Prof. Randal C. Picker, University of Chicago Law School
May 6, 2014
Historians will look back and try to identify the precise point of peak patents, meaning, the point at which patents achieved their maximum strength. I am not sure exactly when that will be, but one has the sense that we might be at a point of maximal attention on the patent system.
To see that briefly, consider activity over the last two weeks or so. On April 29, the Supreme Court decided the Octane Fitness and Highmark cases and together the results in those cases will make it easier for lower courts to award attorneys’ fees to prevailing parties in patent cases. If you believe that many lawsuits are being brought on “bad” patents, you will welcome more fee-shifting in patent cases. Firms can defend against allegations of infringement and seek fees more easily if they win and that should deter suits in the first place. On the next day, April 30, the Court heard its last case of the 2013 Term, Limelight Networks v. Akamai Technologies, on the circumstances under which a defendant can be held liable for inducing patent infringement.
Meanwhile, the smartphone patent wars continue. These are occurring around the globe, but the most recent visible activity is the $119-million jury verdict in favor of Apple against Samsung last Friday, May 2. (You can see the jury verdict form here, and if you haven’t looked at one of those recently, do go look.) The case was heard in a federal court in San Jose and the jury found that Samsung had violated two Apple patents, including Apple’s slide-to-unlock patent (the ’721 patent).
That might be enough, but I actually want to direct my attention elsewhere and to two other developments in this window, both of which relate to injunctions and standard essential patents. Both the European Union and the federal patent appeals court – the U.S. Court of Appeal for the Federal Circuit – weighed in with important outcomes.
First some background. Widely accepted standards are a key component of modern technology. Systems need to speak to each other, as it were, and if each device is speaking a different language – if your Wi-Fi isn’t my Wi-Fi – communication fails. Patents may be relevant to implementing a standard and therefore the design of a standard can create patents with real market power. After a standard is adopted, the patent may become, as the industry puts it, essential to implementing the standard, hence the focus on so-called standard essential patents or SEPs.
Of course, the path to market power that I have just described is apparent to all, so the time to negotiate the price of a patent is before the standard is adopted when there may be competing technologies and patents or alternative ways to design the standard. The point is to control later market power by cutting a deal before the standard is adopted. And to do that, technologies and the associated patents often are adopted in standards subject to licensing obligations known as RAND or FRAND (“RAND” is reasonable and nondiscriminatory while “FRAND” is fair, reasonable, and nondiscriminatory). There is often sufficient uncertainty about the future when standards are created that royalties aren’t set originally at a particular rate but instead the original agreement is on the FRAND or RAND mechanism.
What happens when a standard is adopted and a subsequent dispute arises over how RAND or FRAND should be implemented? This is where the recent Federal Circuit and European Union cases come in. On April 29, the EU announced two decisions concerning Samsung and Motorola Mobility – now owned by Google – and SEPs. In both cases, the European Commission was concerned that patent owners were abusing market power acquired through the standards process and were doing that by threatening to pursue injunctions that might have blocked smartphones from the market, including the Apple iPhone. Samsung has agreed to limit its ability to pursue injunctions related to SEPs for smartphones and tablets, while Motorola Mobility was found to have violated EU competition laws in pursing an injunction against Apple relating to a SEP. In reaching that result, the EU took a parallel path to that taken by the U.S. Federal Trade Commission in January 2013. In that situation, the FTC reached a settlement with Google-Motorola Mobility on another claim that the firm was violating competition laws in pursuing injunctions relating to SEPs.
While both EU and U.S. competition authorities have taken strong actions to control potential SEP-based injunctions, on April 25, the Federal Circuit issued its eagerly awaited opinion in another dispute between Apple and Motorola Mobility. Three opinions, 95 pages and a bunch of issues, but I will just highlight the results on injunctions and SEPs. A key issue for an injunction is the question of irreparable injury. Can’t the legal system protect the patent holder’s interests later by making the infringer just write a check? Why does the legal system need to take these products off of the market before even figuring out whether a patent is legitimate or the product infringes? And, if the patent holder has already agreed to license its patents on RAND or FRAND terms, hasn’t it said that money is good enough?
That was basically the position taken by the district court judge, one Judge Richard Posner, a well-known appeals judge sitting here as a district judge in this Apple case. In the Federal Circuit, the majority opinion rejected what they saw as the lower court’s adoption of a per se rule against injunctions in the face of a licensor willing to pay pursuant to the RAND/FRAND approach. But the court also found that an injunction against Apple was inappropriate given that Motorola had entered into many licenses, and that negotiations with Apple were ongoing. That said, my brief description doesn’t begin to give you a full sense of the disagreement among the three judges on precisely how those ideas should be operationalized here.
And we are some distance from a resolution of these issues. There is likely to be more on this going forward, as the smartphone patent wars continue. Competition authorities are likely to intervene again, as they have already, and the Federal Circuit has not done well in the Supreme Court, as we saw in the attorneys’ fees cases last week. You can go read the 95 pages from the Federal Circuit, but I wouldn’t want to hazard a guess on the likely half-life of that analysis.