3G Mobile Handsets: FRAND Defense Rejected for Alleged Standards-Essential Patents

ALJ Theodore Essex issued the public version of his initial determination on remand in Certain 3G Mobile Handsets and Components Thereof, Inv. No. 337-TA-613, on May 8, 2015.  In this closely watched proceeding, ALJ Essex issued a significant decision for parties involved in litigation over standard-essential patents (“SEPs”). The ALJ found that two of InterDigital’s patents relating to the 3GPP wireless standard were infringed and rejected Microsoft and Nokia’s FRAND defense.  He determined that there was no evidence that the patents were SEPs, “no evidence that [InterDigital] engaged in hold-up, or did not negotiate in good faith”, and by contrast, “evidence in this case supported a finding that [Microsoft/Nokia] engaged in reverse holdup or holdout.”  ID at 66.  Petitions for review have been filed by respondents and the ITC Staff, and the initial determination is now subject to review by the full Commission.


On August 14, 2009, following an evidentiary hearing and briefing, the late Chief ALJ Paul Luckern issued an initial determination finding no infringement with respect to two patents asserted by InterDigital and no violation of Section 337.  The Commission affirmed and terminated the investigation.

On August 1, 2012, the Federal Circuit reversed the ITC’s claim construction and its finding of no infringement, remanding the case to the ITC for further proceedings.  InterDigital Commc’ns v. ITC, 690 F.3d 1318 (Fed. Cir. 2012).

On remand the Commission sought comments from the parties and thereafter issued its opinion and order remanding the case to ALJ Essex.  Comm. Op. and Order, (Feb. 12, 2014).  As part of its instructions on remand, the Commission directed the ALJ to make findings on several specific issues related to standard-essential patents and a FRAND defense including:

  1. take evidence concerning the public interest factors as enumerated in sections 337(d) and (f);
    b. take briefing on whether the standard-essential nature of the patents-in-suit is contested;
    c.   take evidence concerning whether there is patent holdup or reverse holdup in this investigation.

ID at 6.

Standard-Essential Nature of the Patents

The accused products operated on a Wideband Code Division Multiple Access (“WCDMA”) network and comply with 3GPP WCDMA standards set by the European Telecommunications Standards Institute (“ETSI”).  ID at 11.  In this case, complainant InterDigital submitted a declaration to a standards-setting organization regarding a wireless communication standard, and respondents Microsoft and Nokia’s accused devices employed the same wireless communication standard.  Although InterDigital’s patents related to devices operating under these standards, the parties disputed whether the asserted patents were standards essential.  ALJ Essex noted that by arguing that the accused products “do not infringe the patents, the respondents are arguing that the patents are not Standard Essential Patents.”  ID at 36.  ALJ Essex reasoned that if this were true, then InterDigital “has no duty to offer a license on FRAND terms.”  ID at 36.

Complicating the determination of the SEP-nature of the patents was the ambiguous quality of the declaration submitted by InterDigital to ETSI on the patents.  ETSI’s policy only required the affiliate patent holder to declare that the patents “may be or may become ESSENTIAL …”  Id.  ALJ Essex noted that such a declaration did not prove the asserted patents are SEPs and further noted that no court had declared the patents SEPs.  ID at 37.

ALJ Essex ultimately concluded that the respondents failed to meet their burden of proof that the two patents were SEPs.  ID at 39.  “We need not be stampeded into abandoning the rule of law, or burden of proof simply because the respondents shout ‘FRAND’.”  ID at 40.

No Evidence of Bad Faith

Although ALJ Essex determined there was a failure of proof to show the asserted patents were SEPs, he went on to analyze whether, if the patents were SEPs, there was evidence of bad faith by InterDigital.  He concluded there was no such evidence.

ALJ Essex stated that contract analysis of the ETSI policy was the “proper way to examine the agreements in cases involving FRAND or RAND obligations”, and cited to Ericsson v. D-Link Systems, 773 F.3d 1201, 1231-34 (Fed. Cir. 2014).  ID at 41.  Under this contract analysis, ALJ Essex considered the conduct of the parties, and specifically, whether InterDigital acted in bad faith.

ALJ Essex found that InterDigital offered licenses on its patents, and therefore, had not acted in bad faith.  According to ALJ Essex, because no party yet knows what would constitute a FRAND licensing rate, InterDigital’s license offer amount cannot be considered an act of bad faith.  ID at 42.

Lack of Proof of Hold-Up by InterDigital

In reviewing the evidence, ALJ Essex noted the licensing negotiations between the parties, and did not find any evidence that InterDigital was refusing to work towards a FRAND license.  ID at 48.  Specifically:

The ALJ finds there is no evidence of holdup.  [InterDigital] has been negotiating with Nokia Corp. and its successor [Microsoft], and inasmuch as the respondents have not provided evidence of what a FRAND rate would be, and what duties of good faith have been violated by [InterDigital], there is no evidence that [InterDigital] has violated its duty of good faith, or tried for patent holdup.

ID at 48.

Turning to the issue of whether there was a holdout by respondents, ALJ Essex concluded that in the earlier phase of the litigation before the Federal Circuit reversed the ITC’s claim construction and noninfringement findings on August 1, 2012, there was no evidence of bad faith holdout.  ID at 50-51.  However, ALJ Essex determined that respondents should have been aware after that date that the patents were valid and infringed.  ID at 51.  The ALJ also found that respondents failed to offer any evidence of what a FRAND rate was and therefore rejected respondents’ argument that InterDigital failed to offer a FRAND-based license.  ID at 52-53.  Based on the record, ALJ Essex concluded that “in failing to negotiate in a meaningful way, and refusing to take a license …” respondents engaged in reverse patent holdup or holdout.  ID at 54, 66.

Public Interest Factors

As instructed by the Commission in its remand order, ALJ Essex also examined the statutory public interest factors to determine whether they precluded relief.  In particular, ALJ Essex found decisive that ETSI had during the 1990s eliminated a provision barring the possibility of exclusion orders or injunctions.  ID at 54.  He also elicited testimony from a member of an ETSI drafting committee during the hearing that a provision requiring mandatory arbitration was also removed during the 1990s.  ID at 55.  Based on the record before him, ALJ Essex concluded there was no prohibition agreed to by ETSI members prohibiting injunctive relief or exclusion orders.

ALJ Essex also considered respondents’ argument that, independent of the standards setting requirements, the policy disfavoring injunctive relief by federal regulatory authorities (including DOJ) precluded exclusionary relief under the public interest factors.  ID at 57.  The ALJ noted that the policy statements from DOJ and FTC were based upon “speculative possibilities that holdup could occur.”  ID at 60.  ALJ Essex determined that this concern was not born out in practice as “[n]ot one witness in this hearing was able to provide a single example of a holdup due to an exclusion order, or potential exclusion order.”  ID at 61.  In conclusion, ALJ Essex determined that the public interest did not preclude issuance of an exclusion order in this case.  ID at 68.

Implications of ID

Since the USTR overturned the ITC’s exclusion order in Certain Electronic Devices Including Wireless Devices, Inv. No. 337-TA-794, involving standard-essential patents, the opportunity to obtain exclusionary relief on such patents seemed remote.  Letter from Hon. Michael B. G. Froman, USTR to Hon. Irving A. Williamson, ITC, dated Aug. 3, 2013.  However, the USTR letter disapproving the Commission’s remedy orders in the 794 Investigation did outline limited circumstances under which exclusionary relief might be warranted, e.g., where a licensee refused to negotiate in good faith, where a licensee declined to pay a FRAND license rate, etc.  Id. at 2 n. 3.  ALJ Essex appears to have determined that the facts in the InterDigital case fall into these exceptions.  It remains to be seen whether the full Commission will uphold ALJ Essex’s decision, and if an exclusion order is issued, whether USTR will allow it to go into effect.

One of the many interesting issues that ALJ Essex’s initial determination presents is whether a respondent is required to first show a FRAND rate before it can demonstrate that an SEP holder is engaged in holdup.  Another is whether a respondent must demonstrate convincingly that an asserted patent is essential, or can simply rely on the patent’s disclosure to a standards body.