Abstract

The Ninth Circuit has established a legal framework for courts to use when determining whether to enjoin litigants from enforcing injunctions ordered by courts in other countries.

Background

Samsung and Huawei both owned certain patents that they declared as essential to the standards for 4G and 3G cellular phones established by the European Telecommunications Standards Institute (ETSI). Consistent with ETSI’s policies, both also agreed to license their declared standard essential patents (SEPs) under fair, reasonable, and non-discriminatory (FRAND) terms and conditions.

After discussions between the parties to cross-license their patents fell through, Huawei sued Samsung in federal court in California for infringement of eleven of its SEPs and alleged that Samsung breached its commitment to enter into an SEP cross-license under FRAND terms and conditions.

Samsung responded by filing counterclaims for infringement of its SEPs, as well as non-infringement, invalidity, and antitrust claims against Huawei on Huawei’s SEPs.

Huawei subsequently filed eleven separate infringement actions in China, eight involving counterpart patents to the patents asserted in the U.S. case.

While the California case was pending, the Chinese court in Shenzhen found Samsung infringed two of Huawei’s Chinese SEPs and enjoined Samsung’s Chinese affiliates from manufacturing and selling its 4G LTE standardized smartphones in China.

Relying on the negotiations between the parties, including Huawei’s offers to Samsung (which the Shenzhen court found were within a reasonable range based on the strength of the patents) and Samsung’s delay in the negotiations and sole offer (which the Shenzhen court found did not comply with FRAND principles), the Shenzhen court found that Huawei had complied with its FRAND obligations while Samsung had not.

Samsung filed an appeal in China and a motion in the U.S. case to enjoin Huawei from enforcing the injunction from the Shenzhen court. The U.S. Court ultimately granted Samsung’s motion.

The Huawei-Samsung Decision

Legal Framework

The U.S. Court in California noted that when it has jurisdiction over parties, it has the power to enjoin the parties from proceeding with an action in the courts of a foreign country when the circumstances are unjust, but the power should be used sparingly.

Following the Ninth Circuit’s test for determining whether such an injunction is proper, the Court explained it had to determine (1) whether or not the parties and the issues are the same in both the U.S. and foreign actions, and whether or not the first action is dispositive of the action to be enjoined; (2) whether at least one of the Unterweserfactors applies (described below); and (3) whether the injunction’s impact on comity is tolerable.

Under the Unterweserfactors, a U.S. court may enjoin foreign litigation “when it would (1) frustrate a policy of the forum issuing the injunction; (2) be vexatious or oppressive; (3) threaten the issuing courts in remor quasi in remjurisdiction; or (4) where the proceedings prejudice other equitable considerations.”

The Parties and Issues Are Functionally the Same Huawei and Samsung agreed the parties were functionally the same, and the Court explained that perfect identity of parties was not required.

Samsung also argued the issue in the Shenzhen court was the same issue being addressed by the California court, namely, the availability of injunctive relief for Huawei’s SEPs. Samsung relied on the Microsoft v. Motorola case, where the district court and Ninth Circuit rejected Motorola’s argument that the U.S. action could not resolve a German action because patent law is territorial. The Ninth Circuit in Microsoft cited Motorola’s promise in its declaration to the standard setting organization that included a guarantee the patent holder would not seek an injunction to find that injunctive relief was inconsistent with Motorola’s licensing commitment.

Huawei countered by trying to distinguish the Microsoft case from the pending action:

  1. Microsoft initiated the U.S. action, did not contest the essentiality or infringement of the Motorola SEPs, and asked the court to set a FRAND rate. Here, Samsung did not initiate the U.S. action and is contesting the essentiality and infringement of the Huawei SEPs.
  2. Motorola filed the German action months after Microsoft had filed the U.S. action in an effort get around the U.S. case. Here, Huawei argued the opposite was true because Huawei filed the U.S. and Chinese actions at the same time.
  3. Huawei sought to distinguish this case from Microsoft because the German court in that case issued an injunction without evaluating whether Motorola complied with its FRAND commitments, and here, the Shenzhen order explicitly considered and decided the FRAND issues before determining the injunction issue.

Ultimately, the Court found these distinctions irrelevant to whether this action is dispositive of the foreign case because both parties presented breach of contract claims based on commitments to the standard setting organization; neither party disputed the other’s right to enforce those commitments as a third-party beneficiary to a contract; and the availability of injunctive relief depends on the breach of contract claims.

The Court also precluded Samsung from arguing that the breach of contract claim in this case (whether the parties’ licensing offers were FRAND) depends on evidence not before the Court such as the validity, infringement, or essentiality of foreign patents because Samsung previously argued that this Court did not have the authority to set FRAND rates for non-US SEPs.

Unterweser Factors

1. Domestic Policy and Other Equitable Considerations The Court found that the relevant policy issue here was the Court’s ability to determine the propriety of an injunction in the first instance. The Court noted the risk of inconsistent judgments if it came to a different conclusion than the Court in China. Moreover, denying an anti-suit injunction would significantly harm Samsung worldwide. The Court found that the Shenzhen order would essentially force Samsung to accept Huawei’s licensing terms before any other court has an opportunity to adjudicate the parties’ breach of contract claims, and thus frustrated this Court’s ability to adjudicate the issues before it.

2. Whether the Foreign Would be Action Vexatious or Oppressive Samsung also argued that the foreign actions here were vexatious and oppressive. Although Huawei’s VP admitted during a talk that legal action in China was a bargaining chip for the negotiation between the parties, given the proximity in time from when Huawei filed suit in the U.S. and in China, the Court refused to find that the Chinese actions were vexatious or oppressive.

Because one of the Unterweser factors applied, the Court then proceeded to determine whether the anti-suit injunction’s impact on comity was tolerable and determined the impact was negligible. To do so, the Court relied mainly on the scope of the injunction Samsung sought, which was limited to enjoining Huawei from enforcing the Chinese injunctions until the Court evaluated the propriety of injunctive relief for the parties’ SEPs.

Strategy and Conclusion

Defendants facing injunctive relief for SEPs in foreign jurisdictions may be able to get a U.S. court to enjoin the patent holder from enforcing the foreign injunction, at least temporarily, while the U.S. court considers the pending issues.