On October 24, 2024, the Federal Circuit took a key step in preventing standard-essential patent (SEP) holders from evading their voluntary commitments to license on fair, reasonable, and non-discriminatory (FRAND) terms. By reversing a North Carolina federal court’s denial of Lenovo’s request for an anti-suit injunction (ASI) against Ericsson, the court reinforced that SEP licensing practices should uphold fair standards, benefiting small business innovators who rely on a predictable patent system. In this case, Ericsson sought injunctions in Brazilian and Colombian courts after filing a suit in the United States for the same alleged infringement but before a U.S. court could determine FRAND compliance. The Federal Circuit’s guidance ensures the unique challenges in SEP licensing are carefully considered.
ACT | The App Association weighed in on Lenovo’s appeal to the Federal Circuit after being denied an ASI. We noted to the court the importance and historical issuing of ASIs in the United States to preserve its appropriate authority over ongoing SEP disputes and urged the Federal Circuit to take steps to prevent gaming of court systems. Here are the top three takeaways from our filing for our small and medium-sized technology developers:
1) SEP Licensing Abuses Impact Small Businesses
Independent and small and medium-sized technology developers are most impacted by a lack of transparency in SEP licensing negotiations that include overly restrictive non-disclosure agreements (NDAs) and a lack of basic information about the validity and essentiality of patents that are claimed to be infringed. The resource and information asymmetries between large SEP holders and smaller potential licensees allow SEP holders to play off their offers as “FRAND” and use injunctions as additional bargaining leverage that pressure entities into supra-FRAND licenses.
2) Prevent SEP Owners from Seeking Foreign Injunctions While a U.S. Case is Pending
The FRAND commitment is a core mechanism in the SEP licensing landscape, intended to prevent SEP holders from exploiting their dominance in technical standards. This commitment should promote an open and usable standards system, leading to new and patentable inventions. Unfortunately, some major jurisdictions around the world have determined the willingness of a defendant-licensee to take a FRAND license based on a court-determined license applied to a global portfolio of patents. If a licensee is determined to be “unwilling,” these jurisdictions immediately issue an injunction. This precedent has reshaped the international standards landscape in two ways: (1) it allows jurisdictions to impose their own FRAND determinations on worldwide SEP licenses, disabling U.S. courts’ ability to protect the interests of their innovators and the U.S. patent system; (2) it encourages forum shopping, as some SEP holders seek out jurisdictions with favorable rulings to force unreasonable licensing terms on licensees, despite their FRAND commitment.
In contrast, the United States applies a four-factor proportionality test to determine if an injunction is appropriate in patent disputes or if monetary damages would suffice. This approach, clarified for patent cases in the U.S. Supreme Court’s eBay v. MercExchange, applies broadly to other areas of law. When patent holders seek injunctions in other jurisdictions while a U.S. court’s FRAND determination is pending, they effectively override this U.S. court decision. In fact, in this case, the court noted that “the ETSI FRAND commitment precludes Ericsson from pursuing SEP-based injunctive relief unless it has first complied with the commitment’s obligation to negotiate in good faith over a license to those SEPs” and that meeting such an obligation is dispositive with respect to whether an ASI will be permitted. The court’s understanding of the FRAND commitment indicates the difference in global patent systems and the importance of respecting the authority of ongoing proceedings in the United States.
3) A U.S. District Court Should Issue an ASI to Prevent SEP Holders from Interfering with Its Jurisdiction
This case is not the first time a U.S. court has contemplated the appropriate use of an ASI to stop foreign courts from issuing an injunction in a dispute that was first initiated and ongoing in the United States. In a case heard by the Ninth Circuit, Microsoft v. Motorola, an ASI was issued to prevent Motorola from pursuing injunctive relief against Microsoft in Germany after Microsoft filed a breach of contract claim case in the United States and agreed to pay a court-determined FRAND royalty for Motorola’s portfolio. Since the U.S. case was filed first and would resolve the entire dispute, the court concluded that “the timing of the filing of the German Action raises concerns of forum shopping and duplicative and vexatious litigation.” The court found that Motorola’s actions frustrated the court’s ability to hear issues before it. The Federal Circuit’s guidance on ASIs represents a crucial step in maintaining fair and balanced SEP licensing practices in the United States. By emphasizing the importance of the voluntary FRAND commitment, this decision helps protect U.S. court jurisdiction from interference by foreign injunctions, especially when a case is already pending domestically. The App Association applauds this decision as it reinforces the FRAND principles that safeguard small businesses from unreasonable licensing demands and forum shopping by SEP holders. Protecting these standards allows small business innovators to develop Internet of Things (IoT)-connected devices that use standardized protocols, contributing to U.S. leadership in innovation.
Similarly, in the litigation between Huawei and Samsung in 2018, a California federal district court issued an ASI regarding Huawei’s SEP infringement claims in China, which were filed the day after Huawei sued Samsung on SEPs in the United States. Huawei’s U.S. case and Samsung’s counterclaims raised the question of whether it breached the parties’ FRAND commitments to seek injunctive relief. Accordingly, the court concluded that a limited injunction of the Chinese actions was appropriate for it to resolve the first-filed case before it addressed overlapping issues.
Conclusion
In summary, the Federal Circuit’s guidance on ASIs represents a crucial step in maintaining fair and balanced SEP licensing practices in the United States. By emphasizing the importance of the voluntary FRAND commitment, this decision helps protect U.S. court jurisdiction from interference by foreign injunctions, especially when a case is already pending domestically. Protecting these standards allows small business innovators to develop IoT-connected devices that use standardized protocols, contributing to U.S. leadership in innovation. The App Association applauds this decision as it reinforces the FRAND principles that safeguard small businesses from unreasonable licensing demands and forum shopping by SEP holders. To get involved in our SEP-related work, email Brad Simonich here.