Alerts and Updates

ITC Poised to Address Viability of RAND Defense in Section 337 Litigation

July 10, 2012

While it will not be binding in any district court action, the ITC's ultimate holding in the Apple investigation on the viability of RAND-related defenses will be its first substantive treatment of the issue. It will determine the future of standards-essential patents as the basis for an exclusion order at the ITC and may provide persuasive analysis for district courts and, perhaps, even the Federal Circuit.

The U.S. International Trade Commission (ITC) recently indicated that it will finally address the issue of whether and to what extent members of Standards Setting Organizations (SSOs) who make commitments to license standards-essential patents on reasonable and non-discriminatory terms (RAND) may seek exclusion orders at the ITC.1

Motorola sued Apple for direct and infringement of method and apparatus claims. Motorola accused the full panoply of Apple's product line, including mobile phones, tablets, personal computing devices and other computer products. Among Apple's defenses were unenforceability through unclean hands.2 The gravamen of Apple's unclean-hands defense was the contention that Motorola failed to timely disclose one of the asserted patents to a European SSO.3 Apple pleaded RAND-related defenses in its answer to the complaint, but there is no publicly available pleading as to their disposition and they are not reflected in the initial determination.4 The Administrative Law Judge (ALJ) rejected Apple's unclean-hands defense in his initial determination.

The Commission voted to review the ALJ's initial determination.5 Several of the issues under review are typical: claim construction, validity, infringement and domestic industry. In addition, however, the Commission called for the parties to brief on RAND-related issues.

The Commission requested briefing on the theories in law, equity and public interest (19 U.S.C. § 337(d)(1)) that might preclude issuance of an exclusion order under various factual scenarios. These permutations included: where the record lacks evidence to support a RAND-based affirmative defense (e.g., equitable estoppel, implied license, waiver, etc.); whether the mere existence of a RAND obligation precludes issuance of an exclusion order; where a patent owner refused to offer a license to a named respondent in a Section 337 proceeding; where a patent owner has refused to offer a license on a RAND-obligated patent to some other entity, regardless of whether that entity is a named respondent in a Section 337 proceeding; where a patent owner has refused to negotiate a license on RAND terms with a named respondent; where a patent owner has refused to negotiate a license on RAND terms with some other entity, regardless of whether that entity is a named respondent; and where a patent owner who has offered a RAND license that the named respondent in a proceeding has rejected.6 The Commission also asked the parties to address whether Apple waived its RAND defenses.

The Commission sidestepped the RAND issue in a separate case decision issued the very same day.7 In that case, Motorola sued Microsoft for its Xbox product at the ITC under Section 337 on patents that had been declared essential to two different SSOs by Motorola or its predecessor. The membership documents of those SSOs required the patents to be licensed on RAND terms. Prior to filing suit, Motorola offered Microsoft a 2.25-percent license rate on end-user products, leaving the offer open for 20 days. Microsoft never made a counteroffer, instead filing a district court complaint that Motorola had breached its SSO RAND assurances. Motorola then filed the ITC action. The ALJ rejected these defenses under the circumstances in the case.

Microsoft's first argument was that, under the doctrines of contract, implied license and/or waiver, a party who has a RAND obligation may not seek exclusion. It is notable that this argument does not concern the specific conduct of the parties beyond the creation of the RAND obligation. Moreover, this argument would have no applicability outside the ITC where exclusion is the principal remedy. In rejecting Microsoft's contract-based argument, the ALJ succinctly noted as follows:

Microsoft was not able to cite one case in which in which a section 337 remedy was foreclosed due to the existence of RAND obligations. Microsoft has not relied on any court case in which an injunction was denied or set aside due simply to the existence of RAND obligations. . . .it has not been shown that the 'rights or the situation of the parties are clearly defined and established by law' so as to prohibit Motorola from obtaining relief from the Commission.8
Microsoft's implied license and waiver defenses fared no better. "Microsoft has cited no instance in which an executed document such as a letter of assurance sent to an SSO resulted in an implied license."9 The waiver defense was treated with the implied license defense as "two sides of the same coin" and similarly rejected.10

Microsoft's equitable estoppel argument, however, was very nearly successful. This defense has three elements in a patent case: 1) a misleading communication, 2) reliance and 3) material prejudice.11 The ALJ agreed with Microsoft that Motorola's 2.25-percent license offer was not in good faith, establishing the first element of the defense, and that an exclusion order would satisfy the third element of the defense. Microsoft failed to satisfy the second element because "there is no evidence in the record that Microsoft relied on any statement by Motorola to embark on, or continue any course of conduct."12

The Motorola v. Microsoft ITC case had garnered more RAND attention than the Motorola v. Apple litigation in which the Commission actually decided to tackle the issue. The former case not only drew letters from members of Congress weighing in on Microsoft's position on RAND, but an extraordinary letter to the ITC from the FTC conveying its position that a patentee with a RAND commitment should not ordinarily be able to obtain an exclusion order.13

The Commission remanded the Motorola v. Microsoft case to the ALJ without even addressing RAND. Instead, the principal basis of the remand was for the ALJ to apply the Commission's recently issued decision that in order to prevail on a claim of infringement (direct or indirect) one must show that the accused article is infringing in its condition as imported.14

The ITC's decisions come on the heels of Judge Richard A. Posner's ruling, sitting by designation in a district court, that [F]RAND obligations foreclose the availability of an injunction under eBay.15

While it will not be binding in any district court action, the ITC's ultimate holding in the Apple investigation on the viability of RAND-related defenses will be its first substantive treatment of the issue. It will determine the future of standards-essential patents as the basis for an exclusion order at the ITC and may provide persuasive analysis for district courts and, perhaps, even the Federal Circuit. Patent litigators, thus, can anticipate this cutting-edge decision.

For Further Information

If you have any questions about this Alert, please contact Rodney R. Sweetland III, Michael G. McManus, any member of the ITC Section 337 Litigation Practice Group or any attorney in the firm with whom you are in regular contact.

Notes

  1. Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, Comm'n Decision to Review in Part, 77 Fed. Reg. 38826 (June 29, 2012).
  2. Apple pleaded RAND defenses in its answer to the complaint, but they were not reflected in the initial determination.
  3. This variety of unclean-hands defense is found in Hynix Semiconductor, Inc. v. Rambus, Inc., 645 F.3d 1336 (Fed. Cir. 2011) and Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004 (Fed. Cir. 2008).
  4. The Commission's decision references motions in limine filed under seal on the question of whether or not the RAND issue was waived. See 77 Fed. Reg. at 38828.
  5. Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, Comm'n Decision to Review in Part, 77 Fed. Reg. 38826 (June 29, 2012).
  6. Id., 77 Fed. Reg. at 38828.
  7. Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, Inv. No. 337-TA-752, Notice of Commission Determination to Review a Final Initial Determination (June 29, 2012).
  8. Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, Inv. No. 337-TA-752, Initial Determination at 290 (April 23, 2012) at 290.
  9. Id. at 293.
  10. Id. at 295.
  11. A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020., 1042-43 (Fed. Cir. 1992).
  12. Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, Inv. No. 337-TA-752, Initial Determination at 304.
  13. Id., Third Party United States Federal Trade Commission's Statement on the Public Interest (June 6, 2012).
  14. Certain Electronic Devices with Image Processing Systems, Components Thereof, and Associated Software, Inv. No. 337-TA-724, Comm'n Op. (Dec. 21, 2011).
  15. Apple, Inc. v. Motorola, Inc., 2012 U.S. Dist. LEXIS 89960 *45–49 (June 22, 2012).

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