Strategic considerations for defending litigation over standard-essential patents

October 10, 2024 - Yi Yu, Frank DeCosta and Jeff Berkowitz of Finnegan, Henderson, Farabow, Garrett & Dunner LLP discuss defending litigation involving standard-essential patents, emphasizing thorough investigation and a careful plan.

Litigation over standard-essential patents (SEPs) is on the rise as connectivity provided by multimedia standards are implemented in a myriad of applications used in smartphones, computers, and automobiles.

A SEP implementer sued in U.S. courts for infringement, often by non-practicing SEP holders, needs to react quicky and formulate an effective defense strategy. With a thorough investigation and careful plan, the defending party can often find a way to leverage its position and build the strongest case possible.

A standard-essential patent is a patent that protects an invention that must necessarily be used when implementing a particular technology standard. To make the technology available to the public, standard-setting organizations (SSOs) typically require their members to agree to license their SEPs on fair, reasonable and non-discriminatory (FRAND) terms. In some situations, companies owning the SEPs did not participate in the standard-setting process and are not obligated to license on FRAND terms.

Litigation over the SEP often arises when the SEP owner and SEP implementer fail to reach agreement on the license rate for the SEPs. Litigation is usually initiated by the SEP owner asserting infringement of the SEPs, and in some cases, can be initiated by the SEP implementer alleging the SEP owner's failure to meet its FRAND obligation.

In addition to claims of infringement and invalidity of the asserted SEPs, SEP litigation often involves other complicated issues, such as the SEP owner's compliance with the SSO's requirement for declaring a patent to be essential to the standard, offering a license under FRAND terms, and determination of a FRAND rate for the SEPs, etc.

One of the first issues the defending party needs to investigate is the essentiality of the asserted SEP — whether it is truly essential to the standards or directed to optional features that the accused products do not necessarily implement. Some standards, such as the 5G cellular standards, specify features that are not required for implementation. It may be possible to end the litigation quickly when plaintiff's allegations relying only on the standards are insufficient to prove any patent infringement, e.g., when the asserted SEP is directed to features optional to the relevant standards and not implemented in the accused products.

It is also important to investigate the earliest version of standards the asserted SEP are incorporated into. The specification of standards is generally ahead of the commercialization process. If the asserted SEP is incorporated into only a later version of the standards than the version the accused products practice, it is highly likely that the accused products do not practice the asserted SEP and no infringement can be proved.

On the other hand, if the invention of the asserted SEP is incorporated into an earlier version of the standards existing prior to the priority date of the patent, the earlier version of the standards may serve as prior art invalidating the SEP.

The defending party may also want to investigate whether the SEP holder complied with its duty to disclose the asserted SEP to the applicable standard-setting organization (SSO). According to the U.S. Court of Appeals for the Federal Circuit, failure to disclose patents and applications relevant to a standard may render a patent unenforceable based on an implied waiver. See Core Wireless Licensing S.A.R.L. v. Apple Inc., 899 F.3d 1356 (Fed. Cir. 2018).

Implied waiver in the SSO disclosure context (e.g., European Telecommunications Standards Institute (ETSI)) requires: (1) the patentee had a duty of disclosure to the standard setting organization, and (2) the patentee breached that duty.See Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1348 (Fed. Cir. 2011). Implied waiver is available only "'where the patentee's misconduct resulted in [an] unfair benefit" or in cases of "egregious misconduct sufficient to justify the sanction of unenforceability of the patent at issue." Core Wireless, 899 F.3d at 1368.

The defending party may look to the specific standard setting body's intellectual property rights (IPR) policy at issue and investigate whether there is a delay in the disclosure of the asserted SEP that could provide an implied waiver defense. Such a defense could incentivize the SEP holder to resolve the dispute when there is a risk of rendering the asserted SEP unenforceable.

Another issue the defending party would want to investigate early is whether the SEP holder complied with its fair, reasonable and non-discriminatory (FRAND) obligation and whether a counterclaim of breach of its FRAND obligation can be raised. SSOs typically require SEP holders participating in the standard to commit to grant licenses to their technologies on FRAND terms.

If proven, the breach of a FRAND obligation could result in an award of attorney fees and litigation cost.See G + Communications, LLC v. Samsung Elecs. Co. Ltd. et al., No. 2:22-CV-00078-JRG, 2024 WL 233222, at *1-2 (E.D. Texas Jan. 22, 2024).

A FRAND defense may be available if the SEP holder did not offer a FRAND license in good faith. Id. at *5. This may require investigating any publicly available information of the SEP holder's licenses and third party licenses, and comparing that information with the royalty rate the SEP holder offered to the defending party.

To have a viable FRAND defense, the defending party must have acted as a willing licensee. If an implementer refuses to truly join in the FRAND process through good faith negotiations, the SEP holder's FRAND obligation may be suspended. Id. at *10. It is therefore important for the defending party to engage in pre-suit good faith FRAND negotiations.

The defending party may also challenge validity of the asserted SEPs early in the case via post-grant proceedings in the Patent Trial and Appeal Board (PTAB). The institution of inter-partes review (IPR) or post-grant review (PGR) could significantly leverage the defending party's position in settlement negotiation. It could also delay the cost of litigation by supporting a request to stay the litigation in view of the pending review at the PTAB.

To successfully obtain a stay of the litigation, timing of the institution of the IPR/PGR is critical. Courts are more likely to grant a motion to stay when the IPR/PGR is instituted at an early stage of the litigation. See Chart Trading Dev., LLC v. Tradestation Grp., Inc., No. 6:15-cv-1136-JDL, 2016 WL 1246579, at *4 (E.D. Tex. Mar. 29, 2016) (the factors considered for litigation stay apply to cases involving SEPs).

Further, obtaining a stay prior to a Markman decision allows the defending party to take advantage of any helpful or inconsistent position the SEP holder advances at the IPR/PGR proceeding.

Historically, the PTAB also provides a better chance of invalidating a patent compared to district court. The burden of proof required to establish invalidity in an IPR/PGR is lower than that required in district court. In the last five years, patent challengers enjoy a higher likelihood of success at PTAB than the district court, as shown below.

These graphs show statistics generated for all patents at issue in IPR/PGR and Eastern District of Texas (EDTX), and are not limited to SEPs.

Source: obtained and compiled by Finnegan, Henderson, Farabow, Garrett & Dunner LLP

When an SEP holder initiates suit in multiple countries, the accused SEP implementer may consider using an anti-suit injunction as a tool to prevent the SEP holder from initiating or continuing parallel litigation in another country. The anti-suit injunction affords the SEP litigant an advantage of resolving the dispute in its favored forum.See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012) (enjoining the SEP holder from enforcing its SEPs in Germany).

To obtain an anti-suit injunction, the accused SEP implementer must show that resolution of the case before the court will be dispositive of the foreign actions to be enjoined.Id. at 882. In other words, the SEP implementer may need to enter into a binding agreement to accept FRAND terms before such terms are even determined.See Telefonaktiebolaget LM Ericsson v. Lenovo (United States), Inc., No. 5:23-CV-00569-BO, 2024 WL 645319, at *8-9 (E.D. N.C. Feb. 14, 2024) (rejecting anti-suit injunction as the SEP implementer did not commit to accept the SEP holder's offer if the Court decides it is FRAND).

An anti-suit injunction, even if obtained, may not stop the litigation in another country. The other side will likely seek an anti-anti-suit injunction from its own favored forum, which would neutralize the effect of any anti-suit injunction. Courts are resistant to the extraterritorial reach by foreign courts and tend to preserve their own jurisdiction. See Ericsson Inc. v. Samsung Elecs. Co. Ltd., No. 2:20-cv-380-JRG, 2021 WL 89980, at *8 (E.D. Texas January 11, 2021).

The anti-suit injunction and anti-anti-suit injunction may put the SEP implementer and SEP holder at risk of sanctions, making it difficult for both parties to litigate.

Defending litigation involving SEPs can be expensive and time consuming. Focusing early efforts on these strategic considerations will significantly increase the defending party's likelihood of success in court. These efforts will also better position the defending party for an early resolution with the SEP holder.