standard-essential patents Archives

Supplier Can’t Complain when SEP Holder Refuses to License

by Amol Parikh | Mar 3, 2022 | Patents

The US Court of Appeals for the Fifth Circuit determined that an automotive parts supplier did not have constitutional standing to pursue an antitrust lawsuit against standard essential patent (SEP) owners that refused to directly license SEPs to the supplier on fair, reasonable and nondiscriminatory (FRAND) terms. Continental Automotive Systems, Inc. v. Avanci, LLC et al., Case No. 20-11032 (5th Cir. Feb. 28, 2022) (Stewart, Ho, Engelhardt, JJ.)

Continental supplies telematic control units that are embedded in connected cars. The telematic control units provide wireless connectivity using 2G, 3G and 4G cellular standards, allowing users to stream music, navigate to destinations and call for emergency assistance directly from cars. Nokia, PanOptis, and Sharp all claim to own or license SEPs essential to the 2G, 3G, and 4G cellular standards set by standard-setting organizations (SSO). In order to facilitate patent licensing, these individual patent holders (along with many others) entered into an agreement with Avanci, which acts as a licensing agent for the patent holders. Under the agreement, Avanci may sell patent licenses only to car manufacturers or original equipment manufacturers (OEMs), both of which are downstream from Continental in the supply chain. The agreement permits the patent holders to individually license their SEPs to suppliers such as Continental at FRAND rates.

Continental unsuccessfully sought a license from Avanci at FRAND rates. According to Avanci, licenses were available to Continental on FRAND terms from individual SEP holders, and Continental did not need SEP licenses since Avanci sells licenses to OEMs that incorporate Continental’s products. Continental sued Avanci and the individual patent holders, arguing that Avanci’s refusal to sell a license to Continental on FRAND terms constituted anticompetitive conduct in violation of the Sherman Antitrust Act.

Avanci moved to dismiss the complaint. As to the threshold issue of constitutional standing, Continental presented two theories of injury that it asserted conferred standing. Continental’s first theory of injury was that if Avanci and the individual patent holders succeeded in licensing the OEMs at non-FRAND rates, the royalties owed on those licenses might be passed through to Continental via indemnity agreements. Continental’s second theory of injury was that Avanci and the individual patent holders declined to provide Continental with a license on FRAND terms, and this denial of property was sufficient injury to establish standing. The district court rejected Continental’s first theory but accepted the second theory, finding that Continental’s unsuccessful attempts to obtain licenses on FRAND terms was an injury that conferred constitutional standing. Even though the district court found that Continental had constitutional standing, it dismissed Continental’s Sherman Act claims for lack of antitrust standing and for failure to plausibly plead certain elements. Continental appealed.

The Fifth Circuit concluded that neither of Continental’s theories of injury were sufficient to confer constitutional standing. As to the first alleged injury, the Court agreed with the district court and found that was too speculative since it depended on several layers of decisions by the OEMs—namely, decisions to accept non-FRAND licenses and then invoke indemnification rights against [...]

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Increasing Transparency and Reducing Transaction Costs in 5G SEP Licensing

by Dr. Henrik Holzapfel | Feb 22, 2021 | Technology

The advent of 5G promises a new era of speed, throughput and bandwidth for cellular networks, however the world of telecommunications and licensing faces several challenges in preparation for its arrival. Although wireless technology has continued to evolve over the years, traditional SEP licensing models have seemingly been left behind and may no longer be adequate to address the needs of companies seeking to implement 5G into their products. As the Internet of Things becomes an increasingly integral part of products across market areas, more and more companies of all industries and sizes will need to invest in 5G technology to become part of the network.

The growing number of players and technology complexity involved with 5G has created an unprecedented need for simpler and more transparent frameworks for licensing, patent pools and standards that can be scaled across diverse market segments. Existing methods require significant investments of time, budget and technological and legal depth that no longer suit the broad array of companies that will be utilizing the new technology.

At Premier Cercle’s IP Tech Summit 2020, McDermott Partner Dr. Henrik Holzapfel was joined by a panel of experts from organizations at the forefront of 5G innovation. Click here to watch as they discuss these challenges and their vision for the future of licensing in the world of wireless connectivity.

Standard Essential Patent Licensing Practices Do Not Violate Antitrust Laws

by Anthony S. Ferrara and Lisa P. Rumin | Aug 26, 2020 | Antitrust

The US Court of Appeals for the Ninth Circuit vacated a district court decision that found Qualcomm’s patent licensing practices violate antitrust laws and reversed a permanent, worldwide injunction against several of Qualcomm’s business practices. Fed. Trade Comm’n v. Qualcomm Inc., Case No. 19-16122 (9th Cir. Aug. 11, 2020) (C.J. Callahan).

Qualcomm sells modem chips that are incorporated into cellular handsets (i.e., smartphones) made by companies such as Samsung, Huawai, Apple and others. Qualcomm also holds a number of standard essential patents (SEPs) implemented by modem chips that are essential to cellular communication standards. A core part of Qualcomm’s business model is that it only licenses its SEPs to smartphone makers, i.e., its original equipment manufacturer (OEM) customers, not to rival modem chip suppliers—even though its rivals’ chips practice Qualcomm’s SEPs. Doing this allows Qualcomm to maximize its profits by charging royalty rates based on the value of the end-product smartphones rather than just the modem chip. In addition, Qualcomm will not supply modem chips to OEM customers unless they first pay to license Qualcomm’s SEPs (“no license, no chips”). OEMs must pay this licensing fee to Qualcomm even if they source chips from another supplier.

In January 2017, the FTC filed suit against Qualcomm in the Northern District of California, alleging that Qualcomm’s licensing practices violate the antitrust laws and unfairly protect its monopoly power as a modem chip supplier. Following a two-week bench trial, the district court issued a lengthy opinion ruling in favor of the FTC and ordering extensive injunctive relief requiring Qualcomm to change its business practices. The court made a number of findings, including: (1) Qualcomm’s refusal to license its SEPs to rival chipmakers violates both its FRAND commitments to standard-setting organizations (SSOs) and an antitrust duty to deal; (2) Qualcomm’s royalty rates for its SEPs are unreasonably high because they are based on the value of end products and (3) Qualcomm’s royalties, in conjunction with its “no license, no chips” policy, imposes an anticompetitive “surcharge” on the price of its rivals’ chips. Qualcomm appealed.

The Ninth Circuit reversed the district court’s decision in its entirety and vacated the injunctive relief which had been ordered, finding that Qualcomm’s licensing practices amount to “hypercompetitive,” not anticompetitive, behavior. The Court recognized that Qualcomm’s licensing practices are designed to maximize its profits, but concluded that they do not unfairly distort competition within the modem chip markets. According to the Court, the district court improperly extended the reach of the antitrust laws in issuing its injunction.

The Ninth Circuit addressed and rejected each of the district court’s findings. First, the Court concluded that Qualcomm does not have an antitrust “duty to deal” with its rival chipmakers. The Court emphasized that the Supreme Court has recognized only a narrow exception to the general rule that a business need not deal with its competitors, and concluded that the exception was not met here. The Court also concluded that whether Qualcomm breached a FRAND commitment to license its SEPs to rivals was [...]

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Landmark Decision in German FRAND Case

by Dr. Henrik Holzapfel | May 11, 2020 | EU Update

On May 5, 2020, an oral hearing in Germany’s most recent landmark case on standard-essential patents (SEPs) and fair, reasonable and non-discriminatory (FRAND) licensing (Sisvel v. Haier, docket no. KZR 36/17) took place before the German Federal Court of Justice (FCJ).

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District Court Violated Ericsson’s Right to Trial by Jury in Setting FRAND Rate

by Anthony S. Ferrara | Jan 8, 2020 | Patents

The US Court of Appeals for the Federal Circuit vacated a district court decision setting license rates for standard-essential patents (SEPs), holding that the district court deprived the patent owner of its constitutional right to trial by jury. TCL Commc’n Tech. Holdings Ltd. v. Telefonaktiebolaget LM Ericsson, Case Nos. 8-1363, -1732 (Fed. Cir., Dec. 5, 2019) (Chen, J.).

Ericsson holds a number of patents that are essential to the 2G, 3G and 4G mobile communications standards set by the European Telecommunications Standards Institute (ETSI). As a member of ETSI, Ericsson has agreed to license its SEPs to implementers of the ETSI standards on fair, reasonable and non-discriminatory (FRAND) terms. TCL manufactures mobile devices that implement the ETSI standards.

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