Standards-Essential Patents and Injunctive Relief
In a series of fast-moving and interrelated developments involving courts and competition authorities in many regions and countries, holders of patents deemed "essential" to industry standards are finding their ability to obtain injunctive relief for infringement of those patents under challenge.
Traditionally, in most significant jurisdictions around the world, the plaintiff in a patent infringement action can seek an injunction preventing the accused infringer from continuing to practice the inventions claimed in the patent, as well as monetary damages in the form of lost profits or a reasonable royalty.
Recently, however, some litigants, commentators, and others have expressed the view that when an asserted patent is a standards-essential patent ("SEP") encumbered with a fair, reasonable, and non-discriminatory ("FRAND") licensing commitment, the patent holder should be prevented from obtaining injunctive relief. Otherwise, these proponents argue, the patent holder can use the threat of an injunction to extract unfairly high royalties and impede implementation of the standard. On the other hand, certain patent-holders and others have responded that a blanket rule barring injunctive relief for FRAND-encumbered SEPs fails to take into account the fact-specific nature of FRAND commitments, fundamentally alters the dynamic of negotiating the specific details of a FRAND license, and erodes the commercial value of these SEPs. There are no easy answers, and courts in the United States and many foreign jurisdictions are currently grappling with these issues as hotly contested disputes involving FRAND-encumbered SEPs percolate through the judicial and regulatory systems around the world.
In the United States, federal district courts have the discretion to grant injunctions to stop patent infringement when the balance of traditional equitable factors, including a consideration of the public interest, weighs in favor of granting injunctive relief. Recently, two federal district courts applied these factors to deny injunctive relief to holders of FRAND-encumbered SEPs. One of these cases is now on appeal at the United States Court of Appeals for the Federal Circuit ("the Federal Circuit"). Meanwhile, the Federal Trade Commission ("FTC"), the Antitrust Division of the Department of Justice ("DOJ"), and the U.S. Patent and Trademark Office ("USPTO") have all urged the International Trade Commission ("ITC"), an administrative agency tasked with adjudicating patent disputes to stop the importation of infringing products to the detriment of domestic industry, to utilize its mandatory "public interest factor" analysis to take into account the potential impact on competition and consumers before allowing an SEP holder to obtain an injunction-like "exclusion order."
While courts in some other countries apply a discretionary standard similar to that applicable in U.S. federal district courts that permits denial of an injunction based on the public interest, in other jurisdictions the issuance of an injunction is (almost) automatic once infringement is proven. There may, however, still be the possibility of some sort of FRAND-based defense in most jurisdictions, either as a defense to liability or as a basis to limit relief to monetary damages and a royalty, but the availability and scope of a FRAND-based defense are likely to vary depending in considerable part on the degree of discretion a court has in granting or denying injunctive relief.
Specifically, courts in Germany, the Netherlands, Japan, and China have recently considered the issue. The conditions for the availability of a FRAND-based defense vary widely among these four jurisdictions. For example, in Germany, statutory provisions permit all patent holders, including a SEP holder, to apply for an injunction. If infringement is proven, German courts issue an injunction as a matter of law; they have virtually no discretion on whether to grant an injunction. If the asserted patent is a FRAND-encumbered SEP, however, a German court may invoke a narrow limitation on the issuance of injunctions in exceptional cases based on principles of antitrust law, provided that the infringer actually pays reasonable royalties. Dutch courts also acknowledge that injunctions can be granted in cases involving SEPs, but one court has rejected an application for injunctive relief in the context of a FRAND commitment as an abuse of law and a breach of precontractual good faith. An advisory decision in China, by contrast, suggests that a much broader FRAND-based defense may be available if a patentee participates in the standard-setting process or otherwise agrees that the patented technology may be incorporated into a standard and subsequently files suit seeking injunctive relief for infringement of the patent. This advisory opinion suggests that, if applicable, the defense may be a complete defense to liability for infringement, and, in all events, the royalty rate for the use of FRAND-encumbered SEPs should be very low. In Japan, a report of a recent decision by a Japanese court indicates that a FRAND defense may also be asserted there.
Separately, some parties have argued that seeking injunctive relief when an accused infringer is willing to license a FRAND-encumbered SEP would violate applicable antitrust and/or competition laws. Two recent enforcement actions by the FTC, a pair of court decisions in China, and ongoing investigations by the Commission of the European Union raise the prospect of antitrust and competition law enforcement in this area. Such enforcement under antitrust and competition laws threatens to remove the issue from the realm of patent law because, even if courts were to determine that injunctive relief is available as a matter of patent law, the owner of FRAND-encumbered SEPs might risk a finding that it had violated applicable antitrust or competition laws by pursuing such relief. This White Paper reviews these recent developments and analyzes the current situation with respect to the availability of injunctive relief for FRAND-encumbered patents in key jurisdictions around the world.