Qualcomm and Nokia weighed-in on the Ericsson v. D-Link appeal yesterday, each filing amici curiae briefs with the Federal Circuit.  The parties positions favored the patent owner, though each adopted different approaches to the issues on appeal.  Qualcomm focused on the fact-specific contractual nature of RAND commitments that patent owners rely on based on an each standard setting organization’s (SSO’s) specific intellectual property rights (IPR) policies and the patent owner’s submitted letters of assurance (LOAs).  Nokia supported the district court’s decision not to give jury instruction on patent stacking and holdup. See our August post for more information on the case, pre-appeal, and Judge Davis’ RAND dismissals.

This round of amici curiae briefing comes a little less than three months after the IEEE submitted its own amicus brief regarding RAND commitments, which we discussed back in December.

Qualcomm’s Positions

Qualcomm’s brief emphasizes that RAND commitments are voluntary, contractual obligations held by an SEP holder to an SSO under which the SEP holder agrees to make its SEPs available to SSO participants on RAND terms.   At the outset, Qualcomm acknowledges that its amicus position on RAND issues is adverse to that taken by some appellants in this case to whom Qualcomm, as the supplier of chips used in some of the accused products, owes certain indemnity obligations.  Qualcomm concedes that it “has an indirect interest in a finding of no liability and a financial interest in minimizing any damages awarded”, but nevertheless has weighed in “even if that means that its views on RAND may align in part with those of [Ericsson].”

Distinguishing policy arguments and competition concerns raised by other amici, Qualcomm’s brief argues RAND obligations are created by contract and as such should be determined by reference to the actual commitment and intent of the parties:

Each RAND commitment is made in the context of the particular intellectual property rights (“IPR”) policies of the particular SSO, and must be interpreted in that context. How a court should interpret a contract is well established: it should look to the express terms of the agreement and, where necessary, to other indicia of the intent of the parties.

Addressing Judge Davis’ decision, Qualcomm states that the district court correctly considered the particular terms of IEEE policies when determining the scope of Ericsson’s obligations, as a court’s RAND determination should be drawn from the terms and intent of the relevant SSO agreement giving rise to RAND, the background against which the RAND agreement was made, and specific facts relevant to the underlying agreement.  Discussing the goal of both IEEE and ETSI IPR policies that SEP licenses me made available to implementers on reasonable terms, Qualcomm argues that the term “reasonable” in “reasonable and nondiscriminatory” does not mean anything different than the well-known “reasonable royalty” rubric found Georgia-Pacific and similar law outside the U.S. and that no evidence indicates there is “some other type of ‘reasonable’”.

Qualcomm asserts that proposed rulings designed to suppress SEP valuation should be rejected as inconsistent with the RAND contract. Asserting that “the District Court properly looked to both the language and the intent of Ericsson’s RAND commitment to determine the meaning of the RAND commitment, and appropriately instructed the jury to hold Ericsson to that commitment”, Qualcomm argues against rules proposed by other amici that improperly assert that:

  1. courts determining SEP value should consider only license executed before the patent was adopted into the standard;
  2. a “reasonableness” analysis must account for the total number of SEPs for that standard;
  3. “non discriminatory” analysis must look at average prices, costs, and operating profit across all industry participants; and
  4. the determination of royalties must use the industry-wide average operating profit for the smallest saleable patent practicing unit over the damages period.

Qualcomm asserts that there is no reason to suppose that rational industry participants should conduct a royalty stacking analysis as part of determining a reasonable royalty rate.  Qualcomm reasons that such an analysis improperly pre-supposes that only a fixed share of the product price can be attributable to the intellectual property in the product, leading to the erroneous conclusion that the more patents a product practices, the less each SEP holder should receive, irrespective of the impact of each patent’s individual contribution. Arguing against this analysis, Qualcomm states:

IP is an input into a product like any other. Adding a second input does not reduce the value contribution of the first. Adding hand-crafted leather upholstery to a car does not reduce the value contribution (or the cost) of the engine. Considered in the context of tangible components, the idea of using (much less requiring) a “cost stacking” analysis to determine how much a manufacturer should have to pay for a particular component is nonsensical. Likewise, the fact that a standard incorporates more value-adding patented technologies does not reduce the value added by (or the cost to  develop) any one of those technologies. The value of an SEP will always be lost in this analysis; an approach that necessarily ignores the value of the specific contribution cannot be correct.

Emphasizing that each proposed rule would be inconsistent with the underlying contract giving rise to the RAND obligation, Qualcomm stresses “[t]he hypothesis that all SSO IPR policies and RAND commitments under those policies should be judicially redefined in a manner that would declare widespread industry practice and innumerable existing licenses to be ‘unreasonable’ cannot be maintained.”

Qualcomm asserts that RAND commitments do not require the licensing of components, that industry practice has applied royalties to an entire device, and that the particular license obligation owed by a SEP holder is drawn from the language of the agreement at issue.  Whereas other amici argued that Ericsson was required to grant RAND licenses to component suppliers or chip manufacturers, Qualcomm’s brief directs attention to the IEEE agreement that requires Ericsson to grant RAND licenses to “fully compliant” products incorporating the components into a larger system or device. Qualcomm also notes the ETSI IPR Policy is among other SSO policies that have adopted “fully compliant” limitations on RAND commitments, the ETSI policy seeking FRAND licenses to “any system or device fully conforming to a standard”.

Nokia’s Positions

Advocating that the Federal Circuit affirm the district court’s decision, Nokia’s brief argues that determining a RAND royalty is an inherently contextual task that requires a trier of fact to consider a number of factors, including the nature of the standard and patents at issue.  Nokia states that Judge Davis’ decision not to provide the jury with Defendants’ requested jury instructions on patent stacking and holdup is entirely consistent with such a mandate, noting that in this case the jury was provided extensive instruction on how to calculate a reasonable royalty, including Georgia-Pacific factors relevant to stacking and holdup issues.  Nokia further notes that the district court specifically instructed the jury to “ensure that any damages award is consistent with and does not exceed the amounts permitted under Ericsson’s RAND obligations.”

Disputing the notion that patent holders “systematically enjoy excessive royalties by stacking patents and by threatening to hold up licensees”, Nokia asserts that the RAND framework helps to avoid systematic stacking and holdup by requiring patent holders to license SEPs on RAND terms, preventing patent holders “from extracting exorbitant royalties.”  Nokia argues that whether stacking and holdup, or reverse holdup, are concerns depends on the facts and circumstances of a particular case and that a patent should not be devalued simply because it has been included in an industry standard.

Directly addressing Defendants’ discarded jury instructions, Nokia argues that Defendants presented no evidence that stacking and holdup presented a concern in this case and that the requested instructions were argumentative and unnecessary in the context of the entire jury charge.  From Nokia’s brief:

Instructing the jury to prevent hold-up also would have been superfluous. Filing suit for infringement and asking a jury to award a reasonable royalty plainly is not a form of holdup. It was the jury’s task to determine a reasonable royalty consistent with RAND. By definition, such a royalty is not an improper holdup.

Likewise, the requested instructions on royalty stacking were designed to give content to the RAND standard beyond what the standard itself requires. Defendants wanted to instruct the jury to adjust the rate in this case according to some hypothetical “aggregate value” of all royalties required to license patents that cover a given standard (although they presented the jury with no evidence concerning what that value might be).