Last week, Judge Holderman issued several orders on various motions in limine filed by Fujitsu and Tellabs in advance of the jury trial of the case, which began this past Monday.  The jury will decide whether Fujitsu breached its alleged obligation to offer Tellabs a license to Fujitsu’s ’737 patent on reasonable and non-discriminatory terms (RAND) when it, among other alleged acts, filed a patent infringement suit against Tellabs, sought preliminary injunctive relief, and sought damages that are purportedly higher than a RAND royalty rate.

While the briefing on several of the in limine motions was filed under seal, several of the orders look to shape the evidence admitted at the trial to resolve Tellabs claim that Fujitsu breached its RAND obligations.  It is important to keep in mind the procedural posture of these motions — that these are motions to exclude evidence from the jury’s consideration  – to avoid misreading the import of the ruling.  For example, the court’s ruling not to exclude an expert from testifying that seeking an injunction is inconsistent with an alleged RAND obligation does not necessarily mean that the court agrees with the expert, but simply means that this is evidence the jury will likely be permitted to hear as it deliberates the alleged RAND obligation issues.

Judge Holderman also issued preliminary jury instructions as well as a preliminary verdict form.  These documents lay out in detail the issues that the jury will have to resolve at the conclusion of the trial.  They, as well as the in limine rulings, are summarized below.

SEP Patent Owner Fujitsu’s Motions To Exclude Evidence

Exclude Injunction Request Violates RAND Testimony (Denied).  Tellabs’ expert stated in his report and deposition that Fujitsu’s request for an injunction against Tellabs was inconsistent with Fujitsu’s RAND obligations.  Fujitsu moved to exclude this evidence, arguing that it was “inconsistent” with the Federal Circuit’s decision in Apple v. Motorola, Inc., which “held that an injunction may be appropriate depending on the facts of the case, such as when the purported RAND licensee refuses or unreasonably delays RAND negotiations.”  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  Judge Holderman issued a one sentence order denying Fujitsu’s request to exclude that expert testimony.

Exclude Willful Breach Evidence (Denied).  Fujitsu also moved to preclude Tellabs from “introducing evidence or argument that Fujitsu willfully breached any alleged obligation to offer” the ’737 patent on RAND terms because Illinois law “does not recognize a cause of action for a willful breach of contract.”  Fujitsu contended that Illinois law applied to Tellabs’ claim that Fujitsu breached its commitment to offer a license for the ’737 patent on RAND terms because “Tellabs is based in Illinois and Fujitsu’s alleged failure to offer a RAND license rate occurred in Illinois, where communication between the parties has taken place and the litigation has proceeded.”  “The only instance in Illinois in which a breach of contract may warrant damages beyond typical contract damages is when the alleged breach also amounts to an independent tort.”  Further, “[t]o justify damages other than contract damages (i.e., punitive damages) there must be allegations of malice, wantonness, or oppression.”  Fujitsu argues that “[i]n the case of RAND obligations, a non-breaching party implementing the patent can easily be compensated for the breach by limiting the patent-holder’s potential damages.”

Tellabs’ opposition to the motion was filed under seal, but Fujitsu’s public reply argues that Tellabs failed to identify any authority showing that a willful breach of contract is recognized under Illinois law.  Rather, Tellabs allegedly contends that Fujitsu’s willful breach “warrants equitable relief,” but, according to Fujitsu, such equitable relief is not available because Tellabs has an adequate remedy at law.  Citing Judge Holderman’s decision in the Innovatio case, Fujitsu argues further that “[a] RAND obligation is a contractual commitment:  the defendant, as the accused infringer, bears the burden of demonstrating the existence of a RAND obligation that limits the defendant’s damages if it is found to infringe.”  Again citing Innovatio, Fujitsu contends there are no “‘cases suggesting that the existence of a RAND commitment provides a complete defense against an infringement lawsuit.  Instead, most cases merely limit a patent holder’s remedy to collecting a RAND royalty, thus precluding injunctive relief.’”  According to Fujitsu, should Tellabs prove that Fujitsu breached its alleged RAND obligation to offer Tellabs a license on RAND terms, Tellabs’ remedy will be a license on RAND terms, an adequate remedy at law.  In a one sentence order, the Court denied Fujitsu’s motion to exclude evidence of willful breach.

Exclude Evidence SSO-Obligation Not Conditioned On Patent Covering Standard (Denied). Fujitsu also moved to preclude Tellabs from introducing evidence or argument that Fujitsu’s 1996 patent disclosure to the International Telecommunication Union (ITU), a standard-setting organization (SSO), was an unconditional offer to license the ’737 patent on RAND terms, regardless of whether the ’737 became standard essential.  “Tellabs’ RAND defense is based on a May 1996 Patent Statement (’1996 Patent Statement’) that Fujitsu submitted to the [ITU] Telecommunication Standardization Sector (‘ITU-T’).”  “Fujitsu’s 1996 Patent Statement provided that Fujitsu was willing to grant a license to the ’737 patent under [RAND terms] for the purposes of implementing five ITU-T Recommendations that were, at the time of the 1996 Patent Statement, in draft or ‘provisional’ form.”  Tellabs argues that the 1996 Patent Statement was an unconditional offer to license the ’737 patent on RAND terms, regardless of whether it was later determined to be standard essential.  However, according to Fujitsu, “[a] promise to license a standard essential patent is a promise to license only the standard essential claims.”  Fujitsu argues that Tellabs’ argument is contrary to the court’s decision in Innovatio which, according to Fujitsu, held “that each asserted patent claim must be individually determined to be essential to a standard before a RAND obligation applies.”  Fujitsu argues further that “[t]he 1996 Patent Disclosure must be understood in the context of the ITU policies pursuant to which it was tendered.”  According to Fujitsu, its offer to license the ’737 patent in the 1996 Patent Disclosure Statement was conditioned on the patent being essential to the adopted standard, and it is Tellabs burden to demonstrate essentiality in order to trigger a RAND obligation.  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  The court denied the motion in a brief order.

Exclude Commercial Essentiality Evidence (Taken Under Advisement).  Fujitsu also moved to preclude Tellabs from introducing evidence or argument regarding “commercial essentiality” with respect “to the definition of standard essential under the patent policies of the” ITU.  “As a matter of law, ‘commercial essentiality’ is not a term or condition found in the ITU-T Patent Policy and, as such, commercial essentiality should not be read into the ITU-T’s policies.”  According to Fujitsu, “[t]he ITU Patent Policy only permits consideration of technically essential patents in determining whether a patent is standard-essential.”  Fujitsu contends that the ITU Patent Policies in effect at the time of the 1996 Patent Declaration “required that a patent be ‘embodied fully or partly’ in” the standard in order to be considered standard essential.  “As the plain language of the ITU Patent Policy does not reference or include commercial essentiality, a standard essential patent to an ITU Recommendation is limited to one which is technically essential to practicing a particular recommendation.”  Fujitsu argues further that “[g]enerally, SSOs have not expanded the definition of essentiality to include commercially essential patents; rather, the vast majority of SSOs limit that definition to technically essential patents.”  Finally, Fujitsu urged the court not to permit Tellabs to add commercial essentiality to the ITU’s Patent Policy for policy reasons.  “The determination of commercial essentiality is a subjective determination that requires consideration of a variety of factors and balancing of competing interests.”  “If a RAND obligation were to apply to any patent which eventually becomes commercially essential, regardless of how much time has passed, the incentive to compete, develop and refine that technology would be drastically reduced.”  Here again, Tellabs’ opposition and Fujitsu’s reply were filed under the seal.  After briefing was closed, the court issued an order taking Fujitsu’ motion under advisement, and instructing the parties that commercial essentiality “should not be referred to without specific permission of the court on the record.”

Exclude Specific RAND Rate (Denied).  Fujitsu next moved to preclude Tellabs from introducing evidence of specific royalty rates that may constitute a RAND rate.  “The threshold issue in this trial is whether Fujitsu is obligated to offer Tellabs a RAND license on the ’737 patent because Fujitsu submitted this patent during the ITU-T Recommendation” process.  “Assuming there is such an obligation, the next issue is whether the obligation was breached, and if so, whether it was willful.”  “Tellabs has further stipulated that a specific damages amount is not an issue for the trial.”  “Therefore, evidence regarding a possible specific RAND rate is not an issue or relevant.”  Tellabs’ opposition and Fujitsu’s reply were filed under seal.  The court issued an order denying the motion.

Exclude Competing Contract Bids As Motivation To Breach RAND Obligation (Denied). Fujitsu also moved to preclude Tellabs from introducing evidence or argument regarding a 2005 request for proposal from Verizon to both Tellabs and Fujitsu.  According to Fujitsu, both it and Tellabs “bid to provide products and services to Verizon.”  “Fujitsu offered to sell its Flashware 7500 and Tellabs offered to sell its 7100 Optical Transport System.”  “Verizon awarded the bid to Tellabs…because Verizon believed the 7100 system was more advanced [than] the Flashware 7500.”  According to Fujitsu, the “details of the 2005 Verizon bid” and “Fujitsu’s internal communications following the same” are irrelevant to the issues to be tried.  Specifically, Fujitsu contends that “[t]he RAND issue to be determined at trial has to do with whether Fujitsu was contractually obligated to offer the ’737 patent on RAND terms, and whether Fujitsu breached that obligation.”  “The market competition between the parties, including the Verizon bid competition, is entirely irrelevant to whether or not Fujitsu had a contractual RAND obligation to Tellabs and breached the same.”

Tellabs’ opposition was filed under seal.  According to Fujitsu’s reply, Tellabs “admits that it plans to use internal Fujitsu communications at trial, which supposedly demonstrate Fujitsu’s motivation to breach an alleged RAND obligation.”  “However, even if the question of whether Fujitsu’s alleged RAND breach was willful is presented to the jury, Fujitsu’s internal communications and business motivations are irrelevant to willfulness and should be excluded” as irrelevant and prejudicial.  The court denied the motion.

Exclude Specific Infringement Damages Amount Sought (Denied).  Fujitsu next moved to preclude Tellabs from introducing evidence or argument regarding the specific damage amounts claimed by Fujitsu in its infringement claim against Tellabs.  Here again, Fujitsu argued that “[t]he threshold issue in this trial is whether Fujitsu is obligated to offer Tellabs a RAND license on the ’737 patent.”  “Tellabs has stipulated that a specific damages amount is not an issue for the trial.”  “Therefore, evidence regarding any specific damages amounts claimed by Fujitsu are not at issue or relevant.”  The remainder of the briefing on this motion was filed under seal.  The court denied the motion.

Tellabs’ Motions To Exclude Evidence

Exclude Argument ITU Distinguishes Between Commercially and Technically Necessary (Granted).  Tellabs cross-moved to prevent Fujitsu from arguing “that the ITU Patent Policy distinguishes between commercially essential and technically essential patents.”  According to Tellabs, “this issue has already been decided as a matter of law.”  Specifically, “in Qualcomm v. Broadcom, the Federal Circuit analyzed various sections of the ITU Patent Policy and specifically rejected the argument that Qualcomm was not subject to a duty of disclosure if the relevant standard could be practiced without infringing Qualcomm’s patents.”  “Instead, the Federal Circuit ruled that, according to the ITU Patent Policy, the disclosure duty applies to all patents that ‘reasonably might be necessary’ to practice the standard, not only patents that must ‘actually be necessary.’”  According to Tellabs, “[i]n attempting to distinguish between commercially essential and technically essential, Fujitsu is simply rehashing Qualcomm’s rejected argument — that the duty applies only to patents that must ‘actually be necessary’ to practice the standard.”  “Regardless of whether the ’737 patent is commercially essential or technically essential, it ’reasonably might be necessary’ to practice the standard.”

Fujitsu opposed the motion, arguing that “[t]he Qualcomm Court did not address technical or commercial essentiality.”  “The tenuous nature of [Tellabs'] argument is highlighted when one considers that Fujitsu intends to call Gregory Ratta, a long-time former ITU-T employee who has offered testimony that the ITU-T definition of a standard essential patent does not include commercial essentiality.”

Tellabs’ reply was filed under seal.  The Court granted Tellabs’ motion.

Exclude Argument That RAND Commitment Was Conditional (Denied).  Tellabs also moved to prevent Fujitsu from presenting testimony, evidence or argument that Fujitsu’s declaration to the ITU and commitment to license the ’737 patent on RAND terms is subject to any conditions, “including the ’737 patent being essential,” other than those conditions set out in a declaration submitted by Fujitsu.  All briefing on this motion was filed under seal.  In a one paragraph order, the Court denied the motion.

Exclude Argument RAND License Offered To Tellabs (Granted).  Tellabs next moved to preclude Fujitsu from introducing evidence or argument that Fujitsu offered Tellabs a RAND license for the ’737 patent.  The briefing on this motion was filed under seal.  However, the court granted the motion because “Fujitsu admits that it never offered Tellabs ‘any royalty rate, RAND or otherwise.’”  Therefore, ”[n]o evidence suggesting the contrary will be allowed.”

Preliminary Jury Instructions and Preliminary Verdict Form

As noted above, Judge Holderman also issued preliminary jury instructions as well as a preliminary verdict form, the latter of which was subsequently revised for a second time.  The preliminary instructions were read to the jury at the outset of the trial to give them a brief overview of the dispute.  The preliminary verdict form was also provided to the jury as a guide for the questions that they will have to unanimously answer at the conclusion of the trial.  While the purpose of these documents was to brief the jury on the issues they will decide, the final jury instructions and verdict form, which will be read to the jury at the conclusion of the case, will control the jury’s determination.

The preliminary instrucitons as well as the verdict form tell the jury that Tellabs has the burden of proving the following elements by a preponderance of the evidence (i.e., tipping the scales in its favor):

  1. Fujitsu agreed that it was willing to grant a license of its ‘737 patent’s technology on RAND terms in compliance with the ITU’s Patent Policies;
  2. Fujitsu’s ’737 patent’s technology was included in — meaning “may be required to implement” — one or more of the necessary specifications of the standardized technology recommended in ITU-T Recommendation G.692;
  3. Fujitsu breached its agreement that it was willing to grant a license of its ‘737 patent’s technology on RAND terms by, among things, not offering Tellabs a license and filing suit seeking injunctive relief for infringement; and
  4. Tellabs would have been willing to negotiate a license of Fujitsu’s ‘737 patent’s technology from Fujitsu on RAND terms in compliance with the ITU’s patent policies, if Fujitsu had offered Tellabs RAND terms for such a license;

Finally, Tellabs must show, by clear and convincing evidence, that Fujitsu was willful in its alleged breach of its agreement that it was willing to grant a license on RAND terms for its ‘737 patent’s technology, in that Fujitsu’s breach was intentional, knowing and with conscious disregard for Tellabs’ rights, or alternatively, was done with reckless disregard for Tellabs’ obvious or known rights.