Response to the USPTO, The ITA, and NIST call for Public Comments on Standards, Part 5 of 7
On November 6, 2023 I submitted a response to the public comments which can be found here. I have also included my comments in full on this blog in a series of posts including the below. The only change in my submission is that for each posts the footnoting was renumbered for just the individual post.
- Are there specific U.S. intellectual property laws or policies that inhibit participation in standards development?
When the US government puts its thumb on the scale against an exclusionary order just against an unwilling licensee just because it is Apple – something has happened only once in almost half a century[1] – but is more than happy to allow an exclusionary order in favor of Apple against Samsung[2] – it becomes pretty apparent that the Government is playing favorites. And playing favorites with a company whose primary area of focus is not even the US, but China.[3] Moreover, when a court finds that the value of a single design patent is greater than the value of the entire global portfolio of one the leading telecom innovators and SEP net licensors[4] there is a fundamental problem in the valuation of SEPs.
The now-withdrawn 2013 USPTO and DOJ Policy Statement on Injunctions for FRAND-committed SEPs inhibited participation in standards development.
More generally, any US governmental policy that treats SEPs differently making them more difficult to enforce than other patents or less valuable than other patents, inherently inhibits participation in standards development because it renders it difficult, if not impossible altogether, to recoup a company’s investments in standards development. And while in jurisdictions such as China the government subsidizes national companies’ investments in standards development, in the U.S. companies are on their own to finance such investments. Any US policy that makes it difficult to receive a return on an investment in standardization, is like a tariff (or a negative subsidy) on US companies’ investment in standards development which, in turn, curtails U.S. companies’ ability to take leadership positions in SDOs.
- Are there specific U.S. intellectual property laws or policies that inhibit growth of SMEs that rely on licensing and implementing standards?
Yes. Under the current regime, it is almost impossible to be a small company and get a return on investment from SEP licensing. The numbers on Vringo tell a simple story. Vringo’s attempt to secure an SEP license from an unwilling licensee ultimate produced a negative return on investment because that licensee (by Chinese state interference in the legal process and assistance more generally, including rumored state insurance against litigation enforcement litigation costs) required a monetary investment in litigation greater than it was able to secure in licensing fees.[5] Because of foreign interference in Vringo’s share price[6] it was forced to settle before justice could be achieved. Luckily for VirnetX it was able to achieve a settlement with an unwilling licensee – after 10 years![7] It should not be the case that SMEs have to spend 10 years or sue in 10 or more countries[8] to receive any revenue from unwilling licensees. In this regard, I note that much of Big Tech’s rhetoric about PAEs (that they call ‘trolls’) is baseless.
Equally problematic for both SEP licensors of all sizes and SME implementers is the apparent adoption of so-called “hard-edged” non-discrimination[9] by American courts,[10] such as the now overturned decision by Judge Selna who held that implementers who enter a license after six months and implementers who refuse to enter into a license after four years and multiple litigations deserve the same royalty rates. This holding, if it gets traction, removes any incentive for licensors to offer any discounts – whether time or volume based – to willing licensees and removes all incentive for implementers to take a license until forced to a court. Indeed, “[b]y delaying taking a license, TCL secured one of the best deals without assuming any of the risks that its competitors took in agreeing [to] early terms or lump sums.”[11]
The US should unequivocally take the position that FRAND is a flexible concept and that the ND part of FRAND is not a most favored nation clause based solely on royalty rates.
[1]President Disapproves International Trade Commission (ITC) Exclusion Order, The National Law Review (Aug 30, 2013) available at https://www.natlawreview.com/article/president-disapproves-international-trade-commission-itc-exclusion-order
[2] See Dennis Crouch, Obama Administration Rejects USITC Decision Blocking Apple Imports (PatentlyO Blog Aug 4, 2013) available at https://patentlyo.com/patent/2013/08/obama-administration-rejects-usitc-decision-blocking-apple-imports.html for Apple, but not Samsung, see Dan Reisinger, President Obama declines to veto ban on Samsung products (CNET Oct 8, 2013) available at https://www.cnet.com/tech/tech-industry/president-obama-declines-to-veto-ban-on-samsung-products/ .
[3] Hasan Chowdhury and Huileng Tan, Hasan Chowdhury and Huileng Tan (Business Insider Oct 6, 2023) available at https://www.businessinsider.com/apple-center-of-gravity-is-china-not-cupertino-2023-10; Apple’s Well-Funded Efficient Infringement Tilts the Competitive Landscape, (Kidon IP Blog Feb 1, 2022) available at https://kidonip.com/standard-essential-patents/apples-well-funded-efficient-infringement-tilts-the-competitive-landscape/
[4] Compare Ericsson’s and Apple 2017 SEP license where Apple paid Ericsson roughly $500MUSD for past damages and the first years’ license royalty with Apple’s $539MUSD in damages against Samsung for infringement of a single design patent. Compare Olof Swahnberg, Ericsson and Apple sign patent deal, settle litigation, (Reuters Dec 21, 2015); U.S. Jury awards Apple $539 mln in Samsung patent retrial (Reuters May 24, 2018).
[5] See FN 23 supra.
[6] This was obvious to even under-informed shareholder see e.g., Vringo V. ZTE: Shares Undervalued, Manipulation And Pressure Tactics Headline SDNY Battle (Seeking Alpha July 27, 2015) available at https://seekingalpha.com/article/3360725-vringo-v-zte-shares-undervalued-manipulation-and-pressure-tactics-headline-sdny-battle?open_reset_password=true&origin=confirm_registration.
[7] It took VirnetX some 10 years to collect any revenue from Apple, See VritnetX form 10K available at https://www.sec.gov/Archives/edgar/data/1082324/000114036123015369/brhc10048883_10k.htm and Andrew Orr, Apple wins VirnetX patent appeal — but one verdict awaits (Apple Insider March 30, 2023) available at https://appleinsider.com/articles/23/03/30/apple-wins-virnetx-patent-appeal—-but-one-verdict-awaits
[8] Jack Ellis, Vringo and ZTE go the distance an infographic, (IAM Dec 15, 2015) available at https://www.iam-media.com/article/vringo-and-zte-go-the-distance-infographic.
[9] For explanation of the difference between hard edged and general non-discrimination, see Unwired Planet v. Huawei [2017] EWHC 711 (Pat) available at http://www.bailii.org/ew/cases/EWHC/Patents/2017/711.html#para177.
[10] See TCL v. Ericsson, 8:14-cv-341 (CD CA 2017) overturned for other reasons 943 F.3d 1360 (Fed. Cir. 2019) that implementers who enter a license after six months and implementers who refuse to enter into a license after four years and multiple litigations deserve the same royalty rates, then there is absolutely no incentive for implementers to follow the proposed guidelines. Indeed, “[b]y delaying taking a license, TCL secured one of the best deals without assuming any of the risks that its competitors took in agreeing [to] early terms or lump sums.” Richard Vary, Dissecting TCL v. Ericsson -what went wrong? IAM (Sept/Oct 2018) at 14.
[11] Id.; Richard Vary, Dissecting TCL v. Ericsson -what went wrong? IAM (Sept/Oct 2018) at 14.
