SEP licensing – lessons from France

A Paris Court, in a recent decision reported by EPPatent law blog) denied Ericsson’s request for a preliminary injunction on the ground that an injunction cannot be granted for standard essential patents (SEPs) when the parties to a proposed license agreement agree on geographical and technological scope of the license, but only financial terms remain to be agreed as an injunction would confer an unjustified advantage on the patentee.  My thanks to Véron & Associés, for making available online, the translation in English.

Edit: Disclaimer: My firm, Saikrishna & Associates currently represents Micromax, in their licensing discussions, and litigation against Ericsson.

In this case, TCT Communications (‘TCT”) had already licensed Ericsson’s 2G patent portfolio (GSM only) in 2007, and the agreement was coming up for renewal from March 9, 2014.

The Judge while considering the motions made by both parties while considering the issue of injunction, discussed the principle that the holder of patents, essential to implement a standard, must license “its technology” under mandatory contractual conditions called FRAND. Accordingly, the judge held the injunction measure, as requested by Ericsson, must be proportionate to the interests involved and with regard to the contractual context between the parties, i.e. when the parties are negotiating a licence agreement on patents declared essential. In other words, giving a party an injunction against further infringement by the defendant, skews the process of negotiation.

The judge considered the following factors relevant to the issue of injunction:

(a) On-going negotiations between the parties – Here the geographical extent and technological scope of the agreement were agreed to, but that only the royalty rate was pending discussion (TCT considered the requested royalty rate as excessive.)

(b)  TCT had already concluded a license agreement  with Ericsson on 2G (GSM standards) relating to the essential patents held by Ericsson and it was already paying a part of royalties due to Ericsson.  Hence the judge concluded that the TCT’s reluctance to pay royalties for 3G standards to Ericsson at rates demanded by Ericsson, did not constituted bad faith per se.

(c)  The judge noted that the 2G license expired on March 8, 2014 – and specifically noted that the parties should be able to negotiate the renewal of the 2G license without their power relationships being too imbalanced, in favour of one party which would have obtained an injunction measure and would thereby violate the principle of so-called FRAND licences, by putting pressure on the future licensee. 

The judge accordingly, held that in order to prevent a possible injunction measure from skewing the current negotiations between the parties to enable a party, if the need arises, to obtain an unjustified advantage within the framework of the contractual negotiations of a licence relating to essential patents, any request for an injunction to market products in France lodged by ERICSSON is disproportionate.

Arbitration Issue: The judge also considered some aspects of arbitration of a SEP / FRAND issue and I thought some aspects of it would be of interest to our readers as well.  Before I delve into the issue in arbitration proceedings, the reason the arbitration discussion looked interesting was that it covered “backward compliance”. Backward compliance means that a device that works on a standard  – say 3G will fall back to 2G standards, in case 3G is not available.

TCT, in 2007, had signed a non-exclusive patent license agreement with Ericsson for “all of its patents declared essential to the 2G standard and its updates” for the manufacture, import and sale of mobile terminals worldwide, except Mainland China. The 2007 agreement contained an arbitration clause according to which the validity, execution and interpretation would be governed by Swedish law excluding conflict of law rules. Any dispute, disagreement or question between the parties shall be definitively settled in Stockholm, Sweden, pursuant to the Arbitration Rules of the International Chamber of Commerce,by three arbitrators, appointed pursuant to the said Rules. This 2007 agreement expired on March 8, 2014.

In June 2012, Ericsson initiated an arbitration action against TCT for execution of the 2007 agreement.  Ericsson contended that it had not received the sums due to it under the 2007 agreement. In particular, Ericsson claimed that TCT had not made proper declarations with respect to 2G phones (under reporting), and the non-authorized use of 3G mobile phones that can be used in 2G mode.

TCT responded stating that the 2007 agreement covers product sold by it, and the agreement referred to the functioning of the 3G chips in 2G mode.  This is backward compatibility claim.  TCT lodged a counterclaim and requested that the tribunal hold that the licence agreement cannot validly exclude licence rights relating to the 2G functionalities of the 3G products.

Ericsson specifically referred to three patents in the case, that were declared essential to 3G standards (UMTS) by way of declaration to ETSI dated 28 May 2002.  The patents in the suit were:

i. The French designation of European patent EP 1 058 927 (referred to as EP’927), entitled “speech coding including soft adaptability feature”, filed on 2 March 1999, claiming priority from U.S. patent application of 4 March 1998 № 09/034590, and granted on 24 July 2002

ii.  The French designation of European patent EP 1 114 413 (referred to as EP’413), entitled “CELP encoding/decoding method and apparatus”, filed on 24 August 1999, claiming priority from
Swedish patent application of 16 September 1998 № 9803164, and granted on 21 December 2005

iii. The French designation of European patent EP 1 114 415 (referred to as EP’415), entitled “linear predictive analysis-by-synthesis encoding method and encoder”, filed on 24 August 1999, claiming priority from Swedish patent application of № 98031165, and granted on 1 December 2004

Ericsson did not dispute that the patented technology can also be used according to 2G (GSM / GPRS) standards, although optionally in that case; according to the 2G / GSM standard and its pre-3G (EDGE) developments, the use of the AMR standard is one possibility among others. Ericsson also declared to ETSI, on 21 July 2004, that patents EP’413 and EP’415 were essential to the 2G standard (GSM standard).  Ericsson had also declared two out of the three (above) patents as essential inventions too with regard to the 2G technology and during negotiations between Ericsson & TCT, it had been mentioned by some Ericsson’s representative of the claimant that patent EP927 was considered to be essential to the GSM/GPRS standard.

So, TCT was arguing that if the same patents were  declared essential for 2G, how could they be essential for 3G as well??


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