe ng standards, which will reduce SEPs. This means fewer new technologies for

interoperability standards and slower standards evolu on over me.

More en es might choose not to par cipate in coopera ve standard development.

Par cipa ng in coopera ve standards development entails substan al investments of R&D

resources. The expected bene!ts of par cipa on must equal or exceed the expected costs

before a !rm will choose to par cipate.

7

The more pivotal the technology, the more a?rac ve absten on can be and the more harmful it

would be to the SDO, its members, and all consumers of products compliant with the standard.

Innova ve !rms can con nue to par cipate in an SDO but refuse to contribute certain

technologies to its standards; or !rms may shiL their research and development programs away

from essen al technology areas.

Any of the above responses would be likely to harm technology standard development. When

standards do not a(ract the best technologies, the users of those standards will su)er as well.

Less Harmful Alterna�ves

An SEP holder may adopt a licensing prac ce of only asser ng its SEPs and seeking to license

them at one level of the produc on chain.

SDOs could request SEP holders commit to making a FRAND o+er before seeking an injunc on.

SDOs could encourage SEP holders to charge royal es in terms of !xed dollar amounts per end-

user unit e.g. $1 per device. As long as the SEP holder gets its price, it should be indi+erent to

who pays that price.

8

Exploration of 5G Standards and Preliminary Findings on Essentiality

BY

As we create and consume ever greater amounts of data, telecommunication

technology becomes increasingly important and integrated into our lives. The

latest major wave of innovation, 5G technology, is poised to transform society with

applications from remote surgery, to IoT, and autonomous vehicles.

But behind our data-saturated world and rapid pace of innovation is another story.

The hidden story of how innovation is incentivized, rewarded, and commercialized

through standard essential patents (SEPs) - and the emerging challenges in the

system that supports them.

This preliminary report is the first of a series of collaborations between Amplified

and GreyB that aim to bring greater transparency to the landscape of 5G standard

essential patents. The data is large, opaque, and highly technical. Our focus will

be on making the data involved more accessible and understandable. The issues

are nuanced and complicated. We hope that this report and the following reports

enable the many stakeholders involved to have more effective discussion and

make better decisions.

Introduction

If you're already familiar with 5G standards and standard essential patents (SEPs), then you can skip this section. If not, please take a moment to familiarize yourself with some of the key terms and technical subject matter.

Standards are documents that set forth technology specifications and requirements, that when followed, provide certainty that the processes, devices and systems adhering to them will perform reliably.

5G technology standards are very complicated documents. Essentially, they cover one or more of three different parts of a communications network:

• User Equipment (UE): the requirements necessary for handheld or consumer devices, such as smart phones, to operate on the network; • Radio Access Network (RAN): the requirements for a base station to transfer signals between multiple UE and the core network; • Core network: covers network infrastructure supporting UE and base stations.

Patents, which help protect the rights of the innovators who contribute to building the standard, may be declared as potentially essential and relevant to the standard. These are known as SEPs. Declaration does not require verification. Verifying that a patent is essential to a particular standard is a complex task requiring significant time from experts in the field.

The International Telecommunications Union (ITU) is the global organization responsible for worldwide standardization of telecommunications. The ITU Radiocommunication Sector has responsibility for governing the worldwide use of the radio-frequency spectrum and satellite orbit resources to make certain this spectrum is used effectively. The ITU-R has defined three main types of uses of 5G in it’s document “Framework and overall objectives of the future development of IMT for 2020 and beyond”,

1. Enhanced Mobile Broadband (eMBB): much faster data speeds and capacity allowing for fixed wireless internet access (direct wireless transmission from cell tower or small cell to home) and increased connection speeds for mobile2. Ultra-Reliable Low Latency Communications (URLLC): benefits to areas such as IoT, remote surgery and autonomous/connected vehicles through real-time control, safer transport networks and low latency communications3. Massive Machine Type Communications (mMTC): benefits to IoT, allowing connection to billions of devices.

5G Standards

Standards and Standard Essential Patents (SEPs)

Governing bodiesInternational Telecommunications Union

https://www.itu.int/dms_pubrec/itu-r/rec/m/R-REC-M.2083-0-201509-I!!PDF-E.pdf

https://www.itu.int/dms_pubrec/itu-r/rec/m/R-REC-M.2083-0-201509-I!!PDF-E.pdf

ETSI is the European Telecommunications Standards Institute, a non-profit

standard setting organization (SSO) tasked by the ITU (International

Telecommunication Union) with setting 5G technology standards.

ETSI invests significant sums of money and resources in the preparation, adoption,

and application of standards. In addition, ETSI takes fair and reasonable measures

to ensure that the essential patents that hold technologies with standards and

technical specifications are available for potential and interested parties in

accordance with fair and reasonable terms.

The first 5G related specifications were kicked off by the 3G Partnership Project

(3GPP) in March 2016 to develop New Radio Technology to meet the ITU-R 5G

requirements. These specifications were released by 3GPP. ETSI has been

responsible for developing these and more than 500 additional specifications

related to the New Radio Technology. 1 2

Between then and December 31, 2019 more than 500 specifications related to 5G

technology have been introduced by the standard body.

Developing this technology requires significant R&D investment which, in addition

to a cost, is a significant risk. These and future companies who contribute to 5G

depend on two things to recoup their investment: royalties from standard essential

patents and successful commercialization of their technology. Both of these are

directly tied to standards.

Standards organizations require members to disclose patents that may be

considered essential and grant licenses to their patents and pending patent

applications. Licensing activities should follow the obligation of F/RAND which

stands for to be on terms that are fair, reasonable, and non-discriminatory.

1 - https://www.3gpp.org/ftp/tsg_ran/TSG_RAN/TSGR_71/Docs/RP-160671.zip

2 - https://www.3gpp.org/news-events/1929-nsa_nr_5g

ETSI

https://www.3gpp.org/ftp/tsg_ran/TSG_RAN/TSGR_71/Docs/RP-160671.zip

https://www.3gpp.org/news-events/1929-nsa_nr_5g

Standards benefit businesses, policy makers, and society in general.

• They promote innovation in the market through rewarding R&D

• Help to commercialize the technology and bring products to market faster

• Ensure and define interoperability and interchangeability which gives

manufacturers and consumers more choice

• Encourage improvement and competition in the market

• Help protect consumer safety1

They balance cooperation and competition among innovative companies such

that the net benefit is greater than the sum of their individual parts.

Manufacturers who implement standardized technology get an even playing field -

a blueprint from which they can all build from at a predictable cost. This

encourages more companies to participate in a market and innovate around the

core technology.

Standards provide the ground rules for different devices, systems and processes

to work together. Interoperable and interchangeable products gives consumers

more choice and that encourages market pressure towards better, safer, and

cheaper products.2

Finally, standards provide policymakers with well-documented baselines and rules

for implementation which helps them to understand the implications of new

technology and take action to protect consumer, business, societal interests.3

1 - https://ec.europa.eu/growth/single-market/european-standards/policy/benefits_en

2 - https://www.bsigroup.com/en-GB/standards/Information-about-standards/standards-and-new-business-areas/

3 - https://www.etsi.org/standards/why-standards

4 - https://www.standardslearn.org/lessons.aspx?key=26&okey=5

5 - https://ripple.com/insights/a-brief-history-of-standards/

Open standards, such as Ethernet,

TCP/IP, and HTML allowed computers

to talk to one another, allowing for

interoperability and ease of digital

communications. This led to the

creation of massive growth and new

industries.5

The National Electrical Code in place in

the United States is the result of

standardization efforts for electric

lamps (lightbulbs) and brought about

more convenience, lower prices and

greater safety for consumers.4

The role of standards in innovation

https://ec.europa.eu/growth/single-market/european-standards/policy/benefits_en

https://www.bsigroup.com/en-GB/standards/Information-about-standards/standards-and-new-business-areas/

https://www.etsi.org/standards/why-standards

https://www.standardslearn.org/lessons.aspx?key=26&okey=5

https://ripple.com/insights/a-brief-history-of-standards/

5G is expected to create or enable entirely new industries, greatly benefiting society. Potential applications range from medical applications like remote surgery to automotive such as self-driving. Internet of Things (IoT) in particular is expected to be transformed by 5G. According to ETSI, 12,002 patent families have been declared as of March 19, 2019.

While we don't yet know what products and markets will emerge, we do know who the main players are in developing this technology. To determine this, we took the 12,002 patents declared to ETSI and limited that to families that included at least one alive and granted patent as of December 31, 2019. After cleaning and analyzing the assignee data we found that six companies hold the majority, 71%, of the declared standard essential patents families. The remaining 29%, are held by approximately 65 entities.

Ericsson Huawei LG Nokia Qualcomm Samsung

63% 88% 62%53% 61%

25%

1350

2386

1388

1031 1042

1353

Patent families declared 5G only

Total declared patent families

While examining the data we found that many patents were declared not only to 5G standards but also to previous standards as well. It is perhaps not surprising to note that companies with more published applications also have a greater number of 5G only declarations.

Ericsson Huawei LG Nokia Qualcomm Samsung

51% 40% 88% 71% 61% 79%

1350

2386

1388

1031

1353

1042667

1434

173

295408

683 952 1215 736 634 1072

281

Total declared

Not yet granted

Granted

The state of 5G SEPs

Who are the players?

How many patents are declared to 5G only?

Standards are meant to incentivize and reward the technology creators while making that technology widely available to the manufacturers who implement and sell products.

When the implementors and SEP holders negotiate licensing terms, the process of determining royalty rates and essentiality is fraught with disputes and challenges. The reality today is that determining royalty rate or royalty share involves significant time, effort, and resources. In theory, these problems can be greatly mitigated by understanding the landscape of SEP declared patents. In practice, however, correctly determining essentiality requires significant time and effort. Even then, determining how to calculate royalties and interpret SEPs in an accurate and transparent way is difficult and reasonable people can disagree.

While we've attempted to give an overview of the issues here, but by no means capture the full breadth, depth, and nuance of each of these issues. These topics are the subject of many on-going discussions and deserve healthy debate. The issue that this series of reports will focus on is understanding the landscape of SEP patents and essentiality.

Problems with Standards

Theoretically, clear and defined licensing rates make the system more efficient because innovators and manufacturers alike don't need to negotiate or litigate again and again over cost and access to the standardized technology. In practice, this isn't happening.

To understand why, we need to take a closer look at the process of declaring SEPs and the system of incentives built around them. First, SEPs are self-declared and SEP holders are required to declare all patents that might be essential or risk loss of enforceability later on. Royalty share is calculated based on how many SEPs you own relative to the total pool. So there's a natural incentive to increase your share by having more of your patents considered SEP or reducing the number of SEPs that other's have.

In addition, SEP holders are required to declare all patents that might be essential or risk loss of enforceability later on.

As a result, there is a strong incentive - even pressure - to over-declare patents as SEPs now and then dispute them later.

Why all the confusion?

1 in 4 SEPs are considered coreaccording to our analysis to date.

And this is the root of the problem. Those disputes revolve around determining essentiality of the patents. This is, effectively, a hidden tax on innovation.

Determining essentiality is opaque. The unknowns this creates drive up costs and slow down decision making. Litigation costs aside, it’s expensive just to determine essentiality. Matching patents to standards is tedious manual labor that requires advanced technical knowledge.

Essentiality requires two kinds of evaluation: technical and legal. Legal analysis is a subjective assessment that requires claim interpretation, which is a matter of law, and practically never carried out until a dispute arises. Technical analysis, on the other hand, is a pre-requisite for legal analysis and requires a lot of time from a technical expert.

These problems are compounded by the sheer number of patents involved. And 5G is growing much faster than 4G did over a comparable timeframe. More patents does not necessarily mean better patents but it does mean more confusion and less transparency.

This report seeks to address those problems by answering the question of technical relevance.

First 5 years of SEP Declarations - 4G compared to 5G

Determining essentiality

1000

2000

3000

4000

5000

6000

7000

8000

Year 1 Year 2 Year 3 Year 4 Year 5

5G Patent Families(2017 - 2019)

4G Patent Families(2006-2010)

At Amplified, we believe that transparent patent data promotes innovation. Specifically, the SEP system is plagued by a classic tragedy of the commons which can be solved by clear and ready access to information. Ideally, innovators would get well-deserved royalties for their contributions without diverting significant time, effort, and resources away from R&D towards essentiality research and disputes.

To the extent possible, we hope to encourage more objective measures that can facilitate better subjective decision making for all parties - policymakers, innovators, manufacturers, judges and jurors. Determining essentiality is, ultimately, subjective and vulnerable to human error. By centralizing the technical evaluation 80% of the work can be done upfront, leaving stakeholders to focus their time and effort on the remaining 20%.

So we teamed up with GreyB to create a free and open resource for understanding the patents related to 5G. We will consider our work to be a living document and invite comment and criticism from all interested parties.

Reviewing historical work done in this field we've identified the following pitfalls which we seek to avoid:

• Extrapolating conclusions done from a small sample size • Using proxies from 4G and projecting those onto 5G • Taking declared numbers at face-value • Implicitly framing all patents as equal by focusing on patent quantity only without accounting for quality

The complex nature of patent data analysis simply makes it impossible to address these issues completely so unfortunately it may be impossible to avoid all of these in entirety. However, it is our goal to create a reliable report and therefore we believe it is critical to acknowledge and account for them transparently and to the best of our ability. Our methodology is detailed in the appendix and we invite corrections, additions, criticism, and contributions.

“The key ingredient needed for the prisoner’s dilemma to work its destructive magic is a lack of transparency between the parties involved,”

Siino writes. The article goes on to discuss how the lack of transparency in patent licensing transactions is disrupting the the patent marketplace, and threatens

“to break licensing’s virtuous circle of innovation leading to commercialisation, which in turn funds more innovation.” 1

Increasing data transparency

Problems and pitfalls

1 - https://www.ipwatchdog.com/2017/09/10/escaping-prisoners-dilemma-transparency-patent-licensing/id=87812/

5G declared patent families and their file histories analyzed

6,402

documents covering the each detailed technical specification

500+

Years of human expertise and effort spent tediously analyzing each patent family and their file histories in light of the standards specifications.

Expert review

Our analysis so far

https://www.ipwatchdog.com/2017/09/10/escaping-prisoners-dilemma-transparency-patent-licensing/id=87812/

Preliminary findings on essentiality

Total core 5G SEPs by Top 6 - 1350 Others - 308

10% 20% 30% 40% 50% 60% 70% 80% 90%

Ownership breakdown of reviewed core SEPs

Ratio of total core SEPs vs. non-core SEPs • 12,002 Patent Families declared to ETSI as of March 19, 2019 • 6,402 of these 12,002 families with a granted, alive patent as of December 31, 2019 • 1,658 of these 6,402 families determined as core essential SEPs

Core SEPs - 1658 Other SEPs - 4744

10% 20% 30% 40% 50% 60% 70% 80% 90%

Distribution of core SEPs with live granted patent families

321 (19%)

Huawei

256 (15%)

Samsung

202 (12%)

Nokia228 (14%)

LG

191 (12%)

Qualcomm

152 (9%)

Ericsson

308 (19%)

Others

Preliminary findings on essentiality (con’t)

Essentiality ratio of top companies' core SEPs

500

1000

1500

2000

2500

3000

3500

4000Analyzed FamiliesDeclared Core SEP families

Essentiality Ratio

34% 24% 19% 27% 30% 22% 28%

OthersEricssonHuawei LG Nokia QualcommSamsung

3452

11101350

683

152

2386

952

321

1388

1215

228

1031

736

202

1042

634

191

13531072

256 308

Anyone who owns or has played a hand in creating the technology covered by these standards.

Implementers who seek to commercialize this technology and need to license on SEPs.

Policymakers who seek to protect today's innovations while encouraging tomorrow's.

Legal professionals, judges and courts, who need evidence of essentiality and a clear methodology to help them resolve licensing disputes.

Amplified researches artificial intelligence and natural language processing for dense, complex documents and develops software solutions for technical and intellectual property research. Today's world is plagued by an over-abundance of data which makes it increasingly difficult to make decisions. Our vision is a world where people are empowered people to cut through the noise and make sense of all that information. Our mission is to promote innovation by making related data available, accessible, and understandable at scale.

Head of Solutions at AmplifiedIAM Top 300

Manager at GreyB

Team Lead at GreyB

GreyB is the world’s leading technology research and intelligence company. We perform custom analysis on information including patents, scientific papers, market reports, and news to drive business insights. We innovate and combine machine learning & human intelligence to translate your high value opportunities into a win or help you with efficient risk mitigation in the changing landscape of the industry.

Who is this report for?

About the authors: who are we?

Matt Luby

Muzammil Hassan

Aman Kumar

The data covered was all patents from the ETSI website 5G declaration list March 2019 version. This covers any patent or patent application declared to the ETSI 5G standard. Essentiality evaluation involves significant time and effort so there is a lag between release date of our report and data covered. We’ll issue updates as we continue to analyze the data.

• All patents declared to relevant 5G specifications and projects were selected resulting in 63,985 individual patent documents (granted patents, published patent applications, and non-public patent applications) • ~500 Non-public patent documents, unavailable for inspection, were removed • The remaining ~63,500 patent documents were grouped into 12,002 patentfamilies. • 6,402 of the 12,002 patent families with a granted patent having live legal statusas of 31st December 2019 were kept, the rest were removed • We determined our understanding of each of the 6,402 patent families by reading the claims and related embodiments from these granted patents and checked the correspondence history and documentation at the patent office to understand each patent. • We determined essentiality for each patent family as a Core SEP or not by checking any specifications declared to be relevant by the patent holder to the SEP and compared the specific sections of these to compare overlap of the patent claims with those sections. If partial or no overlap was found, we then broadened our comparison to the wider group of all other specifications to repeat this process.

Methodology

What data was covered?

How did we analyze the data?

14th annual Women in IP Law CLE event - DLA Piper

Documents

Transcript of 14th annual Women in IP Law CLE event - DLA Piper