On
June 5, 2018, the Japan Patent Office (JPO) published a guidebook detailing the
manner in which negotiations regarding licensing agreements are to be conducted
and provided several methods by which reasonable royalties can be calculated. The guidebook, entitled “Guide to Licensing
Negotiations Involving Standard Essential Patents”, serves as a recommended
framework by which companies should negotiate licensing agreements and
calculate royalty payments accompanying such licensing for FRAND encumbered
Standard Essential Patents (SEPs). The
guidelines set forth within the JPO publication do not carry any legal muscle
at this time, but exist to provide a roadmap for companies to voluntarily
follow.
The
JPO’s guidebook was designed based on the current licensing trends seen in the
US, EU, Japan and other countries, and introduces the key features of
negotiating in good faith, the risks that a company may face by not
participating in fair and reasonable negotiations, and offers several models by
which companies can arrive at an estimate of the royalties to be paid or
negotiated based on a company’s recent IP portfolio and potential impact of the
SEP in question on the industry.
While
many court cases served as the impetus and models through which these
guidelines were developed with hopes that if all parties will negotiate
licensing in accordance to the guidelines, unnecessary and expensive litigation
could be substantially reduced in the future, two of the more pertinent cases
are discussed in detail below.
I. Apple Japan v. Samsung[1]
Article
21 of the Japanese Anti-Monopoly Act (AMA)[2] states “The provisions of this Act shall not apply to such
conducts recognizable as the exercise of rights under the Copyright Act, the
Patent Act, the Utility Model Act, the Design Act or the Trademark Act”.
Conduct which is deemed to be the proper exercise of one’s IP rights shall not
fall under the AMA. If it is determined that the act satisfies the purpose and
objective of the Copyright Act, the Patent Act, the Utility Model Act, the
Design Act or the Trademark Act, the AMA shall not be imposed. The question in
the Apple v. Samsung case was to delineate what constitutes an act which may be
deemed to be the exercise of an IP right and what constitutes unfair conduct.
As
an example of the above, Apple Japan had sought a license from Samsung, but the
two companies were unable to reach an agreement on the licensing terms. Despite
not having a license from Samsung, Apple Japan began to manufacture smart
phones following the UMTS standard. The patent in question was a Standard
Essential Patent (SEP)3, and was considered necessary in order to
manufacture or market products containing the current technology in the field
(in this case, UMTS and 3G mobile communication systems).
On
May 16, 2014, the Tokyo High Court deemed (Appeal Cases 2013(Ne)10043, 2013(Ra)10007,
and 2013(Ra)10008) that Samsung had refused to grant Apple Japan a license and,
thus, Samsung could not seek an injunction against Apple Japan for a patent
(JP4642898) having a FRAND declaration. Samsung was prevented from seeking
damages which exceed the royalty under the FRAND declaration. Thus, the SEP
rights holder may not seek injunctive relief from an entity which is considered
a “willing licensee”, namely, an entity who obtained or intends to obtain the
necessary license under FRAND. One of the main problems recognized by the Tokyo
High Court was that it would be difficult for courts to easily determine
whether an infringer did not actually intend to obtain a license or whether the
licensing terms offered by, in this case, the patent rights holder of the SEP
were unfair.
This
decision would cause the Japan Fair Trade Commission (JFTC) to amend their IP
Guidelines4 to prevent a company from seeking an injunction against
a willing licensee. A company which actively refused to license a FRAND-encumbered
SEP, or offered to license the FRAND-encumbered SEP (an SEP with an agreement
to license in accordance under FRAND terms and conditions) at an unreasonably
high royalty rate, or offered to license the FRAND-encumbered SEP to different
third parties at remarkably different rates and under remarkably different
conditions would not be viewed as operating their invention under the confines
of the purpose and objective of the Patent Act. Such a company might be subject
to accusations of private monopolization if it was deemed that their actions
were having a deleterious effect on competition, or such a company’s actions
could be construed as unfair trade if such actions were shown to interfere with
fair competition.
According
to the updated JFTC IP Guidelines, it shall be determined whether both entities
have acted in good faith in attempting to willingly establish a license. The
Guidelines stipulate that it is the responsibility of the SEP holder to notify
the infringing party and provide both details in regards to the alleged
infringement and the conditions for obtaining a license. Additionally, the SEP
holder must provide specific information describing the royalty rate(s) to the
infringing party. Ultimately, the JFTC retains the right to issue an order
against a decision to refuse licensing if it was determined that FRAND terms
and conditions were violated. It follows that an injunction sought by a patent
holder may be seen as a violation of FRAND terms.
American
courts have deemed that a FRAND declaration is an obligation that companies
will negotiate on FRAND terms in good faith, and it is not considered a means
by which the potential-licensee is allowed to freely exercise the patented
invention.
The
JFTC deemed that any financial compensation resulting from damages “that exceed
a reasonable royalty rate” would constitute an abuse of the IP right, and that
the financial compensation should be in a range equivalent to the reasonable
royalty. Should be it deemed that the infringing party did not actually intend
to procure a licensing agreement from the IP rights holder, the damages payable
to the IP rights holder may exceed the reasonable royalty rate.
II. Apple v. Qualcomm
In
January 2017, following a Federal Trade Commission (Case 5:17-cv-00220. Federal
Trade Commission v. Qualcomm Incorporated) lawsuit against Qualcomm for
monopolistic business practices, Apple filed suit seeking $1 billion in damages
from Qualcomm who according to the lawsuit allegedly breached contracts with
Apple and engaged in anti-trust activities regarding Qualcomm’s 3G-CDMA
technology which are FRAND-encumbered SEPs. According to the lawsuit, Qualcomm
is accused of employing a “no license, no chips policy”5 to force
original equipment manufacturers (Apple appears to have been specifically
targeted) to pay higher royalties.
This
is the latest in a series of licensing lawsuits against Qualcomm. In 2015,
Qualcomm paid a large fine in response to anti-trust charges in China and
agreed to lower their licensing rates and cease the unjustified bundling of
SEPs and non-SEPs in patent licensing6. In late 2016, Qualcomm was
found guilty of improprieties during the negotiation of licenses in South Korea7.
In
late November 2017, the JPO held meetings with government officials and members
of key industries with regards to implementing an Alternative Dispute
Resolution (ADR) system. Patent owners (particularly those with numerous SEPs)
feel that if the JPO were to become involved in the determination of FRAND
royalty rates for SEPs, it might ultimately be taken to infer that the JPO was
implementing a compulsory licensing system in which a “one size fits all”
mandatory approach was being adopted. This ADR strategy would have only applied
to Japanese patents and would have done little in terms of the licensing of and
disputes arising from SEPs which are adopted globally.
The
English version of the JPO’s “Guide to Licensing Negotiations Involving
Standard Essential Patents” can be found by clicking on the following link.
https://www.jpo.go.jp/e/system/laws/rule/guideline/patent/document/seps-tebiki/guide-seps-en.pdf
In
a separate document, the JPO prepared a list of comments and questions
submitted by interested parties accompanied by the JPO’s response (all in
English). This can be found by clicking
on the following link.
https://www.jpo.go.jp/e/system/laws/rule/guideline/patent/document/seps-tebiki/pub-seps-en.pdf
[1] Appeal Cases 2013(Ne)10043,
2013(Ra)10007, and 2013(Ra)10008.
[2] An English version of the Japanese
Antimonopoly Act prepared by the Japan Fair Trade Commission can be retrieved
at
https://www.jftc.go.jp/en/legislation_gls/amended_ama09/index.html
3 Under FRAND, a patent rights holder of a patent(s) deemed to be
an SEP(s) is required to offer licensing to a third party (parties) even if the
third party is a direct competitor.
4 Guidelines for the Use of Intellectual Property under the
Antimonopoly Act (2007, revised 2016)
(https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.html)
5 “FTC Charges Qualcomm With Monopolizing Key Semiconductor
Device Used in Cell Phones”, Federal Trade Commission webpage, January 17,
2017.
6 “Qualcomm to Pay $975 Million Antitrust Fine to China”, The
Wall Street Journal, February 10, 2015.
7 “Qualcomm Fined $853 Million by South Korean Antitrust
Agency”, Bloomberg Technology, December 28, 2016.