Judge Richard Andrews of the District Court of Delaware dismissed Nokia and ZTE’s amended FRAND counterclaims against InterDigital on Wednesday, ruling that the amended declaratory judgment actions would not serve a useful purpose in the context of the parties’ ongoing litigation. Nokia and ZTE’s FRAND counterclaims involve around 500 patents identified to ETSI as possibly reading on the UMTS 3G and/or LTE 4G standards and an additional set of patents related to the ITU’s CDMA2000 3G standard. The counterclaims further allege that, pursuant to the ETSI, ITU, and TIA IPR Policies, InterDigital has declared a large portion its patent portfolio as essential or potentially essential to these cellular telecommunications standards and has voluntarily entered into binding and enforceable FRAND-licensing commitments for these patents. Wednesday’s decision marks the second time that the Court has dismissed a set of FRAND-related counterclaims in these actions, having previously dismissed Nokia and ZTE’s FRAND counterclaims against InterDigital last July.

Following the Court’s July 2013 dismissal, ZTE filed amended counterclaims seeking a declaration that InterDigital had failed to provide offers to ZTE on FRAND terms and requesting that the court determine an appropriate FRAND rate. Nokia similarly amended its counterclaims, requesting that the court declare that InterDigital did not offer a FRAND rate and determine what the terms of a FRAND license would be. InterDigital then moved to dismiss on the grounds that, even if the Court were able to determine a FRAND rate, the determination would be of no practical help or utility because of the remaining disputes regarding whether the various patents-at-issue are essential to the underlying standards.

Considering InterDigital’s Motion to Dismiss, Judge Andrews reviewed the extensive litigation and negotiation histories between InterDigital and ZTE and Nokia, providing a high-level overview of the offers, counteroffers, and resulting lawsuits between the companies and InterDigital.  Judge Andrews considered the Third Circuit’s analysis of whether declaratory judgment subject matter jurisdiction exists based on three basic principles: “(1) ‘adversity of the interest of the parties,’ (2) ‘conclusiveness of the judicial judgment,’ and (3) ‘the practical help, or utility, of that judgment.’”  Judge Andrews assumed that the first two princples were met — that there is adversity of interest and that “the Court could conclusively decide a FRAND rate.”  Thus Judge Andrews focused the subject matter jurisdiction analysis on the third principle of whether the declaratory judgment would provide “practical help, or utility” so as to provide the Court with subject matter jurisdiction over the counterclaims.

Assuming, arguendo, that the Court could conclusively determine a FRAND rate in an efficient manner — an assumption that the Court found “highly dubious considering that there are 500 or so possibly relevant patents” — Judge Andrews wrote that he was “far from convinced that the trial that would be necessitated by the declaratory judgment would serve any useful purpose.” The Court reasoned that, even if a FRAND rate were determined, it is not clear as to how such a ruling could be enforced, finding that neither Nokia nor ZTE had obliged themselves to be bound by the Court’s potential determination and expressing concern for how declaratory relief would be utilized by the parties:

While both Nokia, and to a greater extent ZTE, have indicated their “willingness” to accept a license, there has been no sworn affidavit by either company that they would sign a license. Companies can change or sell their product lines. They can enter and withdraw from markets. They can appeal district court decisions, and initiate other litigation, which would either delay or derail a final judgment. All the Court’s determination of a FRAND rate would accomplish would be to give a data point from which the parties could continue negotiations.

Judge Andrews further reasoned that determining a FRAND rate would not lead directly to a patent license because of the plethora of other licensing issues, including warranties, indemnification, cross-licensing, trademarks and attribution, insurance, and so on, that would need to be negotiated between the parties, noting that on multiple occasions he has seen agreed upon term sheets fail to turn into a final agreement.

The Court also found that the declaratory judgment actions seeking a determination of whether InterDigital had in fact offered a FRAND rate would serve little to no useful purpose as such an undertaking would only serve “to alter the current negotiating power between the parties” and “any impact that this determination would have on the patents-in-suit is encompassed within the multitude of affirmative defenses that both Nokia and ZTE assert”, noting that FRAND issues are captured by ZTE’s affirmative defenses for patent misuse, breach of contract, unclean hands, and existence of an express or implied license.

Judge Andrews also indicated that any agreement between the parties would involve business considerations not suitable to litigation, and suggested arbitration might be a better route to resolution:

It seems to me likely that the parties do in fact want to reach an agreement.  Negotiating such an agreement involves mostly business considerations.  It does not seem to me that litigation by itself is a very effective means to make an agreement between willing parties.  I understand that the parties cannot agree on the scope of arbitration.  If they could, or they could decide to have the arbitrator decide the scope, that would appear to be a possible way to proceed.