Four judges – Klaus Grabinksi of Germany's Federal Supreme Court, Robert van Peursem of the Dutch Court of Appeal, Samuel Granata of the Commercial Court in Antwerp and Mr Justice Arnold of the High Court in England & Wales – discussed patents and licensing disputes in a panel on Tuesday.
The panel was chaired by Professor Sir Robin Jacob and formed part of the UCL IBIL/Taylor Wessing conference on patents, standards and FRAND.
Orange Book
The judges agreed that disputes over SEPs raise complicated IP and competition issues for courts, including defining what is fair, reasonable and non-discriminatory (FRAND), assessing a reasonable royalty and above all deciding when if ever an injunction is appropriate. But they disagreed about how to deal with the issues.
The problems have grown in recent years in industries such as telecoms where there are numerous technical standards (such as 3G and 4G) with many companies claiming to own SEPs. The upside of owning SEPs is that you can demand royalties on all standard-compliant products; the downside is you have to do so on FRAND terms (though FRAND is a very elusive concept).
Given that the royalties involved can be amount to tens of millions of dollars, there are inevitably disputes: disputes over whether the patents are valid, whether they are part of the standard and whether they are infringed; if so, what a reasonable royalty should be; and, ultimately, whether the owner of a SEP can obtain an injunction against an infringer, with the risk that it would close down the infringer's product or service.
Grabinski pointed out that the 2009 Orange Book case in Germany had set out that an injunction could be refused in an infringement case if the alleged infringer (i) makes a genuine licence offer and (ii) posts a security with the court.
However, that defence had not been successful until a case this year in Karlsruhe between Motorola and Apple, in which an injunction granted on a SEP was stayed after Apple had made what the court considered a reasonable offer. That decision may be appealed.
Arnold noted that the EU Enforcement Directive says that all remedies (including injunctions) should be "proportionate". "We have yet to figure out the consequences of that. I think a blanket approach to injunctions is problematic," he added.
Van Peursem asked whether courts are fit to judge FRAND terms and royalty rates, saying they could do no more than make an "educated guess" as to the value of standard-essential patents. "The Karlsruhe decision sounds like a small step forward," he said.
The judges also commented that the cases coming before them are often local battles in a pan-industry, global war where companies are asserting various bundles of SEPs and non-SEPs against each other. "All we can do is keep our own garden clean," said Grabinski.
A member of the audience, barrister Daniel Alexander QC, suggested that one solution to the royalty rates problem could be the creation of a "European Union tribunal to arbitrate these disputes", which would require an EU regulation. He proposed that the tribunal could provide specialists covering a variety of technologies, and could work in a similar way to the UK's Copyright Tribunal or Germany's employee invention panel.
While Alexander's proposal won some support, it was also pointed out that it would require both parties to agree to the arbitration, and could potentially have to deal with hundreds of disputes on SEPs. "It's a fairy tale," said van Peursem.
Moreover, some in the telecoms industry believe that the courts provide a vital service by assessing validity and infringement, which helps parties to assess values and then settle disputes amicably.
Wisconsin to Washington
It is not just in Europe that SEPs are taxing judges. Earlier this week, Judge Barbara B Crabb in the United States District Court for the Western District of Wisconsin cancelled a trial relating to a wireless patent being asserted by Motorola Mobility against Apple. Apple had previously said it would be bound by the court's decision, but only if the royalty rate was less than $1 per iPhone. Apple can appeal the judge's decision.
Judge Crabb's decision, as well as Apple's strategy, are analysed in depth by Florian Mueller on his FOSS Patents blog. He also discusses a FRAND case between Microsoft and Motorola Mobility that is due to begin in the US District Court for the Western District of Washington next Tuesday. In this case, Motorola is demanding a 2.25% royalty, while Microsoft says a reasonable amount is $1.2 million for the calendar year 2012.
The European judges regretted that the Wisconsin case had not provided more clarity on FRAND, although it does seem to suggest that the judge thought that if a party seeks a particular royalty rate, it should later be bound by it.
Part of the problem, said Arnold, is the "glaring absence of precedents" in this area. The first FRAND cases in the UK are due to come before the courts next summer, and might help provide clarity, he predicted.
However, there is also the generally unwelcome possibility that competition authorities in Europe or the United States will take action before then.
