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Curbing the Abuse of Anti-Suit Injunctions with Alternative Dispute Resolution: Two Views

Introductions

Two articles on anti-suit injunctions (ASI) were recently published by Sisvel and a distinguished cast of co-authors. These articles will be highly useful for any IP professional seeking to learn what anti-suit injunctions are, how they are being used--and abused--why alternative dispute resolution (ADR) techniques like arbitration and mediation are better options, and how standard-setting organizations (SSOs), Competition Authorities, and the courts can encourage licensors and implementors to pursue ADR rather than ASIs.

The first article, entitled “Anti-suit injunctions are a race to the bottom – and arbitration is the answer”, was published in IAM in February 2022 and was co-authored by Sisvel founder Roberto Dini, Jing He, and Mario Franzosi.

The second article appeared in the March issue of les Nouvelles, and was entitled “The Phenomenon Of Anti-Suit Injunctions And Extraterritorial Implications”. This article was an extract by Sisvel’s Valentina Piola of a webinar discussion organized by LES Italia on the theme “Anti-suit injunctions under different national laws - Italy, Germany, UK and US”,  which was held on September 29, 2021.  The webinar was moderated by Roberto Dini, and featured  Mario Franzosi, Sir Robin Jacob, Judge Paul R. Michel, Judge Randall Rader, Cordula Schumacher, and Valentina Piola, who summarized the discussion for the article.


IAM Article: Anti-Suit Injunctions are a race to the bottom – and arbitration is the answer

The IAM article boldly defines the problem in the first paragraph:

The race for jurisdictional supremacy in the field of SEP litigation is nothing new. However, the recent take-up of anti-suit injunctions (ASIs) by some courts has the potential to lead to a spiraling race to the bottom in the context of global SEP dispute resolution, ultimately resulting in a litigation gridlock. The urgency of the situation is reflected in the European Union’s initiation of a formal WTO process in July 2021 seeking more information from China regarding its use of ASIs.  

Closing out the introduction, the authors presage what they propose as the best solution --international alternative dispute resolution (ADR)--pointing out that the Court of Justice of the European Union recognized the role that independent third parties could play in resolving SEP disputes in the 2015 Huawei v ZTE.


The ASI phenomenon

The authors next review how ASIs are being used in patent litigation, with a key starting point being Unwired Planet v Huawei, in which the UK Supreme Court determined the value of a FRAND royalty to be paid for a global SEP license. After the Unwired Planet decision, the authors argue, Chinese courts, in particular, extended the decision far beyond the intent of the UK court:

The UK court held that if the plaintiff was unwilling to take a global license on the basis of the court ruling, it would issue an injunction covering the United Kingdom and the United Kingdom alone. This contrasts with the practices of Chinese courts, which take on cases as contract disputes,without considering any underlying patent infringement matters, and subsequently deploy ASIs, which have the effect of interfering with foreign judgments or companies over which they do not have jurisdiction.  

As the authors observe, “This has raised big questions about sovereignty and also sparked discussions about which courts can define FRAND royalty rates.”
The article then reviews the key factors considered by the Chinese courts when they issued ASIs in Huawei v Conversant, Xiaomi v InterDigital, and Samsung v Ericsson, which included:
●    the possible impact of the enforcement of foreign court decisions on parallel litigation in China;
●    whether it was necessary to issue an ASI;
●    whether the damage to the applicant if an ASI was not issued exceeded the damage to the respondent if an ASI was issued (i.e., the balance of interests);
●    whether issuing the ASI would damage public interest; and
●    whether issuing the ASI complied with the doctrine of comity. 

In particular, the authors take issue with the Chinese court’s analysis of public interest, stating:

It is regrettable that the courts in China seem to have an incomplete analysis of public interest...Insufficiently rewarding innovators who have incorporated their patented technologies into industry standards is contrary to the goal of fostering innovation and making new and safer products available. This is the real public interest, which is also the stated purpose of China’s Patent Law.


Reactions of national courts in Europe

The authors then described the responses to these ASI’s in Europe, first observing that “restraining a party from applying a foreign judgment in a foreign territory raises serious doubts about lawfulness, as it purports to bind courts in other countries. In this context, ASIs do not appear to take into account territorial sovereignty (a fundamental principle of any legal system).”

One reaction has been “a race to sue counterparties in courts deemed friendly, notwithstanding the universal principle of national sovereignty.” The Court of Appeal of England and Wales in Vestel v Access Advance addressed such forum shopping, finding that, unlike the over-reaching Chinese courts, they didn’t have jurisdiction to set a global FRAND rate absent an underlying action for patent infringement.

Relying upon both Sisvel v Haier and  InterDigital v Xiaomi, the authors posit that “a patent implementer who applies for an ASI, or intends to, cannot be regarded as sufficiently willing to take a license within the meaning of the case-law of the Court of Justice of the European Union and the German Federal Supreme Court.”

Regarding the specific issue of ASIs, the authors state:  

To put an end to the spiral of ASIs, anti-anti-suit injunction and anti-anti-anti-suit injunctions, the Munich Regional Court went a step further, holding the implementer liable in attempting to escape its obligation to pay royalties. The court was explicit: the implementer could try to acquire an ASI, but the patent owner could then go back to the Munich court, which would grant it an injunction. This reasoning demonstrates that a FRAND royalty cannot be proactively negotiated using ASIs, while trying to rebalance the situation between patent owner and implementer.
 

Arbitration – an efficient tool for solving FRAND disputes and avoid delaying tactics

Having detailed the problems associated with ASIs, the authors turned their attention to the best alternative, which they state are international arbitration bodies that deliver the following advantages:
●    Arbitration reduces the costs of litigation.
●    Arbitration enables parties to choose arbitrators with the necessary legal, technical, and economic expertise to fairly resolve SEP/FRAND disputes.
●    Arbitration can more easily cover entire SEP portfolios because, unlike court proceedings, the territoriality principle does not prevent arbitration tribunals from considering patent cases from various jurisdictions.
●    Finally, arbitral awards can be enforced across international borders under the regime of the New York Convention.

Despite these advantages, the authors recognize that “arbitration as an alternative to court disputes has so far yielded mixed results.” To promote arbitration, the authors recommend that all associated organizations and authorities should promote arbitration. For example, they call on standards-setting organizations (SSOs) to encourage arbitration among their members by requesting a declaration of willingness to arbitrate.

They advocate that competition authorities should “recognize that a lack of agreement on the FRAND royalty rate means that there is a competitive obligation among both patentees and implementers to arbitrate.” Finally, the authors recommend that “national judges called to decide on SEP matters could use their procedures to powerful effect to encourage people to arbitrate as a sign of good faith and willingness in FRAND disputes.”

In conclusion, the authors observe that “ASIs are emerging as a tool used by national courts to defend the interest of their industries and perhaps could also be seen as constituting state aid or even an unfair trade practice, in violation of international trade treaties such as the WTO and emerging multilateral agreements.” Then, they preset a dire warning.

Failing to reward innovators for their extensive R&D investments and to recognize the benefits that their patented technologies bring to society may discourage them from investing in new research. To the detriment of technological progress, they may decide to avoid participating in the standardization process and revert to proprietary, closed solutions or trade secrets as means of protection. Such a broken standard and patent ecosystem could well have all sorts of unintended consequences, producing an even worse scenario for all those involved.
 

LES NOUVELLES Article: The origins of Anti-Suit Injunctions phenomenon


The second article plows much of the same ground, but with a more detailed focus, starting with the origins of the anti-suit injunction, revealing ASIs to be just another form of hold out, and concluding again that the best solution for patent disputes are alternative dispute resolution techniques like arbitration and mediation.

The article again identifies Unwired Planet as the decision that launched the ASI phenomenon, though the panel quickly clarified how the Chinese Courts have overextended the decision far beyond where the UK Court intended. To recount, in Unwired Planet the UK Supreme Court found that setting a global license for the entire portfolio was the best solution when dealing with a large international SEP portfolio. However, unlike several Chinese ASI cases, Unwired started as a patent infringement action, which clearly gave the court jurisdiction over the parties. And, as mentioned previously, the Unwired Court didn’t interfere with the judicial power of other jurisdictions; rather, the defendant could either accept the worldwide royalty pricing or be subject to a UK injunction.

In contrast, several Chinese cases seem to have rewarded forum shopping for courts deemed friendly in defining royalty rates. These cases were initiated without an underlying action for patent infringement, bringing jurisdiction into question, and the ASI preventing legal action in other jurisdictions was clear interference with the judicial power of other jurisdictions.

For this reason, some US courts have ignored Chinese injunctions. In one case, Samsung v. Ericsson, Judge Rodney Gilstrap of the Federal District Court of Texas  “affirmed that the use of ASIs is to be considered an interference with the administration of justice in other countries and with regard to companies over which there is no jurisdiction.” The judge ignored the Chinese injunction, in turn issuing an "Anti-Interference Order”.

Note that after the court ignored the ASI, the parties settled on appeal. In this fashion, the court acted as a facilitator in getting the parties to negotiate, which is always the preferred method of setting a royalty rate.  


ASIs as a delaying tactic 

The panelists then positioned ASIs as another form of hold-out that “generates a distortion of the market that damages the entire innovation ecosystem.” In particular, ASIs are damaging because they deny patent holders access to the courts and the ability to prosecute unauthorized users of their patented technologies. Holdout also discourages and penalizes willing licensees by increasing their production costs as compared to competitors who hold out.

Once again the concept of public interest was take into consideration. Chinese courts, the panel argued, set low rates because they “believe it is in the interest of the market to keep the cost of innovation and technology as low as possible.” Then they counter that “public interest isn’t just about having a low price;  public interest is to have an improvement in our daily lives through increasingly improved and sophisticated products. In order to achieve this, huge investments in R&D are required.”

Noting the increasing prominence of Chinese manufacturers, the panelists observed that “ASIs are therefore emerging as a tool used by some national courts, and in particular Chinese courts, to defend the interests of their own industries. They can even be seen as state aid or an unfair trade practice that are not allowed by international trade treaties such as the WTO.“

Fortunately, the authors observe, there is room for optimism. For example, in Sisvel v. Haier, the court ruled that the alleged licensee must act proactively to reach an agreement with the patent holder within a reasonable time. In Interdigital vs Xiaomi, the Regional Court of Munich ruled that requesting an ASI evidences a reluctance to negotiate in good faith. This positions the party as an unwilling licensee that loses the right to a FRAND defense and may be subject to an injunction. As observed by the authors, “If other courts were to adopt this strategy, this would have a strong disciplinary effect on many counterfeiters, who would be much more cautious before requesting an ASI.


ADR to solve FRAND disputes and avoid delaying tactics 

Having detailed the various problems with ASIs, the panelists proposed arbitration and meditation, collectively called Alternative Dispute Resolution (ADR), as the solution. Panelists agreed that ADR delivers faster decisions at much lower cost, and the ability to consider large patent portfolios in different jurisdictions. In addition, they don’t set a legal precedent -- they only bind the parties who can resolve the dispute confidentially without creating any conflict between different national jurisdictions.

The panelists also identified some drawbacks of ADR, though most have workarounds. For example, arbitration can’t invalidate patents. though it can delegate the task of assessing the validity of SEPs to an international patent authority such as the EPO. In fact, in a recent pilot study, the EPO has expressed its opinion on the essentiality of patents.

Despite the advantages presented, the panelist agreed that ADR has yielded limited results as alternatives to judicial disputes before national courts. As in the other article, they urged Standard Setting Organizations (SSOs), Competition Authorities, the courts, and other government institutions to promote ADR.

The article identifies one very positive step that was taken by the Digital Video Broadcasting (DVB), an international SSO, that recently published a Memorandum of Understanding encouraging members to settle license disputes through arbitration. The panelists called on Competition Authorities to request arbitration from the SSOs, and for courts to construe the refusal to arbitrate as a sign of unwillingness.

Despite the promising steps, the panel concluded that “For the well-being of the entire innovation ecosystem, it’s important that licensing agreements are primarily concluded without resorting to litigation. However, at present, arbitration cannot be imposed and therefore the consent of the parties or a contractual clause is required. So, to date, the choice of arbitration remains unfortunately rather limited.”


For additional information, please read the full articles:
Anti-suit injunctions are a race to the bottom – and arbitration is the answer (pdf)
The Phenomenon Of Anti-Suit Injunctions And Extraterritorial Implications (pdf)
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How You Should Think About Patents and Royalties

It’s easy for those with only a casual knowledge of standards-based technology development to consider patents and royalties a harmful and unfair “tax” on the companies that sell products based upon those standards. But understanding how standards like Wi-Fi are created delivers a completely different view. Patents and royalties aren’t a tax on the system; they’re the fuel that powers the system.

Let’s start with a quiz. Assume you’re at the airport in a crowded lounge, or maybe in a conference hall. Your notebook computer is connected via Wi-Fi and you’re about to make a critical video call, but notice other folks around you doing the same thing. Your main concern is (choose one):

A.    I hope this call goes through and looks and sounds great.
B.    I hope royalties on the Wi-Fi router aren’t excessive.
C.    I hope royalties aren’t being paid to a non-practicing entity (NPE).

Hold that thought.


How Standards are Created

Though the standard-setting process varies among organizations like MPEG and the IEEE, most follow this basic structure. The process starts with a functional requirements document that, as the name suggests, defines the technical requirements for the new specification. Relating to our quiz, the key functional specs for Wi-Fi 6 were improved efficiency and throughput in high-density Wi-Fi environments, like airports or conference halls.

Once the functional requirements are set, individual members in dozens or hundreds of companies submit “technical contributions” to meet these requirements. This is a competitive process as different companies propose different technological approaches. Movement through the process is driven by individual voting members. In the IEEE group that sets Wi-Fi standards, as generally in standard-setting bodies, members vote to add technical contributions to the specification framework, adopt the specification into a draft, and approve the draft.

Member companies submitting technical contributions can be retail product manufacturers, chip vendors or other component vendors, telecom operators or pure research companies funded through product royalties. Or a combination of these. Technical solutions contributed to standards are almost always patented, which means they are highly innovative and involve substantial development, testing, and refinement.

These technical contributions are designed and developed by highly skilled professionals working in an extremely competitive environment driven by the voting process. Their charter is to create patentable technologies that solve key requirements of the specification. They’re the ones who make your video call a success or a failure.

Of course, not all technical contributions are accepted. Contributors often propose several solutions for every technical problem, but eventually only one is integrated into the standard. So, the companies employing these talented developers must fund the development of multiple inventions for each that’s integrated into the standard. This requires substantial investment.


Deploying the Standard

Once a standard like Wi-Fi is complete, it contains the best-in-class of multiple proposals from dozens of companies. Component vendors build chips that implement the standard and product manufacturers integrate these components into retail products that are sold to businesses and consumers. Products that implement the standard pay royalties back to companies that contributed technology to the specification, either bilaterally, or through patent pools that combine multiple contributors.


About These Royalties

A few things about these royalties. First, companies build products around standards-based technologies because the development process ensures that the standard will include the most effective technical solutions for achieving the requirements of the new specification. Deploying the standard allows them to remain competitive with other manufacturers and ensures that their products are compatible with all others that use the same standard.

Second, because of how standards are created and documented, companies who implement the specification can easily find out who the contributors are and that patents were actually deployed in the specification. The expectation of royalties is not a surprise; it’s a well-established component of the technology innovation ecosystem.

Finally, to ensure that patent holders don’t abuse the leverage that a standard gives them, royalties associated to standard-essential patents must be Fair, Reasonable, and Non-Discriminatory (FRAND). While opinions will certainly vary about what’s reasonable, FRAND is an established legal concept that both patent-holders and implementors can rely on in court. That said, by far the majority of patent licensing agreements are hammered out via negotiation, not by judges or juries.


How You Should Think About Patents and Royalties

Now back to our quiz. Your main concern is (choose one):

A.    I hope this call goes through and looks and sounds great.
B.    I hope royalties on the Wi-Fi router aren’t excessive.
C.    I hope royalties aren’t being paid to a non-practicing entity (NPE).

The correct answer is obviously A. The Wi-Fi 6 development process ensures that, if your laptop and the local router both support Wi-Fi 6, you have the world’s best technology delivering your call.

Should you care about royalties? No, because they’re baked into the standard-setting and implementation process that brought us Wi-Fi, cellular, and many other similar technologies. If the router costs a few dollars more to deliver the best possible experience, it’s a reasonable price to pay. After all, innovation is a long and expensive process, it requires the possibility of reasonable returns to be worth pursuing.

Should you care if you’re paying royalties to a non-practicing entity? Why would you? At the end of the day, it’s all about the best technology to get your call through. And it’s irrelevant if that comes from a chipset manufacturer, a router vendor, a university, or a research shop.

So again, royalties aren’t a tax on the system; they're the fuel that powers the system. Eliminate or dramatically reduce these royalties and you remove the incentive that produced technologies like Wi-Fi and cellular in the first place.



Photo by Mikhail Nilov from Pexels
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IEEE 2015 IPR Policy: Description and Operation

On February 8, 2015, the Institute of Electrical and Electronics Engineers (“IEEE”) approved changes to the IEEE Intellectual Property Rights (IPR) policies that defined Reasonable Rates for royalties relating to/in respect of future IEEE standards and restricted the availability of injunctive relief.  This is the first in a series of articles that will explore the 2015 policy and its impact on standards-essential patents licensing.

This article will provide some background and detail what the new policies say and do. The next articles will discuss other relevant aspects of these new policies.


About The IEEE and SEPs

By way of background, the IEEE is a standard-setting organization that has set multiple standards for technologies like Wi-Fi, Ethernet, and many others. During the formation of such standards, IEEE participants submit technical contributions that accomplish the particular technical goals of the standard. If these contributions are included in the standard, any patents that cover them are designated Standard Essential Patents or SEPs. We give an overview of how the standardization process works in this article.

Recognizing that patents provide a right to exclude, organizations like the IEEE request SEP Owners to commit to making available licenses on Reasonable and Non-Discriminatory, or RAND, terms—“FRAND” (Fair, Reasonable and Non-Discriminatory) is a more European version of the term (while RAND is mainly used in the US), but the two are essentially synonyms and often used interchangeably. Worldwide case law also provides guidance on what RAND entails. What’s unique about the 2015 IEEE IPR changes, which are available here, is that for the first time for any standards-setting organization, the IEEE defined what a “Reasonable Rate” computation should consider (see page 2 of this redlined version). The IEEE also limited the availability of injunctions (see page 4, line 146).


IEEE requests Licensing Assurances from patent holders

In terms of operation, the new policy kicks in when “the IEEE receives notice that a [Proposed] IEEE Standard may require the use of a potential Essential Patent Claim.” Once received, “the IEEE shall request licensing assurance, on the IEEE-SA Standards Board approved Letter of Assurance (LOA) form, from the patent holder or patent applicant.”

So, if a standard includes a potential essential patent claim, the IEEE can request licensing assurance. Once this request is received, the patent holder has four options:
  • Deny awareness of Essential Patent Claim
  • Submit LOA committing to
    • License Essential Patent Claim on royalty-free terms, or
    • License Essential Patent Claim with reasonable royalty, or
    • Refrain from enforcing Essential Patent Claim
  • Submit “negative LOA,” declining to give any assurance as to licensing intentions
  • Not respond
Now let’s explore the definitions of “reasonable rates” and restrictions against injunctive relief.


How the 2015 IPR Policy defines Reasonable Rates

According to the updated IPR policy,

“[D]etermination of such Reasonable Rates should include, but need not be limited to, the consideration of:
• The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
• The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
• Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.

Restrictions against Injunctions in the 2105 IPR Policy

This provision reads as follows;

“The Submitter of an Accepted LOA who has committed to make available a license for one or more Essential Patent Claims agrees that it shall neither seek nor seek to enforce a Prohibitive Order based on such Essential Patent Claim(s) in a jurisdiction unless:  the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review, if sought by any party within applicable deadlines, in that jurisdiction...”
Future articles will analyze this provision in more detail. For now, one prevalent view is that “Because the revisions place strict limitations on an SEP holder’s ability to enforce its patent rights against infringers, they truncate the upper range of the distribution of bilaterally negotiated RAND royalties and thus unambiguously reduce the compensation that the SEP holder may obtain for its technological contributions to the IEEE standards”. Also, most authorities agree that “This proposed IEEE IPR policy appears contrary to case law and administrative actions that have considered the availability of injunctive relief for standard essential patents and universally agree that injunctive relief should be available against unwilling licensees.”


Letters of Assurance

Once the patent owner receives the request for licensing assurance, it has the four options detailed above, which include not responding. If they choose to respond, the Letter of Assurance Template is available here. Here are the key options in the document.

IEEE Letter of Assurance
Section 1 of the IEEE Letter of Assurance Template.

Here’s a quick summary of the four options, a - d.

a.    The patent owner agrees to license without compensation, with the option to require a reciprocal agreement from the licensee.
b.    The patent owner agrees to license according to the new definition of Reasonable Rates as discussed above, with the other options shown.
c.    The patent owner agrees not to enforce the patent claim for Compliant Implementations of the technology.
d.    The patent owner is unwilling to grant licenses under a or b, or to agree to c. This is called a Negative Letter of Assurance.

In its September 10, 2020 letter to the IEEE, the US Department of Justice noted that "Since the Policy went into effect, reports show that negative assurances—those in which a technology contributor declines to give a RAND assurance—have increased significantly, comprising 77% of the total Wi-Fi Letters of Assurance at IEEE between January 2016 and June 2019. As a result, in 2019, the American National Standards Institute—a leading nongovernmental body that accredits US standards—declined to approve two proposed IEEE standards amending the 802.11 Wi-Fi standard." This development indicates that the changes to the IPR policy in 2015 did not find consensus among members of IEEE. Rather, probably as a consequence of the composition of the IEEE SA Board (the IEEE’s governing body responsible for modifications to the IEEE-SA Standards Board Bylaws which contain the IPR policy) back at the time, the changes were approved despite internal criticism.



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