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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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Restoring Balance and Clarity in the Innovation Ecosystem

Today’s consumers enjoy an incredible range of products that deliver enhanced convenience, safety, entertainment, and many other benefits. Many of these products are built upon technologies developed by companies that don’t actually manufacture the products. While these manufacturers are quite happy to harvest the profits delivered by technology owned by others, they’re often reluctant to pay a fair share back to the companies that invented the technologies upon which they are based. This has caused a crisis that threatens to throttle the innovation that delivers the new products that consumers love to buy and own. Levelling the playing field to ensure that innovators get a fair reward for their investments in technological progress and implementers continue to convey the benefits of these innovations to society remains a critical goal.

Some of the recent legal developments and discussions surrounding this fundamental issue were tackled by the article, Restoring Balance and Clarity in the Innovation Ecosystem, which appeared in the September issue of The Licensing Journal. It’s authored by an all-star cast of intellectual property professionals, including Roberto Dini, Founder of Sisvel, Sir Robin Jacob, Sir Hugh Laddie Chair of Intellectual Property Law at UCL, Eeva K. Hakoranta, EVP, Chief Licensing Officer at InterDigital, Gustav Brismark Founder and CEO at Kazehara & Former Chief IP Offers at Ericsson, and Richard Vary, Partner at Bird&Bird. By way of background, the article was inspired by a webinar session of the same name produced in May 2021 for the LES International Annual Conference.

The article first puts in context the Anti-Suit Injunction (ASI) phenomenon by briefly reflecting on the history of SEP-based patent litigation, and thereafter addresses three topics: how to support the standards-based innovation ecosystem, factors to consider when setting FRAND rates, and the benefits of arbitration to resolve patent-related disputes.

The article will be highly useful to all IP professionals, particularly those charged with setting or enforcing IP-related policies.

From Preserving Sovereignty to Anti-Suit Injunctions

To set the stage, the authors review the case law surrounding the licensing of standard-essential patents (SEPs) like those involved in communications technologies like cellular and Wi-Fi where standards are necessary to ensure broad-based compatibility between systems and devices. Since many products are sold in multiple jurisdictions, the issue of setting a global royalty rate is paramount. In Unwired Planet v. Huawei, the UK Supreme Court found that a national judge could set a global royalty rate. However, the Court preserved the sovereignty of other jurisdictions by presenting the technology implementor with a choice; either accept the global rate or receive an injunction from selling products in the UK which was the country of the patent infringement lawsuit.

The author’s point out that this decision has been misconstrued by other courts, particularly those in China, which have proceeded to set a global rate in the absence of an underlying patent infringement lawsuit and with no measure to preserve the sovereignty of other jurisdictions. In fact, in multiple instances, Chinese courts have set global rates and issued anti-suit injunctions (ASIs) to stop lawsuits in other jurisdictions, which positions the ASI “as a tool...to defend the interests of their local industries.”

Supporting the Standards-Based Innovation Ecosystem

The authors posit that “the European Commission, competition authorities, SSOs and courts have a fundamental role to support the standards-based innovation ecosystems, avoiding market distortions.” A partial list of priorities include:

  • Recognizing that some countries, particularly China, have tilted the playing field to benefit their own industries, including by subsidizing industries so they can support lower pricing, and by rendering legal decisions that support their industries even if they contradict other decisions generally considered to be legally correct.
  • Recognizing that “unwilling” licensees that unnecessarily delay entering into a licensing agreement should be subject to additional damages beyond FRAND royalties.
  • Clarifying the duties owed by licensees to prevent hold-out behaviour and other market distortions by implementers who exploit this lack of clarity.
  • Considering ways to efficiently resolve the problem of “nonpayers,” because it is unfair and anti-competitive when some implementers pay, and others, either singly or through concerted practice, act as free riders.

The authors conclude this section by highlighting the importance of rewarding research that will deliver new and improved products stating that “Failing to recognize this essential driver of technological progress may discourage innovators from investing in new research. Alternatively, they may decide to avoid participation in the standardization process and revert to proprietary, closed solutions, or trade secrets.”

Factors to Consider When Setting a FRAND Royalty Rate

The authors next shifted their focus to factors to consider when setting a FRAND royalty rate, observing that standards must benefit innovators as well as implementors and consumers. To do so, “a FRAND royalty rate should reflect the value of patented functionalities included in any product; the higher the value generated, the higher the royalty rate” (emphasis supplied).

One particular focus was a call to reject “component-level licensing”, which bases the royalty calculation on the price of the component rather than the value the technology brings to the end product. Under this theory, car manufacturers have argued that royalties for cellular connectivity should be based upon the value of the mobile chip rather than the value that cellular technologies deliver to the end product. This, of course, ignores the fact that few, if any, consumers would buy an $80,000 car that lacked cellular capabilities.

Arbitration Solution

The last subject tackled in the article was a call to arbitration to resolve royalty disputes. Recognizing that royalty negotiations involve complex issues on both sides, the authors ask the question, “When the negotiation fails, is litigation the only tool available?” No, they conclude, finding arbitration faster, cheaper, and a more complete solution than expensive litigation in multiple jurisdictions.

To promote arbitration, the authors make several suggestions, including that standard-setting organizations should encourage arbitration among their members and that competition authorities should imply a fair obligation for “both patentees and implementers to arbitrate.” Finally, the authors call for national judges to advocate for arbitration, and find that “if a party refuses to enter arbitration, this should be considered evidence of being an unwilling licensee” addressed by injunction or additional damages.

Overall the article highlights the importance of delivering value back to innovators and stopping the “efficient infringement" which threatens to discourage investment in new research to deliver the next generation of products that consumers want and our economies need. To avoid this, authorities should provide a clear guidance in SEP licensing negotiations, dissuade parties from procedural litigation like ASIs, and foster arbitration.


For more insights, please have also a look to the following excerpts from the panel “Restoring Balance and Clarity in the Innovation Ecosystem” produced in May 2021 for the LES International Annual Conference.

Gustav Brismark – ROI to the Innovators is Essential
Roberto Dini – So-called Efficient Infringement Discourages Innovators
Eeva Hakoranta – We Can’t Afford Hold Out Behavior
Richard Vary – Licensing Rules Tailored for the Auto Industry will Destroy Other Successful Markets
Sir Robin Jacob – Arbitration is the Best Solution
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