RAND in the Courts: Legal Theories for RAND and an Update on Strategies and Approaches Being Used by Eric Lamison

1. RAND in the Courts:Legal Theories for RAND and an Update on Strategies and Approaches Being Used by Eric Lamison

2. RAND IN THE COURTS Venues Where RAND Issues Are Presented • Claims / Defenses in U.S. District Courts • ITC Defenses • ITC venue limits the theories that are viable for Respondents. • See, e.g., Microsoft v. Motorola ITC Initial Determination, 337-TA-752 • (Yet another reason why ITC may remain popular for certain patentees.) • Claims / Defenses in State Courts • Claims are typically based on state law. • Governmental Body Investigations (FTC, European Commission) • Foreign Courts, e.g. Mannheim Court, Germany

3. RAND IN THE COURTS RAND Based Claims / Defenses • Declaratory Judgment Actions • Breach of Contract • Promissory Estoppel • Equitable Estoppel • Waiver • Fraud • Unclean Hands • Antitrust Claims / Patent Misuse • Unfair Business Practices

4. RAND IN THE COURTS Declaratory Judgment Actions • 35 U.S.C. § 2201 • “In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought” • Declaratory Judgment claimant in a patent case must meet case-or-controversy requirements as set forth in MedImmune, Inc. v. Genentech, Inc.: • “Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a [1] substantial controversy, [2] between parties having adverse legal interests, [3] of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).

5. RAND IN THE COURTS Declaratory Judgment Actions Who Adjudicates? • The Declaratory Judgment Act specifically preserves the right to jury trial for both parties.   Burden of Proof • Party seeking a declaratory judgment has the burden of establishing the existence of an actual case or controversy. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). • Plaintiff has burden to establish by a preponderance of the evidence. • Shell Oil Co. v. Amoco Co., 970 F.2d 885, 887 (Fed. Cir. 1992)

6. RAND IN THE COURTS Declaratory Judgment Regarding Amount of Reasonable Royalty • Realtek Semiconductor Corp. v. LSI Corp., 2012 WL 4845628 (N.D. Cal. Oct. 10, 2012) (Order denying motion to dismiss declaratory judgment claim) • Realtek sought a declaratory judgment: • That Defendants have not offered license terms consistent with SSO policy and declarations; • Setting forth RAND terms and conditions for a license, including royalty rate; and • That the alleged “essential” patents are unenforceable as to Realtek given Defendants’ refusal to offer a license on RAND terms • Defendants moved to dismiss the declaratory judgment count as duplicative of other claims, stating it sought same relief and added no new dimension or theory. • Court denied motion, finding controversy based on patent infringement claims. • “the determination of a reasonable royalty is part of a live controversy between the parties over defendants’ claims of patent infringement, which is independent of whether defendants breached the alleged contract.”

7. RAND IN THE COURTS Declaratory Judgment of Non-RAND Offer Microsoft Corp. v. Motorola, Inc. (W.D. Wash. June 1, 2011) • The Court found Microsoft’s declaratory judgment claim to be duplicative of its additional claims, particularly its claim for breach of contract, because “the relief it was seeking is the consequence of the same ruling on its other claims, which is an injunction that requires Motorola to make a RAND offer.” • The Court relied on Swartz v. KPMG LLP, 476 F.3d 756, 766 (9th Cir. 2007) stating “requests for declaratory judgment orders that merely impose the remedies provided for in other claims are duplicative and may be dismissed on that basis. • Therefore the court granted Motorola’s motion to dismiss Microsoft’s declaratory judgment cause of action. • However, it would appear that contract and other claims have various elements such as damages, that seem unnecessary for a DJ claim.

8. RAND IN THE COURTS Right to a Jury on Patent Damages Determination of Running Royalty Calculation (if ordered negotiations fail) Apple, Inc. v. Motorola, Inc., 2012 WL 2376664 (N.D. Ill. June 22, 2012) • The Court stated that, although an order to pay a royalty in the future certainly sounds like an equitable order (a mandatory injunction), alternatively it may be part of a jury’s verdict on damages. “If past damages are awarded along with future damages either calculated as a lump sum or as a non-equity running-royalty order, there would be no occasion to order equitable relief.” • Thus a running royalty calculation may be made by either a judge or a jury (citing Telcordia, 612 F.3d 1365, 1378-89 (Fed. Cir. 2010)).

9. RAND IN THE COURTS Breach of Contract • Agreement between patentee and SSO • Duty to disclose existence of essential IP • Commitment to license on RAND terms • Breach of the Agreement • Question whether initial offer or later offers must be RAND • Even if initial offer need not be RAND, unreasonable initial offer may breach implied covenant of good faith & fair dealing. Initial outrageous offer also may be viewed as anticipatory breach by patentee. • Pros / Cons of engaging in further negotiations if you wish to assert claim • Damages • Can be a disputed element if no non-RAND license fee has been paid. • Party asserting RAND may need to be creative, e.g. rely on legal fees / costs • Third-party beneficiary status Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012)

10. RAND IN THE COURTS Breach of Contract – Agreement • Offer • IP rights policies of the SSO can be considered offers in exchange for ability to participate in developing standards • Acceptance • Attending meetings; participation in meetings; having proposals considered; joining the SSO, submitting letters of assurance, etc. • Consideration – two theories recently articulated • The right to participate in standards discussions. • Having your IP declared essential to compliance with the standard. Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012) Apple, Inc. v. Motorola Mobility, Inc.,2012 WL 2376664 (N.D. Ill., June 22, 2012)

11. RAND IN THE COURTS Breach of Contract – Developing Cases • Apple v. Motorola Mobility (W.D. Wisc.) – case pending • Court allowed Apple’s counterclaim for breach of contract to survive summary judgment motion by Motorola and awarded Apple summary judgment that: • contracts existed between Motorola and the SSO; • Apple, as potential user of the standards at issue, is a third party beneficiary; • that Motorola was obligated to disclose its patents and applications before adoption of standards incorporating its patents; and • Motorola failed to timely disclose patents and applications. • Agreement: All members shall use reasonable means to disclose IP rights that might have become essential to standards being considered before issuance • Issues for trial: • Whether Motorola breached the agreement by (a) failing to make bona fide efforts to disclose in a timely manner; and (b) failing to offer a license on RAND terms • Damages attributable to each asserted breach

12. RAND IN THE COURTS Breach of Contract – Developing Cases Microsoft Corp. v. Motorola, Inc. (W.D. Wash. June 1, 2011) • Microsoft raised a breach of contract claim against Motorola and the Court found that Motorola’s Letters of Assurances to the IEEE created an enforceable contract and that Microsoft was a third party beneficiary. • The Court found there to be no legal authority requiring negotiation as a precondition to a breach of contract claim based on RAND licensing and denied Motorola’s motion to dismiss the claim.

13. RAND IN THE COURTS Breach of Contract – Developing Cases • Realtek Semiconductor Corp. v. LSI Corp. & Agere Systems, Inc., 2012 WL 4845628 (N.D. Cal. Oct. 10, 2012). • After defendants sued Realtek in ITC, Realtek filed NDCA complaint • Realtek alleges that defendants breached agreement to comply with policies of IEEE-SA and commitment to offer RAND licenses for patents essential to 802.11 • Judge Whyte denied motion to dismiss, citing to WA and WI cases: • Didn’t decide if initial offer must be RAND or just meet good faith/fair dealing • Intriguing: “The court is troubled by defendants’ decision to choose, in the first instance, a forum for enforcing their patent rights in which money damages are unavailable and the only relief is injunctive in nature. Since defendants have done so, there appears even less reason for this court to wait before determining the reasonable royalty rate, which is all defendants are initially entitled to. Thus, the motion to dismiss Realtek’s breach of contract claim is denied.

14. RAND IN THE COURTS Breach of Contract • Who Adjudicates? • Judge determines meaning of the agreement or policy. Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336 (Fed. Cir. 2011). • Jury determines whether the patentee breached the agreement (unless parties waive jury trial). Microsoft Corp. v. Motorola, Inc., 2012 WL 2030098 (W.D. Wash. June 6, 2012). • The RAND amount can be a jury question. Id. • Burden of Proof • Plaintiff bears burden of proof by the applicable state law standard, which is usually a preponderance of the evidence. Seee.g. Lab. Corp. of Am. Holdings v. Metabolite Laboratories, Inc., 599 F.3d 1277, 1280 (Fed. Cir. 2010).

15. RAND IN THE COURTS Promissory Estoppel – Elements • A promise; • The intent to induce action or forbearance based on the promise; • Reasonable reliance on the promise; • Injury Microsoft Corp. v. Motorola, Inc., 2012 WL 2030098 (W.D. Wash. June 6, 2012)

16. RAND IN THE COURTS Promissory Estoppel – Developing Cases Microsoft Corp. v. Motorola, Inc., 2012 WL 2030098 (W.D. Wash. June 6, 2012) • Microsoft alleged that Motorola made a clear and definite promise through their commitments to the IEEE and ITU. Microsoft claims that they developed and marketed produces in reliance on Motorola’s promise, and they have been harmed as a result of its reasonable reliance. • Motorola filed a motion to dismiss stating that Microsoft had alleged a valid contract and the doctrine of promissory estoppel was not designed to give a party a “second bite at the apple in event it fails to prove a breach of contract.” • The Court determined that at an early stage in the case a plaintiff may plead alternative causes of action even if inconsistent, and denied Motorola’s motion.

17. RAND IN THE COURTS Promissory Estoppel – Developing Cases Realtek Semiconductor Corp. v. LSI Corp., 2012 WL 4845628 (N.D. Cal. Oct. 10, 2012) • Patent-holder submitted Letters of Assurances to IEEE stating it was prepared to grant a license to an unrestricted number of applicants on RAND terms. • Realtek claimed that it developed and sold standard-compliant products in reliance on this commitment to license. • The court denied LSI’s motion to dismiss, stating that Realtek’s complaint alleged enough information for the claim to survive.

18. RAND IN THE COURTS Promissory Estoppel Who Adjudicates? • Some courts have found promissory estoppel to be an issue properly resolved by the Court. Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821, 826 (2d Cir. 1994) • Others have found the reasonable reliance element to be an issue of fact for the jury. Hendricks v. Smartvideo Techs., Inc., 511 F. Supp. 2d 1219 (M.D. Fla. 2007) In re JPMorgan Chase Mortg. Modification Litig., 2012 WL 3059377 (D. Mass. July 27, 2012) Burden of Proof • Proof of promissory estoppel may require clear and convincing evidence. W. Indies Network-I, LLC v. Nortel Networks, (CALA) Inc., 243 F. App’x 482, 485 (11th Cir. 2007) Escarra v. Regions Bank, 353 F. App’x 401, 403 (11th Cir. 2009)

19. RAND IN THE COURTS Equitable Estoppel • Statement/conduct of patentee communicates something in a misleading way; • Accused infringer must show it substantially relied on the misleading conduct in taking some action; • Accused infringer must establish it would be materially prejudiced if patentee is now permitted to proceed. A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992)

20. RAND IN THE COURTS Equitable Estoppel – Reliance Issues Microsoft v. Motorola, Initial Determination (ITC), 337-TA-752 • ALJ found against Microsoft’s equitable estoppel claim because Microsoft purportedly did not meet the reliance prong. • ALJ opined that Microsoft did not (1) explain what their “costs” were when they invested in implementing the standards in its products and, more importantly, (2) make clear that Microsoft relied upon Motorola’s RAND assurance when it began selling the accused products.

21. RAND IN THE COURTS Equitable Estoppel – Reliance Issues • Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925 (N.D. Cal. 2012). • “it is reasonable to infer reliance by the IEEE based on the IEEE’s policies requiring disclosure and requiring it to obtain assurances regarding any patents relevant to proposed standards before adopting them.” • Notes that requirement to provide assurances on a FRAND basis necessarily anticipates reliance on those commitments, otherwise the assurances would be meaningless. • “[Adoption of] the standards in question is sufficient to infer reliance on the propriety of the standards-setting process itself.”

22. RAND IN THE COURTS Equitable Estoppel Who Adjudicates? • Equitable estoppel is a “matter committed to the sound discretion of the trial judge.”A.C. Aukerman Co. v. R.L. Chaides Const. “Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992). • When a trial involves questions that require answers by both judge and jury, the jury questions should be decided first, however the judge retains discretion to take into consideration alternative factors such as the court’s docket and hardships to each party. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510 (1959). Burden of Proof • Absent special circumstances, such as fraud or intentional misconduct, a party asserting equitable estoppel must prove each factor by a preponderance of evidence. A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020, 1046 (Fed. Cir. 1992).

23. RAND IN THE COURTS Waiver • Waiver can be asserted as a defense, but has been rejected as an affirmative claim. • Implied waiver has been typically used for arguing that patentee failed to comply with duty of disclosure to SSO Qualcomm v. Broadcom, 548 F.3d 1004,1012-18 (Fed. Cir. 2008) • One may try to argue that an express commitment to license on RAND terms is: • (a) express waiver through intentional relinquishment of right to seek non-RAND royalties; or • (b) implied waiver through conduct inconsistent with an intent to enforce rights as to include a reasonable belief that such right has been relinquished.

24. RAND IN THE COURTS Waiver Who Adjudicates? • In patent cases, waiver appears to be an equitable defense for determination by the judge, although advisory jury verdict may be utilized. Qualcomm v. Broadcom, 548 F.3d 1004, 1012-18 (Fed. Cir. 2008) Burden of Proof • Waiver must be proved by clear and convincing evidence. Qualcomm v. Broadcom, 548 F.3d 1004, 1016, 1018 (Fed. Cir. 2008) Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1348 (Fed. Cir. 2011)

25. RAND IN THE COURTS Fraud • A misrepresentation, concealment, or nondisclosure in the face of a duty to disclose • Knowledge of falsity • Intent to defraud or induce reliance • Sufficient that patentee intended its statements or silence to be communicated to SSO members • Justifiable reliance • Reliance found if defendant designed products based on the standard • Damages Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925, 933-34 (N.D. Cal. 2012)

26. RAND IN THE COURTS Fraud – Developing Cases Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925, 942 (N.D. Cal. 2012) • B&N sought declaratory judgment of non-infringement. LSI counterclaimed for infringement, and B&N asserted numerous equitable affirmative defenses for unenforceability, citing non-disclosure of 3G patents during ETSI meetings by LSI and LSI’s predecessor-in-interest, Lucent. • Court denied motion to strike fraud defense based on alleged failure to disclose essential patents.

27. RAND IN THE COURTS Fraud Who Adjudicates? • Fraud involves questions of fact normally left to a jury. Burden of Proof • Fraud must be proved by clear and convincing evidence, including in the standard setting context. E.g.,Rambus, Inc. v. Infineon Techs. AG, 318 F.3d 1081 (Fed. Cir. 2003).

28. RAND IN THE COURTS Unclean Hands • Patentee’s conduct is inequitable and relates to the subject matter of its claims. Barnes & Noble, Inc. v. LSI Corp., 849 F. Supp. 2d 925, 942 (N.D. Cal. 2012) (denying motion to strike unclean hands defense) • Typically arises in context of duty to disclose, but one can envision that where a plaintiff demands excessive compensation or an injunction in violation of a RAND commitment, unclean hands may be a tenable defense.

29. RAND IN THE COURTS Unclean Hands Who Adjudicates? • The judge, based on the equitable nature of the defense. Levi Strauss & Co. v. Shilon, 121 F.3d 1309, 1313 (9th Cir. 1997) (Cited in Barnes & Noble v. LSI) Burden of Proof • Unclean hands must be proven by clear and convincing evidence. Aptix Corp. v. Quickturn Design Sys., Inc., 269 F.3d 1369 (Fed. Cir. 2001)

30. RAND IN THE COURTS Antitrust Claims • Sherman Act § 2 – Unlawful monopolization claim requires: • Monopoly Power, • Acquired or maintained through anticompetitive conduct. Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297, 306 (3d. Cir. 2007) • What type of conduct is anticompetitive? • Failure to disclose. At least one court has held it essential that the SSO would not have used the IP but for the deception. Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008) • Failure to later license on FRAND terms. Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007)

31. RAND IN THE COURTS Antitrust Claims • Rambus, Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008) • Failure to disclose IP rights to SSO did not necessarily reduce competition because SSO might have chosen to standardize the IP anyway. • Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007) • FRAND promise plus later demanding non-FRAND terms could be a deception sufficient to violate antitrust law. Misrepresentations of the cost (i.e. licensing cost) of implementing a standard may confer an unfair advantage and bias the competitive process in favor of the defendant.

32. RAND IN THE COURTS Antitrust Claims • Noerr-Pennington Immunity • May immunize patentee from antitrust claim where patentee is asserting patent right. SeeApple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012). • Therefore, may need to assert some injury beyond litigation costs. Id. • Can apply to other types of unfair competition claims.

33. RAND IN THE COURTS Antitrust Claims – Developing Cases Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012) • Noerr-Pennington doctrine provides Motorola immunity. • Court stated that Apple’s only alleged damages from the abuse of the standards-setting process were costs of litigation arising from Motorola’s allegedly improper suits against it. Realtek Semiconductor Corp. v. LSI Corp., 2012 WL 4845628 (N.D. Cal. Oct. 10, 2012) • Court dismissed the claim due to the fact that Realtek focused on the harm to them rather than the competitive harm, and harm to the rest of the marketplace.

34. RAND IN THE COURTS Antitrust Claims – FTC • Civil antitrust actions to prohibit unfair or deceptive acts or practices affecting commerce (DOJ handles criminal cases). • Remedies potentially available (Rambus, 2006 WL 2330117, FTC Commission Remedy Op., Feb. 2, 2007) • Injunction against future anticompetitive conduct • Compulsory license at reasonably royalty rates • Free compulsory license

35. RAND IN THE COURTS Antitrust Claims – FTC • Concerned about the issue of abuse of SEPs • In June, held a workshop on standard-setting and SEPs. Sought public comments on the issue through August 5th. • Earlier this month, DOJ’s chief economist gave speech at National Academy of Sciences in D.C. explaining policy choices SSOs could implement that would help competition.

36. RAND IN THE COURTS Antitrust Claims – European Commission • Pending European Commission antitrust investigation regarding seeking of injunctive relief for FRAND-obligated patents. • Jan. 31, 2012: formal investigation opened regarding Samsung • April 3, 2012: formal investigation opened regarding Motorola Mobility • Commission examines whether there is an abuse of a dominant position prohibited by Article 102 of the Treaty on the Functioning of the EU. • Apple, as defendant, has very recently (Oct. 19, 2012) asked the German court to stay its patent litigation with Samsung pending the EC investigation.

37. RAND IN THE COURTS Antitrust Claims – European Commission • Appears to be very motivated to solve the SEP abuse issue • “The fact that we have received many complaints related to standards-essential patents also shows that there is a great need for guidance. I want to tell you that I am willing to provide clarity to the market through our enforcement. . . . I expect the leading companies in the sector not to misuse their intellectual property rights . . .” – EC Vice President Almunia http://europa.eu/rapid/press-release_SPEECH-12-629_en.htm

38. RAND IN THE COURTS Patent Misuse • Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012). • Apple filed a claim for declaratory judgment that Motorola misused its patents by promising to offer fair licenses and then failing to do so. • The Court determined that it was not clear from Apple’s complaint whether this claim was based on contract theory or antitrust theory. • If based on antitrust theory, the Court determined that this claim would not survive as Motorola is immune under the Noerr-Pennington doctrine. • However, the Court stated that if the claim is based on contract theory it may proceed.

39. RAND IN THE COURTS Patent Misuse Who Adjudicates? • The judge, based on the equitable nature of the defense. C.R. Bard. Inc. v. M3 Sys., Inc., 157F.3d 1340, 1372 (Fed. Cir. 1998) Burden of Proof • Patent misuse must be proven by clear and convincing evidence. C.R. Bard. Inc. v. M3 Sys., Inc., 157F.3d 1340, 1372 (Fed. Cir. 1998)

40. RAND IN THE COURTS Unfair Competition • Under California Business and Professions Code § 17200, unfair competition refers to conduct that threatens an incipient violation of an antitrust law, or that violates the policy or spirit of one of those laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition.Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 973 P.2d 527 (1999)

41. RAND IN THE COURTS Unfair Competition — Developing Cases Realtek Semiconductor Corp. v. LSI Corp., 2012 WL 4845628 (N.D. Cal. Oct. 10, 2012) • Plaintiffs allege competitive harm under § 17200 stating that due to Defendant’s actions the entire WLAN product market has suffered injury. • The Court determined that Realtek’s allegations do not adequately suggest competitors will be harmed. • Realtek only focused on the alleged impact on themselves rather than the market as a whole. Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 3289835 (W.D. Wis. Aug. 10, 2012) • Apple alleged unfair competition and business practices, arguing that Motorola engaged in a pattern of unfair, deceptive and anticompetitive conduct by failing to disclose ownership of patents it now claims to be essential. • Noerr-Pennington provided immunity because Apple only alleged harm in the form of litigation costs.

42. RAND IN THE COURTS

43. KIRKLAND & ELLIS LLP Eric Lamison is the founding partner for the intellectual property trial practice group for Kirkland's San Francisco office. eric.lamison@kirkland.com (415) 439-1496 Harper Batts is a partner for the intellectual property trial practice group for Kirkland's Palo Alto office. harper.batts@kirkland.com (650) 859-7001 Reza Dokhanchy is an intellectual property litigation associate in Kirkland's San Francisco office. reza.dokhanchy@kirkland.com (415) 439-1469 Claire Thompson is an intellectual property litigation associate in Kirkland's San Francisco office. claire.thompson@kirkland.com (415) 439-1492