In summary
Injunctions and exclusion orders are powerful tools that can support economic growth through the legitimate and beneficial use of patented technologies. However, these same tools can be misused and abused to leverage concessions far exceeding the underlying patents’ value, weakening the economies they were designed to protect.
This article builds on last year’s ‘Specialist Chapter: Navigating High Stakes Patent Injunction Abuse’, which highlighted the pitfalls of injunction threats in patent licensing negotiations. This update discusses recent strategies for leveraging market exclusion and demonstrates how aggressive tactics continue to harm innovation, competition and consumers. It will benefit all relevant stakeholders –including innovators, businesses, policymakers and judicial authorities – by guiding them to adopt a balanced approach that emphasises unbiased solutions and fair compensation.
This article predominantly focuses on navigating exclusion remedies in the United States and Europe. It is crucial that those considering litigation – from either side – take account of global precedents. Individual jurisdictions tackle injunctions differently and many cases are cross-jurisdictional. Comparing and contrasting these positions will lead to a better understanding of how courts around the world leverage exclusionary remedies, and the wider impact that these remedies have on the evolving standards-essential patent (SEP) landscape.
We begin by discussing the strategies and tactics behind using exclusion remedies. Then, we examine the role of SEPs, suing in multiple jurisdictions and selling portfolios to non-practicing entities (NPEs). We analyse lessons learned and conclude with summarised findings.
Discussion points
- Leverage of exclusionary remedies
- Role of standards-essential patents
- Suing in multiple jurisdictions
- Update on cases
- Lessons learned
Referenced in this article
- IP Bridge v Ford
- Huawei v AVM
- Microsoft v Motorola
- Ericsson v D-Link
- Panasonic v Xiaomi & Others
- Interdigital v Lenovo
- Philips v Thales
A patent grants the right to exclude others from using the invention for a specified period, which can foster economic growth by protecting innovative ideas. Patent holders can use the invention themselves or license rights to others, typically through amicable negotiations. However, using patent rights to exclude products from the market can be highly invasive, especially where the patent holder uses the threat of exclusion to skew licensing negotiations. The threat alone raises concerns about legal costs, resource diversion, potential lost revenue and the expense of disposing of infringing products. Not every instance described in this article is necessarily abusive, but they raise warning flags and encourage consideration of unbiased alternative actions.
The bottom line is that fair and impartial solutions uphold the system’s integrity, ensure equitable dispute resolution, enhance efficiency and foster confidence in the patent system.
These goals lead us to our first discussion point: the strategy behind leveraging exclusionary remedies such as injunctions.
Leverage of exclusionary remedies
The threat of exclusion poses a severe risk to a potential licensee’s business by focusing the licensing considerations on the economic harm of being unable to sell the product rather than the patent’s inherent value to the licensee’s product. Using exclusion to seek compensation beyond the value of the invention exceeds the concept under US law that a patentee must take care to seek ‘only those damages attributable to the infringing feature’. Excessive damages, wherever applied, not only divert funds and resources away from the licensee’s business but also detract from the licensee’s ability to compensate other rights holders fairly for other innovations, engage in research and development, and expand its business. Such actions also impact other potential licensees and, if left unchecked, can negatively impact economic growth, innovation and competition.
Illustrating the leverage of injunction threats
The 2022 German court case IP Bridge v Ford illustrates this leverage. The court ordered Ford to ‘recall and destroy all vehicles’ infringing IP Bridge’s single 4G patent, risking billions in losses from lost vehicle sales and the recall and destruction of existing vehicles. This recall also threatened the livelihoods of Ford’s employees, suppliers and distributors in Germany.
Faced with this situation, Ford promptly secured a licence from the Avanci 4G patent pool, of which IP Bridge was a member. To put this in perspective, Ford’s estimated annual exposure in Germany was US$1.4 billion (€1.28 billion), compared with just US$66.5 million (€60.8 million) in global royalties for an Avanci licence – a 21-fold difference. This case demonstrates the ability of a single patent, even one subject to future invalidation, to exert disproportionate influence over a product’s market. Wielding injunctions in this manner does not consider the patent’s actual worth, its contribution relative to other technologies already driving product sales or the potential negative consequences for consumers and the broader public.
Ford is just one of many companies facing the threat of market exclusion. Consider the 2023 German court case of Huawei v AVM. In that case, after the court ordered an injunction, AVM took a licence to the Sisvel patent pool estimated at US$2.6 million (€2.39 million) versus the projected cost of an injunction of US$51.6 to US$59.0 million, another 20-fold difference.
Summary
This section highlights the significant leverage that product exclusion provides. Both parties can mitigate abuse through vigilance and, if necessary, by resolving disputes through the courts or arbitration, which can establish a monetary remedy.
Role of standards-essential patents
Standards-essential patents (SEPs) are crucial in promoting competition, innovation, quality and choice in interoperability standards, which can significantly benefit local and global economies. However, standards setting involves agreements (often between competitors) that can sometimes displace market competition and limit consumer choice. Standards setting organisations (SSOs) and individual standards developers must always carefully consider competition issues.
Deceptive information concerns
Typically, a patent holder must prove that a defendant’s product infringes its patents. However, with SEPs, once a court determines that a standard necessarily infringes a patent, the patent holder theoretically could claim infringement in future cases involving other products implementing the same standard. While real-world applications can be more complex, this designation could save licensors substantial time and money in licensing negotiations and litigation. Licensors who make fair, reasonable and non-discriminatory (FRAND) commitments assert that monetary compensation sufficiently addresses any infringement, as opposed to the property right of exclusion. Licensees could benefit from increased transparency into licensing obligations agreed to by licensors. However, licensors claiming to hold multiple unsubstantiated SEPs can pressure potential licensees into accepting unfair terms.
For instance, a 2023 research study by Rudi Bekkers and others revealed that merely 20 to 40 per cent of patents declared to the European Telecommunications Standards Institute (ETSI) are likely to be essential. Moreover, a recent analysis by a former European Patent Office (EPO) director indicated that the EPO revoked 46 per cent of the patents facing opposition challenges on average. Consequently, licensees could find themselves negotiating licences where up to 89 per cent of the self-declared SEPs are potentially likely invalid or not infringed using the standard or are invalid. Additionally, the exceptionally large numbers and percentages involved make it especially challenging to assess intrinsic value (see chart below).
Dealing with this large amount of inaccurate information is one factor driving the European Commission’s draft proposal on SEPs. For example, the European Commission’s draft proposal suggests maintaining databases for patent ownership and essentiality checks to improve transparency. The work of the European Commission may be a step in the right direction. However, all parties should be aware of the potential for misinformation and seek reasonable justification for infringement claims and licensing offers. Licensees should also consider professional consultation on specific technology and may wish to actively encourage patent transparency in policies and procedures at SSOs and in legislative proposals.
Competition and antitrust concerns
As noted above, standards development often involves collaboration between competitors, necessitating significant oversight and guidance from competition authorities worldwide. A major concern is that once an industry adopts a standard, product manufacturers cannot design around the SEPs and possibly must negotiate SEP licences. Some SEP holders may abuse their exclusion rights by demanding higher licensing fees than the technology typically warrants, a practice known as ‘hold-up’. This abuse can harm competition and innovation by diverting funding and resources from other innovative contributors. Additionally, uncertainty around the patent landscape may delay the adoption of new standards.
Hold-up can attract the attention of competition authorities and potentially lead to court intervention under local antitrust laws if factors such as market power, anticompetitive intent, and harm to competition or consumers are present. Conversely, while ‘hold-out’, where potential licensees unnecessarily delay obtaining a licence, does not involve concerted action and therefore may not raise horizontal restraint of trade competition concerns, it can inappropriately delay just compensation.
To address the market power SEP holders gain through standardisation and reduce the risk of hold-out, SSOs usually seek the agreement of SEP holders to license their patents on FRAND terms. However, some licensors still stretch and abuse their privileges, notwithstanding their FRAND commitments. A resolution may require the intervention of a competition or judicial authority (or both).
For example, in 2014, the European Commission’s Directorate-General for Competition reached a consent decree with Samsung Electronics, preventing Samsung from seeking injunctions against licensees who agreed to a specified licensing framework. The US Federal Trade Commission (FTC) and other competition authorities worldwide have reached similar settlements with various SEP holders to avoid aggressive behaviour from becoming abusive.
Notably, the European Court of Justice set a significant precedent with its ruling in Huawei v ZTE, emphasising the importance of FRAND commitments and permitting SEP injunctions only where an SEP holder has complied with its obligation to make a FRAND licensing offer, and the licensee is unwilling to enter into a licence on FRAND terms.
Having examined the leverage of the power to exclude and the unique relationship of SEPs to standards, which are critical for reaping the economic rewards of standardisation, we now explore some recent examples of unfolding strategies and tactics.
Considerations for objectives in standards formation
While the goal of most standards is widespread adoption, some patent holders focus on potential monetary rewards. Typically, standards development involves input from a mix of contributors with diverse business objectives. However, in the video codec space, there is an emerging trend of multiple standards, each with distinct goals – some aiming for ubiquity and others for monetisation. For example, H.264/AVC, H.265/HEVC and H.266/VVC are royalty-based, while AV1 and VP9 follow a royalty-free development model.
As a result, implementers of video codec standards should carefully choose between individual or multiple standards based on their understanding of the technology, royalty obligations and business objectives.
Effects of multiple jurisdictions
Individual jurisdictions have varying approaches to injunctions and exclusion orders, presenting licensors and licensees with distinct advantages and disadvantages based on relevant laws and their specific circumstances.
For example, US district courts follow the 2006 US Supreme Court decision in eBay Inc v MercExchange, LLC, which generally permits injunctions only where monetary remedies are insufficient to compensate the harm to the patent holder. Conversely, German courts typically award injunctions upon findings of infringement, provided the patent owner does not violate antitrust laws.
It is not uncommon to see infringement cases initiated in multiple jurisdictions. This practice is not necessarily an abuse of the system, as there can be valid strategic reasons for doing so, and no jurisdiction will want to deny parties access to justice. However, defending against claims in multiple countries can be intimidating and burdensome. Navigating this complex environment requires expert local counsel to manage the specific nuances of each jurisdiction effectively.
Importance of the antisuit injunction
In legal battles involving complex issues across multiple jurisdictions, it can be advantageous to seek an antisuit injunction to pause the proceedings in one court to await a decision from another. Such petitions are not new, a notable example being the 2012 case of Microsoft v Motorola. Although Motorola sought (and obtained) an injunction in Germany, that court could not set a FRAND rate. Both parties agreed to have a US federal court set a global portfolio rate. The federal judge, James Robart, required Motorola to hold off on enforcing the injunction, which could have jeopardised an average of US$1.5 billion (€1.37 billion) in Microsoft’s annual Windows and Xbox business in Germany. Even worse, Germany was Microsoft’s distribution hub for its European operations. The final verdict set the royalties for the Xbox at only 1/300th of what Motorola had initially sought, while the royalties for Windows were much lower.
Complex interplay of parallel litigation
Phillips v Thales
Antisuit injunctions may be helpful but are not always available. For example, in Philips v Thales, both parties agreed to follow the decision of Delaware District Court. However, Philips also filed for an exclusion order with the US International Trade Commission (ITC) to pressure Thales into settling for greater than FRAND terms before the Delaware court could set a FRAND rate. Thales asked the Delaware court to enjoin Philips from pursuing its ITC claim pending resolution of the Delaware case, but the motion was denied. Philips continued prosecuting its case in the ITC, and ultimately, the ITC’s administrative law judge (ALJ) denied Philips’ request for an exclusion order, finding that Philips failed to meet the domestic industry requirement, that the asserted Philips’ patents were either not infringed or invalid and that they were unenforceable due to the patentee’s late disclosure to the standard body at issue. The ALJ also found that Thales made FRAND offers. The ITC affirmed the ALJ’s findings on various invalidity and non-infringement grounds, but did not address the unenforceability issues or any other FRAND issues.
Thales did not appeal the denial of the antisuit injunction to the Federal Circuit. It found that the district court judge did not err in denying the antisuit injunction because mere concerns by Thales’ customers and Thales having to live under the threat of injunction were not sufficient to show the required irreparable harm. For more information about the criteria to show irreparable harm, see Judge Connolly’s decision.
It is also noteworthy that the chair and another commissioner of the FTC submitted a public interest statement to the ITC in this case. They expressed concerns about the public interest perspective of the antitrust and competition implications of imposing an exclusionary remedy against Thales, a willing licensee, especially given the pending Delaware court’s decision on royalties.
Panasonic v Oppo and Xiaomi
In 2023, Panasonic filed suits against Oppo and Xiaomi in multiple jurisdictions. These included a SEP and FRAND action in the High Court of England and Wales, lawsuits in China, and at least 24 cases in Europe, including significant cases in the Unified Patent Court and German national courts.
The High Court intends to set a global FRAND rate. Xiaomi petitioned the High Court to accept a proposal for an interim licence to stay injunction actions in the German courts, which would likely issue automatically ahead of the UK rate-setting decision. Justice Meade of the High Court was sympathetic but cautious about interfering with the actions of courts in other jurisdictions. To prevent an injunction ruling that could exert undue leverage by threatening to disrupt Xiaomi’s business ahead of the rate set by the English court, Justice Meade expedited the proceedings in England so that his decision would occur ahead of the planned German proceedings.
Update on Interdigital v Lenovo
Since the publication of last year’s article, there have been further changes in the case of Interdigital v Lenovo. The Court of Appeal of England and Wales ruled that Lenovo must pay five cents per unit more than the High Court had ordered. Even with this uplift, the rate is less than 50 per cent of the original price sought by Interdigital. Lenovo readily accepted the new rate.
Lessons learned
Strategic use of injunctions
Some patent holders strategically use the threat of exclusionary remedies, such as injunctions, to leverage negotiations. While injunctions can protect patent rights, abuse can exploit the accused infringer’s business risk to drive compensation beyond the patent’s inherent value. This abuse can divert resources from innovation and economic growth.
Economic impact of exclusion
Exclusion from the market due to patent infringement can have significant economic consequences. For instance, the IP Bridge v Ford case illustrates how the threat of product exclusion can result in substantial financial losses and negatively impact employees and suppliers.
Role of standards-essential patents
SEPs are crucial for promoting competition and innovation but can also create antitrust concerns. Ensuring FRAND licensing terms is essential to prevent abuse of SEP rights.
Addressing misinformation
The prevalence of inaccurate SEP claims highlights the importance of transparency and accuracy in patent declarations. Misinformation can lead to unfair licensing terms and necessitates regulatory oversight and professional consultation.
Navigating multiple jurisdictions
Legal battles across multiple jurisdictions can be complex and burdensome. Understanding the nuances of different legal systems and seeking appropriate antisuit injunctions can help manage these challenges.
Importance of antisuit injunctions
Antisuit injunctions can be valuable in managing parallel litigation, as demonstrated in Microsoft v Motorola. They can prevent conflicting rulings and provide a more streamlined resolution process.
Balancing competition and innovation
Competition authorities must balance the need for innovation with preventing anticompetitive behaviour. Interventions may be necessary when SEP holders demand excessive licensing fees or engage in hold-up practices.
Judicial and regulatory oversight
Courts and regulatory bodies play a crucial role in maintaining the integrity of the patent system. Decisions such as Huawei v ZTE underscore the importance of adhering to FRAND commitments to ensure fair competition.
Consideration of business objectives in standards formation
Different standards may involve varying developer objectives, such as ubiquity or monetisation. Companies must carefully evaluate these objectives when choosing which standards to implement.
Potential for unintended consequences
Engaging in aggressive legal tactics can backfire, as seen in Philips v Thales. Companies should consider the broader implications of their legal strategies and seek equitable monetary resolutions.
Conclusion
While injunctions and exclusion orders can serve as essential tools for protecting intellectual property rights and fostering innovation, their misuse can stifle competition and lead to economic harm. This article builds upon previous discussions, highlighting the evolving landscape of patent injunctions and their significant leverage. By examining recent cases and strategies, we underscore the importance of balancing the legitimate enforcement of patent rights with the need for fair competition and innovation. Stakeholders, including businesses, policymakers and judicial authorities, can benefit from adopting a balanced approach that emphasises equitable monetary solutions, fair compensation and the integrity of the patent system. A collaborative effort among innovators, industry participants, SSOs, regulators and judicial authorities is crucial to ensure that the patent system continues to support economic growth and technological advancement.