Tag: International Trade Commission

Categories
FTC ITC Patents

Philips and Thales’ Standard Essential Patent Fight at the Federal Circuit, District Court, and ITC

The following post comes from Jack Ring, a rising 2L at Scalia Law and a Research Assistant at C-IP2. Click here for a related post.

a gavel on a desk in front of booksI. INTRODUCTION

On July 13, 2022, the Federal Circuit affirmed the denial of Thales DIS AIS Deutschland GMBH’s (Thales) motion to enjoin Koninklijke Philips N.V. (Philips) from proceeding in a parallel investigation against Thales at the United States International Trade Commission (ITC).[1] This dispute, stemming from SEP licensing negotiations dating back to 2015, seemed poised to be a vehicle to set SEP policy. It offered an opportunity for the District Court and the Federal Circuit to prevent a party from seeking an exclusion order from the ITC when a court was asked to set FRAND rates. It further offered the ITC the opportunity to apply its public interest factors broadly to the same ends. However, all three courts that heard this dispute sidestepped the policy debate.

On the same day in 2020, Philips brought a district court case in Delaware[2] and an ITC investigation[3] against Thales asserting the same four essential patents. In response, Thales moved for a preliminary injunction to prevent Philips from proceeding at the ITC. Thales claimed inter alia that the ITC investigation was causing irreparable harm to its business by disrupting business and deterring customers. Chief Judge Colm F. Connolly, presiding in Delaware, denied Thales’ preliminary injunction, reasoning that Thales’ claims failed to illustrate irreparable harm.

While Thales’ motion sought to enjoin Philips, granting the preliminary injunction would have effectively stripped the ITC of its jurisdiction. This would have been at odds with the ITC’s statutory scheme. As Chief Judge Connolly acknowledged during his ruling on the motion, Congress authorized patentees to pursue ITC and district court proceedings on parallel tracks. Chief Judge Connolly noted the potential policy issues with granting SEP owners exclusion orders, but he reasoned that he was not the one who should make policy, instead deferring to Congress or a higher court.

On appeal, the Federal Circuit agreed, ruling that Thales failed to present evidence of a likelihood of irreparable harm beyond conclusory customer concerns. The Federal Circuit’s opinion came just seven days after the ITC’s final determination finding no violation of Section 337 and multiple claims of the Asserted Patents invalid.

This appeal and the ITC investigation seemed poised to tackle those big policy issues Chief Judge Connolly declined to answer. However, the subsequent rulings avoided any policy decisions. The Federal Circuit’s narrow holding did not discuss any policy issues, solely focusing on the lack of irreparable harm. The ITC’s finding of no violation meant it needed not consider the statutory public interest factors. The Commission’s prior request for public interest statements request garnered a statement from Chair Lina Khan and Commissioner Rebecca Slaughter of the Federal Trade Commission (FTC), which lobbied the ITC to deny relief to any Complainants asserting patents that are subject to FRAND-setting litigation in other forums.

II. DISTRICT COURT ACTION

Philips brought two district court cases in Delaware and an ITC investigation against Thales and three of its customers on December 17, 2020.[4] The ITC investigation, Inv. No. 337-TA-1240 (the “ITC investigation”) and one of the Delaware cases, C.A. No. 20-1713 (the “District Court Action”) shared the same asserted patents, which Philips claimed are essential. Those patents are U.S. Patent Nos. 7,944,935, 7,554,943, 8,199,711, and 7,831,271 (collectively, the “Asserted Patents”). The second district court case brought by Philips asserted six additional, non-essential patents, against the same parties, C.A. No. 20-1709[5].

Philips’ complaint sought declaratory judgment setting worldwide FRAND licensing terms and alleged infringement of the Asserted Patents. Thales counterclaimed, alleging breach of contract of Philips’ contractual duties to the European Telecommunication Standards Institute (ETSI)[6] and seeking declaratory judgment setting FRAND terms.[7] Contemporaneous with its answer, on March 5, 2021, Thales filed a motion for a preliminary injunction to enjoin Philips from pursuing the ITC investigation. Thales claimed the ITC action divested the district court of its authority and was an attempt to extract a supra-FRAND royalty rate.

Thales argued it was likely to succeed on its breach of contract claim in addition to its declaratory judgment claim because both parties requested the same relief, a FRAND rate determination by the court. On irreparable harm, Thales claimed imminent risk of losing market share, customers, sales, and business opportunity, as well as business disruption, as a result of Philips’ seeking an ITC exclusion order. Thales clarified that the irreparable harm was “the uncertainty and the cloud hanging over our head from now until [the ITC rules].”

At the preliminary injunction hearing in May 2021,[8] Chief Judge Connolly, ruling from the bench, denied Thales’ motion. Chief Judge Connolly found the irreparable harm evidence conclusory and that litigating on parallel tracks in the ITC and District Court did not constitute irreparable harm. Chief Judge Connolly also ruled that Thales had not established likelihood of success. Following denial of the preliminary injunction on May 21, 2021, Thales noticed an appeal to the Federal Circuit on June 21, 2021. The Delaware Action was stayed and administratively closed on August 20, 2021, pending resolution of the ITC investigation.

III. ITC INVESTIGATION

While Thales and Philips litigated in Delaware, the ITC investigation proceeded at full pace. As discussed above, Philips filed its complaint at the ITC on December 17, 2020, the same day as the District Court Action. The complaint asserted the same four patents against Thales and the same three customers plus Telit Wireless Solutions, Inc. and Telit Communications PLC.[9] The Commission instituted the investigation on January 19, 2021.[10]

Following an evidentiary hearing in October 2021, Administrative Law Judge David Shaw found no violation in the Final Initial Determination (ID) on April 1, 2022. In addition to finding no violation, ALJ Shaw found multiple claims of the Asserted Patents invalid. On July 6, 2022, the Commission released a Notice of Determination reviewing certain findings, taking no position on many findings, and affirming portions of the ID. The Commission maintained the finding of no violation, and adopted only the following other findings:

(1) the asserted claims of the ’935 patent, the ’711 patent, the ’943 patent, and the ’271 patent are not infringed; (2) Philips did not satisfy the technical prong of the domestic industry requirement with respect to any of the four asserted patents; (3) claim 9 of the ’711 patent and claim 12 of the ’943 patent are invalid as indefinite; and (4) the asserted claims of the ’271 patent are invalid as indefinite and for lack of written description.

As part of its review, the Commission requested public interest statements from the public. One submission, from Chair Khan and Commissioner Slaughter of the FTC urged the ITC to utilize its Public Interest statute to deny relief to any Complainants asserting patents that are subject to FRAND-setting litigation in other forums.[11] In light of the finding of no violation, the Commission did not need to consider the effect of the proposed remedy on the public interest as required by statute.[12]

IV. APPEAL AT THE FEDERAL CIRCUIT

On July 13, 2022, one week after the ITC released its Final Notice, the Federal Circuit affirmed the District Court’s denial of Thales’ preliminary injunction and awarded costs to Philips. Chief Judge Kimberly Moore’s opinion focused exclusively on Thales’ failure to show it was likely to suffer irreparable harm from Philips’ ITC action. Like Chief Judge Connolly, Chief Judge Moore found the evidence presented conclusory. Thales did not meet its burden because it failed to present evidence that it lost customers, had customers delay purchase, or struggled to acquire new business because of the ongoing ITC proceedings. Rather, the ITC investigation caused customers to voice concerns or express doubt. The Court reasoned that “This type of speculative harm does not justify the rare and extraordinary relief of a preliminary injunction.”

V. TAKEAWAYS

While this dispute seemed prepared to make policy waves in the SEP space, there will be future cases that give rise to similar issues. Even now, Apple and Ericsson are litigating SEPs at the ITC and in District Court.[13] That dispute may reach some of the policy questions raised in this case and specifically in Chair Khan and Commissioner Slaughter’s Public Interest Statement from this investigation.

[1] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, No. 2021-2106 (Fed. Cir. July 13, 2022).

[2] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del.).

[3] Certain UMTS & LTE Cellular Communications Modules & Products Containing the Same, Inv. No. 337-TA-1240 (USITC).

[4] The customers include CalAmp Corp., Xirgo Technologies, LLC, and Laird Connectivity, Inc.

[5] Koninklijke Philips N.V. v. Thales DIS AIS USA LLC, C.A. 20-1713 (D. Del.).

[6] Both Philips and Thales are members of ETSI, a standard setting organization for digital cellular communications.

[7] Thales USA answered separately on April 5th and did not include counterclaims. Thales USA moved to be severed and dismissed as misjoined party under Fed. R. Civ. P. 21 on April 5, 2021.

[8] The transcript of the May 21, 2021, hearing can be found attached to Philips’ Opening Brief to the Federal Circuit.

[9] Philips also asserted the four essential patents against Telit in Delaware District Court, Koninklijke Philips N.V. v Telit Wireless Sols., Inc., C.A. 20-1711 (CFC) (D. Del.).

[10] 86 FR 7305 (Jan. 19, 2021).

[11] https://www.ftc.gov/system/files/ftc_gov/pdf/Written_Submission_on_the_Public_Interest_if_Chair_Khan_and_
Commissioner_Slaughter_to_ITC.pdf.

[12] 19 U.S.C. §§ 1337(d)(1), (f)(1).

[13] Certain Mobile Telephones, Tablet Computers With Cellular Connectivity, & Smart Watches With Cellular Connectivity, Components Thereof, & Products Containing Same, Inv. No. 1299 (USITC); Ericsson Inc. v. Apple, Inc., C.A. 6:22-cv-60 (W.D. Tex.).

Categories
ITC Trademarks

CPIP Founders File Amicus Brief on Behalf of 11 Law Professors in Converse v. ITC

a gavel lying on a table in front of booksCPIP Founders Adam Mossoff & Mark Schultz filed an amicus brief today on behalf of 11 law professors in Converse v. International Trade Commission, a trademark case currently before the Federal Circuit.

In late-2014, Converse filed a complaint with the International Trade Commission alleging that more than thirty companies, including Skechers, Walmart, New Balance, and Highline, were violating Section 337 of the Tariff Act of 1930 by importing and selling infringing shoes. Converse owns a registered trademark on the midsole of its iconic Chuck Taylor All Star shoe, including the signature toe cap, toe bumper, and midsole stripes:

patent drawing of a Converse shoe

An administrative law judge found that Converse owns a valid registered trademark and that each respondent sold at least one infringing knock-off. That opinion was later reversed by the Commission, which held that Converse’s registered trademark was invalid. In the Commission’s opinion, Converse failed to prove that its iconic midsole had acquired secondary meaning—though it nevertheless found that Converse’s trademark would have been violated had it been valid. Converse has now appealed that ruling to the Federal Circuit.

The amicus brief filed by Professors Mossoff & Schultz argues that the Commission failed to properly consider the fundamental role of trademark law in securing the productive labors of companies like Converse that create famous products like its Chuck Taylor All Star shoe. The brief was co-signed by Professors Gregory Dolin, Christopher Frerking, Hugh Hansen, Jay Kesan, Irina D. Manta, Kristen Osenga, Eric Priest, Ted Sichelman, and Saurabh Vishnubhakat.

The Summary of Argument from the amicus brief is copied below:

SUMMARY OF ARGUMENT

This case deals with one of the most iconic, long-lived brands in the footwear industry: the Chuck Taylor athletic shoe. As one of the first massively successful athletic shoe products—selling hundreds of millions of pairs over the past 80 years—the name and design of these athletic shoes is an exemplar of the successful commercial goodwill that trademark law is intended to promote and secure to innovative commercial enterprises like Converse. Unfortunately, the International Trade Commission (Commission) chose to ignore the fundamental importance of investment in goodwill—to trademark law generally and to the establishment of secondary meaning specifically.

The appellant addresses the numerous doctrinal and factual infirmities with the Commission’s decision, and thus amici offer an additional legal and policy insight into this case that is necessary to understand the full scope of the Commission’s error: the Commission contradicted a fundamental precept of modern trademark law that it secures the valuable goodwill created by companies like Converse through their productive labors in creating, manufacturing and marketing iconic, famous products like the Chuck Taylor athletic shoes. See Qualitex v Jacobson, 514 U.S. 159, 163-64 (1995) (“The law thereby encourages the production of quality products, and simultaneously discourages those who hope to sell inferior products by capitalizing on a consumer’s inability quickly to evaluate the quality of an item offered for sale.”).

In addition to protecting consumers from significant costs and other harms imposed on them by commercial pirates, it is a longstanding, fundamental policy in trademark law to secure the valuable goodwill created by innovative commercial enterprises in selling products in the marketplace. See, e.g., Partridge v. Menck, 5 N.Y. Ch. Ann. 572, 574 (1847) (stating a trademark owner “is entitled to protection against any other person who attempts to pirate upon [its] goodwill”). Courts recognize these two key, mutually reinforcing policies in trademark law—securing goodwill and protecting consumers—as two sides of the same coin. See Groenveld Transport Efficiency v Lubecore Intern., Inc., 730 F.3d 494, 512 (6th Cir. 2013) (“Trademark law’s likelihood-of-confusion requirement . . . incentivizes manufacturers to create robust brand recognition by consistently offering good products and good services, which results in more consumer satisfaction. That is the virtuous cycle envisioned by trademark law, including its trade-dress branch.”). These two policies necessarily work together to ensure that trademark law functions properly.

In this case, the Commission disregarded the dual policies that animate trademark law by focusing solely on consumer issues while denying Converse its justly earned legal protection for its long-established and valuable goodwill. Thus, amici believe that the Commission’s decision should be reversed solely on the grounds of this contradiction of fundamental trademark policy. This is a case in which commercial pirates have undoubtedly “tread closely on the heels of [a] very successful trademark,” and thus are within the “long shadow which competitors must avoid” that is cast by Converse’s valuable goodwill in its famous mark—the Chuck Taylor athletic shoe design. Kenner Parker Toys Inc. v. Rose Art Industries, Inc., 963 F2d 350, 353-54 (Fed. Cir. 1992) (quotations and citations omitted).

To read the amicus brief, please click here.

Categories
Antitrust Injunctions ITC Patent Law Patent Licensing Patent Theory Remedies Uncategorized

Guest Post by Richard Epstein: The Dangerous Adventurism of the United States Trade Representative – Lifting the Ban against Apple Products Unnecessarily Opens a Can of Worms in Patent Law

The Dangerous Adventurism of the United States Trade Representative:
Lifting the Ban against Apple Products Unnecessarily Opens a Can of Worms in Patent Law

 Richard A. Epstein

In ordinary times, the business of the International Trade Commission does not appear as the lead story in the Wall Street Journal, predicting massive changes in the high-stakes patent battles. But these are not ordinary times, given the ongoing multi-front war between Apple and Samsung, in which each side has accused the other of serious acts of patent infringement. So when the International Trade Commission issued its order excluding Apple’s still popular iPhone 4 and older versions of the iPad, the smart money predicted that the Obama Administration, acting through the United States Trade Representative, would for the first time in 25 years decide to overrule a decision of the ITC, which it pointedly did in a three page letter of August 3, 2012, signed by Ambassador Michael B. G. Froman and addressed to Irving A. Williamson, Chairman of the ITC, whose wings have definitely been clipped.

Injunctions, Damages, or Something in Between

Properly understood, that letter should be regarded as a patent bombshell whose significance goes far beyond the individual case. The choice of remedy in patent disputes has been, at least since the much-cited 2006 Supreme Court decision in eBay v. MercExchange, one of the central issues in patent law. In the academic literature there has been an extensive debate as to whether various forms of injunctive relief should be allowed as a matter of course, or whether the court should place great weight on so-called public interest factors that many modern patent lawyers claim should displace a remedy which under prior legal practice had been awarded largely “as a matter of course.”

That last phrase is not intended to indicate that blanket injunctions should be awarded in any and all cases. Instead, by analogy to traditional equitable principles as applied in various other contexts, including ordinary nuisance cases, the basic principle is subject to some important qualifications that do not undermine the force of the basic rule. First, any patentee may forfeit in whole or in part the right to an injunction by improper conduct on his own part: taking undue delay with respect to enforcement could lead to a loss in some cases of injunctive relief. But the application of this doctrine is within the control of the patentee, who can preserve his rights by promptly asserting them, which means that this issue almost never comes into play with valuable patents that are consistently asserted. Second, traditional doctrine allows a court to delay the enforcement of an injunction to allow the infringer to fix his device, and perhaps even deny the injunction in those cases where a complex device contains many patented components, of which only one is in violation.

The Magic of Section 337 in FRAND Cases

The decision of the Trade Representative did not point to any such complications in the case justifying a departure from the usual remedy of an injunction. Indeed the ITC order was not lightly entered into, for it was agreed by all commissioners that Apple had indeed infringed the Samsung patents in ways that would have resulted in extensive damage awards if the case had been tried in a federal court. The ITC does not have statutory powers to award damages, so the Commission thought, perhaps mistakenly, that it was bound to make an all-or-nothing choice: allow or exclude the importation of the infringing device. Under the applicable statutory provisions of Section 337 of the Tariff Act of 1930, the ITC is supposed to take into account a number of “public interest factors” that address “the effect of such [exclusion or order] upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers . . .”

The language in this section is quite broad on its face, and if it were applied in a literal fashion, the history of proceedings before the ITC should be replete with decisions that let infringing products into the United   States. The words “public health and welfare” are in modern American English broad enough to allow foreign pharmaceuticals into the United States even if they infringe key pharmaceutical patents. Any mysterious reference to competitive principles would again seem to invite a wide-ranging inquiry that could easily turn this provision of the Tariff Act into an open sesame for infringing products. The 25-year gap between decisions allowing importation of infringing products makes it quite clear that this provision has never been read to invite the broad type of “facts and circumstances inquiry” that the Trade Representative invoked to decide whether to grant or deny injunctive relief.

Against this background, it is critical to note that the dispute in this case boiled down to the question of the scope of Samsung to license its key patent on fair, reasonable and nondiscriminatory, or FRAND terms, to all comers including Apple. In ordinary cases, no owner of property is required to license or sell its property to a competitor. But for hundreds of years, common carriers have by virtue of their monopoly power been under an obligation to take all passengers on fair and reasonable terms. The thumbnail sketch for this position runs as follows. The obligation to do business on these terms is an offset to the dangers of monopoly power. The prohibition against discrimination is intended to make sure that the common carrier does not duck its obligation by offering its products only at prices so high that it is confident that no passenger will pay them. The concern with nondiscrimination is intended to make sure that the firm does not play favorites among potential customers to whom it can supply the essential service at roughly identical cost.

The carryover of FRAND obligations to the patent space arises only in connection with what are termed “standard-essential patents,” which are those patents that cover an invention that is incorporated in an industry standard that all parties must use in order to market and deploy their own products. The FRAND obligation requires parties to enter into negotiations to make sure that all market participants have a fair shot, so that the owner of the essential patent cannot hold out against a potential user.

In dealing with this issue, the Trade Representative took the position that a White House Report from January 2013 dealing with standard-essential patents revealed the manifest risk of holdout that could take place in these contexts, and recommended a fact-specific inquiry be made into each dispute to determine whether the action of the patent holder was unreasonable under the circumstances. The Trade Representative then extended his discretion further into this situation by insisting that “reverse holdouts” (i.e. those by a potential licensee) should be subject to a similar analysis.

How the Trade Representative Overreaches

It would be foolish to respond to the position of the Trade Representative by saying that there is no holdout risk at stake whenever a party has monopoly power. But there is a vast disagreement over the proper institutional arrangements to deal with these FRAND obligations. The implicit subtext of the Trade Representative’s Report is that holdout is a major risk in these settings that requires some heavy lifting to combat, not only before the ITC, but also in ordinary patent disputes. Just that position was taken by Commissioner Dean Pinkert in dissent below, who relied on some recent work by the well-known Professors Mark Lemley of Stanford and Carl Shapiro of Berkeley, who have proposed major intervention in a form of “final offer baseball arbitration,” whereby the arbitrator chooses between the royalty rates proposed by the two parties.

The obvious point is that this baseball form of arbitration seems ill-suited to determine the complex set of terms that are normally found in any complex licensing agreement. Why propose something that no one has ever used in the voluntary market? But put that point aside, and address the prior question of whether any compulsory remedy is needed to deal with the asserted holdout problem at all. The issue is one to which I have some exposure because I have worked on this question as a legal consultant with Qualcomm. On the strength of that work, and other work of my own on the biomedical anticommons, coauthored with Bruce Kuhlik (now general counsel at Merck), I have concluded that the frequency and severity of this problem is in fact far less than asserted by the overwrought statements of those who advance this theory. In work that I did with Scott Kieff and Dan Spulber, we reported that Qualcomm was a member of some 84 standard organizations and reported few if any problems in working through the details with any of them. Indeed, apart from the citation of a few cases that dealt with tangential issues, there is nothing in the Lemley and Shapiro paper that indicates that this problem has serious dimensions.

The question then arises why this might be so, and the answer is a collection of factors, none of which is decisive but all of which are to some degree relevant. The process of standard-setting does not take place in a vacuum, but involves repeat play by individual firms, all of whom know that coordination is key to their mutual success. The common pattern of standard-setting involves having technical people coming up with a sound technical solution before worrying about who holds what patent position. Standard-setting organizations then require their participants to disclose patents that read onto the standard. These organizations typically revisit standards as circumstances and technology change, which creates a subtle threat for patentees that the standard may migrate away from their patented technology if the patentee’s license terms become too risky. The threat of retaliation is real as well, and all parties know that if they hold up a standard they not only hurt their competitors but also themselves. The process may not look pretty, but in the hands of experienced professionals, the evidence is that it works well.

The choice in question here thus boils down to whether the low rate of voluntary failure justifies the introduction of an expensive and error-filled judicial process that gives all parties the incentive to posture before a public agency that has more business than it can possibly handle. It is on this matter critical to remember that all standards issues are not the same as this particularly nasty, high-stake dispute between two behemoths whose vital interests make this a highly atypical standard-setting dispute. Yet at no point in the Trade Representative’s report is there any mention of how this mega-dispute might be an outlier. Indeed, without so much as a single reference to its own limited institutional role, the decision uses a short three-page document to set out a dogmatic position on issues on which there is, as I have argued elsewhere, good reason to be suspicious of the overwrought claims of the White House on a point that is, to say the least, fraught with political intrigue

Ironically, there was, moreover a way to write this opinion that could have narrowed the dispute and exposed for public deliberation a point that does require serious consideration. The thoughtful dissenting opinion of Commissioner Pinkert pointed the way. Commissioner Pinkert contended that the key factor weighing against granting Samsung an exclusion order is that Samsung in its FRAND negotiations demanded from Apple rights to use certain non standard-essential patents as part of the overall deal. In this view, the introduction of nonprice terms on nonstandard patterns represents an abuse of the FRAND standard. Assume for the moment that this contention is indeed correct, and the magnitude of the problem is cut a hundred or a thousand fold. This particular objection is easy to police and companies will know that they cannot introduce collateral matters into their negotiations over standards, at which point the massive and pointless overkill of the Trade Representative’s order is largely eliminated. No longer do we have to treat as gospel truth the highly dubious assertions about the behavior of key parties to standard-setting disputes.

But is Pinkert correct? On the one side, it is possible to invoke a monopoly leverage theory similar to that used in some tie-in cases to block this extension. But those theories are themselves tricky to apply, and the counter argument could well be that the addition of new terms expands the bargaining space and thus increases the likelihood of an agreement. To answer that question to my mind requires some close attention to the actual and customary dynamics of these negotiations, which could easily vary across different standards. I would want to reserve judgment on a question this complex, and I think that the Trade Representative would have done everyone a great service if he had addressed the hard question. But what we have instead is a grand political overgeneralization that reflects a simple-minded and erroneous view of current practices.

The enormous technical advances in all these fields are not consistent with the claim that holdout problems have brought an industry to a standstill. The brave new world of discretionary remedies could easily backfire and undermine cooperative behavior by rewarding those who refuse to cooperate. If the critics of the current system focused on that one background fact, they might well be more diffident about pushing vast industries into uncharted territories on their regrettable overconfidence in their own untested judgments.

Richard A. Epstein is the Laurence A. Tisch Professor of Law at New York University School of Law, the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, and the James Parker Hall Distinguished Service Professor of Law Emeritus and Senior Lecturer at the University of Chicago Law School. He is currently consulting with QUALCOMM on the issues at stake in this case.