1. Introduction

The Grand Panel of the Japanese IP High Court rendered its first judgment that dealt with the FRAND issue in Japan May 16, 2014 (Case No. 2013[Ne] 10043).  This is an appeal case from a district court (Judgment of Tokyo District Court, February 28, 2013 [Case No. 2011 [Wa] 38969]). 

Apple Japan (“Apple”) sought a declaratory judgment that Samsung Electronics(“Samsung”) had no right to claim damages based on the infringement of Japanese Patent No. 4,642,898 (“Subject Patent”).  Claims 1 and 8 of the Patent were discussed.  Subject inventions intended to cover Subject Products based on IT for 3G and 4G telecommunications to be utilized by most mobile devices in the current market, especially on Apple’s iPad and iPhone (“Subject Products”).  Subject Patents were subject to the FRAND declaration by Samsung under the European Telecommunications Standards Institute (“ETSI”) regarding their intention to distribute the standard essential patents (“SEP”) under FRAND terms.  Apple alleged that the FRAND declaration constituted a license agreement offer and Apple’s starting imports and sales was an implied consent and thus a license agreement was made between the parties.

The district court decided that (1) Subject Products 1 and 3 did not fall within the technical scope of the subject inventions and (2) Subject Products 2 and 4 fell within the technical scope of the subject inventions under the Subject Patent.  Provided however, the district court decided, that requesting damages was not allowed due to Abuse of Right (Article 1(3) of the Civil Code).  Samsung appealed to the IP High Court.  The Grand Panel of the IP High Court made a judgment.

2. Japanese version of amicus curie brief?

The IP High Court called for public opinions on the FRAND issues. Since there is no  similar procedure (amicus curie brief in U.S. civil procedure) under the Civil Procedure Code of Japan, 28 opinions were delivered once to the parties’ counsel from Japanese/international entities and were submitted as evidence to the Court via the parties’ counsels. 

3. How was the FRAND issue dealt with by the IP High Court?

(1) Infringement and invalidity of Subject Patents

The IP High Court judgment admitted that (1) a right to claim damage regarding Subject Products 1 and 3 is not admitted for infringement and (2) a right to claim damage regarding Subject Products 2 and 4 does not exist to the extent of exceeding 9,955,854 yen, plus interest.  The judgment states that (1) Subject Products 1 and 3 do not fall within the technical scope of Claim 8 and (2) Subject Products 2 and 4 fall within the technical scope of Claim 8.

Apple alleged that the Subject Patent was unenforceable on invalidation grounds. Five grounds of invalidation regarding lack of novelty and inventive step were alleged.  However, the judgment dismissed all of Apple’s allegations thereon.

(2) How the FRAND issue should be decided?

(i) Whether enforcement of the right to claim damage is Abuse of Right

The judgment stated that no license agreement was made because the FRAND declaration is not an immediate offer of a license agreement between Apple and Samsung.  The judgment also notes that the FRAND declaration is not a third party beneficiary contract between Samsung and the ETSI.

In the judgment, the Court also notes that the cases which Samsung requested preliminary injunctions for were dismissed.   The Court does not allow a patentee of a FRAND declaration to enforce the right to demand injunctions to someone willing to enter a license agreement based on FRAND terms.  The Court showed prudency in restricting a right to claim damages equivalent to FRAND license fees.

The Court supposed that those who have declared SEP can obtain a large license fee unless they are part of the Universal Mobile Telecommunications System standard.  In this case, those who made FRAND declarations should be required under the IPR policy of the ETSI, to provide an irrevocable license on FRAND terms.  It is then not necessary to allow them to claim damage exceeding the amount equivalent to FRAND license fees.

(ii) Amount of royalty under FRAND & damage

The Court determined the amount equivalent to FRAND license fees by considering the reasons why the IPR policy of the ETSI was established and the nature of Subject Products 2 and 4.

The Court first calculated a portion where compliance of the UMTS standard contributed to the total sales of Subject Products 2 and 4.  Then, the Court calculated a portion where the Subject Patent contributed among the total construction where compliance of the UMTS standard contributed.  In the calculation of such, the sum of the license fees of all the essential patents not exceeding a constant rate was respected in order to suppress excessive cumulative royalty.  In this case, a simple division by the total number of essential patents was used because the Court did not know the contents of other SEPs in detail. Additionally, the Court could not find any special circumstances to raise the FRAND equivalent royalty amount in this case.  Consequently, the FRAND license fee was 9,955,854 yen in the judgment.

It is quite usual for a FRAND amount in a patent holder’s belief to exceed  what a potential licensee believes.  Even when a patent holder offers a certain FRAND license royalty level, a potential licensee may counter offer with a lower amount.  The IP High Court judgment shows that if special circumstances exist, claiming damage exceeding the amount equivalent to FRAND license fees is not restricted.  However, determining special circumstances is not easy - if potential licensees show willingness, but have no actual intention of obtaining a license on FRAND conditions, how to gather evidence to prove special circumstances may become an important issue for potential licensees.

Furthermore, since license royalty information is usually confidential even between the parties, the parties had to utilize some procedures to keep the information confidential and remove it from the judgment’s text.  The ADR process may play an important role in deciding the reasonable FRAND term for parties even after the court procedure has started.