Published: 4/25/14
The trial court decision was rendered by Court of Appeals Judge and leading antitrust scholar Richard Posner. In that decision, Judge Posner rejected Motorola’s request to enjoin Apple from practicing FRAND-encumbered SEPs owned by Motorola, stating: “I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise?”
Judge Posner also provided guidance on the proper valuation of a FRAND-compliant royalty. He stated: “The proper method of computing a FRAND royalty starts with what the cost to the licensee would have been of obtaining, just before the patented invention was declared essential to compliance with the industry standard, a license for the function performed by the patent. That cost would be a measure of the value of the patent qua patent. But once a patent becomes essential to a standard, the patentee’s bargaining power surges because a prospective licensee has no alternative to licensing the patent; he is at the patentee’s mercy. The purpose of the FRAND requirements … is to confine the patentee’s royalty demand to the value conferred by the patent itself as distinct from the additional value—the hold-up value—conferred by the patent’s being designated as standard-essential.” He did not apply this methodology, however, as he rejected both parties’ claims for damages for alleged infringements of their patents by the other party.
The appellate decision addressed the injunction issue but not the level of a FRAND-compliant royalty. Although the court affirmed Judge Posner’s denial of an injunction based on Motorola’s FRAND-encumbered SEP, it determined that “[t]o the extent that the district court applied a per se rule that injunctions are unavailable for SEPs, it erred.” The court held requests for injunctive relief should be evaluated under the general framework applicable to injunctive relief in patent cases under the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). The court went on to say, however, that “[a] patentee subject to FRAND commitments may have difficulty establishing irreparable harm,” a prerequisite for obtaining injunctive relief. The court cited with approval the joint policy position of the U.S. Department of Justice and Patent and Trademark Office that injunctive relief may be appropriate where an infringer unilaterally refuses a FRAND royalty or demonstrates through its conduct that it is unwilling to negotiate. The court emphasized that “this does not mean that an alleged infringer’s refusal to accept any license offer necessarily justifies issuing an injunction. For example, the license offered may not be on FRAND terms. In addition, the public has an interest in encouraging participation in standard-setting organizations but also in ensuring that SEPs are not overvalued.” Applying this approach, the court held that Motorola was not entitled to an injunction: “Motorola’s FRAND commitments, which have yielded many license agreements encompassing the ’898 patent, strongly suggest that money damages are adequate to fully compensate Motorola for any infringement.”
In ruling on the request for an injunction, the court appeared to agree with the Ninth Circuit’s holding that a FRAND commitment binds the SEP holder to grant a license to any standard implementer that wishes to be licensed, stating that, through its FRAND commitments, “Motorola has agreed to add as many market participants as are willing to pay a FRAND royalty.”