A few years back, it was a common thought that standard-essential patents (SEPs) are the jewel in the crown of a telecom IP portfolio. SEPs are patents that are mandatory to work for the implementation of an industry standard, such as for instance the GSM (2G), UMTS (3G) or LTE (4G) standards in the telecom industry. Because it is not possible to make and market devices which do not implement the relevant standards, SEPs may seem like the perfect tool for putting pressure on potential licensees because any non-infringement defense is supposed to be made more difficult.
But nowadays, SEPs probably look much less powerful than they used to.
First of all, patent owners have to abide by the rules of standards-setting organizations, which require them to offer licenses on FRAND (Fair, Reasonable And Non Discriminatory) terms. Defendants have questioned whether it is allowable at all to enforce FRAND-encumbered IP rights against third parties, especially when it comes to the mother of all remedies, namely injunctive relief. This FRAND defense has given rise to complex legal discussions (revolving in particular around the issue of what is a willing or unwilling licensee) which have culminated in the CJEU.
But more fundamentally, the overall outcome of the many smartphone patent wars which have been waged in the past few years, both based on SEPs and on non-SEPs, is far from being positive for patent owners – despite a few resounding wins. Therefore, it seems that SEPs did not deliver on their promise of being easier to win on by practically excluding any non-infringement challenge.
Although SEP litigation has been much more abundant in Germany and the U.S. than in France, one case decided on last year confirms this global trend in a spectacular fashion.
Core Wireless Licensing is a monetizing entity holding a portfolio of more than 2,000 patents acquired from prolific patent applicant Nokia. The majority of these patents were declared as essential for the 2G, 3G and/or 4G standards at the ETSI (European Telecomunications Standards Institute). Core negotiated a license on this portfolio with the Korean giant LG Electronics between 2012 and 2014, without success.
In 2014, Core started legal action in France against LG. Core did not request an injunction but requested that the court should award damages for the past as well as force LG into a license and set the level of royalties for the future.
It is not possible in practice to ask a court to look at an entire portfolio of hundreds or thousands of patents. On the other hand, Core did need a finding of infringement in order to get the court to issue the requested order.
Thus, Core selected a group of five SEPs from the portfolio and claimed that these five patents were infringed by LG.
Why five patents and not just one? Well, the rationale may have been that every single patent is at a risk of being found invalid, or not infringed. But the more patents you pile up, the more unlikely it becomes, on a purely statistical standpoint, that they will all be found invalid or not infringed. The defendant needs to fend off all patents in order to win, while the plaintiff only needs one to get through. So, was this indeed a rock-solid strategy?
The answer is no.
The Tribunal de Grande Instance (TGI), defying the odds, held that there was no evidence of infringement of any of the five SEPs, and rejected all of Core’s requests.
I know that it is always much easier to explain why a strategy failed after the facts, but in my view there are two main circumstances which may account for this prima facie surprising outcome.
The first circumstance is that Core requested accelerated proceedings. Note that these were proceedings on the merits, and not proceedings for obtaining a provisional order. But the claimant did request and obtain an extremely tight schedule based on the alleged urgency of the case. Practically speaking, the judge immediately set a date for the trial at the onset of the action: the complaint was served on LG on September 30, 2014, and the pleadings hearing took place on January 16, 2015, the latest written submissions of the parties having been filed respectively four days and one day before that date…
This is as much of a rocket docket as you can possibly think of.
The second circumstance is that the case was extremely complex. Both on a legal standpoint, with five patents at stake and thus five separate validity and infringement discussions, plus a FRAND defense, plus an exhaustion defense based on alleged pass-through rights from the electronic chip manufacturer Qualcomm; and on a technical standpoint, because the five patents were rather abstract and difficult to grasp for a non-specialist.
We can easily imagine that the French judges, with no technical education and no technical assistance whatsoever, confronted with probably hundreds of pages of written submissions to digest containing highly sophisticated developments on signal processing, having heard oral explanations for a couple of hours at best, and having dozens of other cases on their desks to review in the same period of time, were faced with an insurmountable task.
This is reflected in the decision itself. If we take the first patent in the list, one issue with respect to infringement related to two steps in a process which appeared to be in a different order in the patent claims and in the technical specification for the UMTS standard which was relied upon by the plaintiff as evidence of infringement. The court held:
However, as rightly put by the defendants, contending that the operations of data propagation and power modification can be performed in any order in the 3GPP TS 25.213 V.11.4.0 specification is a statement that is not confirmed or justified by any evidence.
More generally, any claimant has the burden of proving its case. It is indisputable that Core have limited themselves, in order to show that the 786 patent is essential, to filing an analysis drafted by an expert that they have hired and selected, without proceeding in a meticulous, precise and understandable way with demonstrating that the reduction in power described by the patent is necessarily reproduced by all cell phones implementing the 3GPP TS 25.213 V.11.4.0 and 3GPP TS 25.302 V10.0.0 specifications. It should be added that infringement by equivalence requires another demonstration, namely that other means can be used to implement the same patentable result, which is not present either.
The court’s findings on the other four patents were similar: each time, the court stated that the defendants’ non-infringement defense had not been clearly proven wrong by the claimant.
The bottom line is that demonstrating that an SEP is infringed is not a piece of cake – since a declaration at the relevant standards-setting organization that the patent is or may be essential cannot be taken for granted, as the organization does not check whether this is indeed the case. So, any declaration of essentiality notwithstanding, the burden of proof remains on the patent proprietor to demonstrate infringement, and the TGI’s decision reminds us that it is a heavy one.
Indeed, the wording and technical explanations used in a patent are usually very different from the wording and technical explanations used in a standard specification. Again, unless you are a specialist in signal processing, it can prove difficult to get your bearings.
So, is there any solution at all for telecom patent owners – except waiting for the advent of the UPC, which will likely have more resources and be better equipped for handling complex litigation of this kind, notably owing to the presence of technical judges?
Well, there may be one. Article L. 615-20 of the Code de la propriété intellectuelle provides that the court may
either ex officio or upon request of a party, appoint any consultant for following the proceedings from the case management, and be present at the hearing. The consultant can be authorized to ask questions to their parties or their representatives.
Judges without any technical background can thus get assistance from a technically skilled consultant in order to make a better-informed decision on a case.
This option has seldom been used by courts and litigants. Does it add a layer of procedural complexity to a case? Yes. Is the outcome of the case highly dependent on the consultant’s skills, not only on the technical standpoint, but also in terms of understanding the patent law issues which are really at stake for the court? Certainly. So, isn’t this a solution which is far from ideal? I would agree, but it could also be the only acceptable one in this particular context.
To finish on the Core case, the court rejected all claims and counterclaims. The invalidity counterclaims were not examined as they were submitted in an auxiliary manner. The court also held that there was no need for setting a FRAND royalty rate in the absence of demonstration of the essential character of the patents; and that there was no need to force Core to file the Nokia / Qualcomm license agreement, again in view of the essentiality finding. Furthermore, the court rejected LG’s counterclaim for damages based on Core’s alleged bad faith in the negotiations, as well as LG’s counterclaims for abuse of dominant position and for abuse of procedure.
The court’s position on the negotiations between the parties is actually noteworthy:
[…] the negotiations between the parties lasted for more than two years, which tends to show that neither of them behaved with enough bad faith to prompt the other one to stop this phase.
Besides, the parties blame each other so that the court, which does not know everything about these negotiations, is not in a position to state that bad faith is more on one side than the other.
Again, the message is clear: each party should prove its case, and allegations will not suffice.
CASE REFERENCE: Tribunal de Grande Instance de Paris, 3ème chambre, 2ème section, April 17, 2015, Core Wireless Licensing Sàrl v. LG Electronics France & LG Electronics Inc., RG No. 14/14124.