Implementers of standard essential patents (SEPs) continue to hold out in patent licensing discussions with SEP owners, including pursuing the cynical strategy of seeking anti-suit injunctions (ASIs). This failed strategy is again in the spotlight, this time roundly rejected by Judge Terrance Boyle in the Eastern District of North Carolina (EDNC). In Ericsson v. Lenovo, he denied Lenovo's motion requesting an ASI seeking to prevent Ericsson from enforcing SEP injunctions obtained in foreign actions. Not only did Judge Boyle highlight the truly extraordinary nature of an ASI and the multiple inquiries a court must complete before entering one, he also demonstrated that implementers that insist on leaving the door open for further efficient infringement by refusing to accept SEP rates—even those set by a third-party decision maker—have no chance of obtaining an ASI.
Background
Some background on the sprawling Ericsson/Lenovo dispute is in order. Ericsson and Lenovo both own SEPs incorporated into the 5G cellular standard. Ericsson and Lenovo are required to offer licenses to their SEPs under terms that are fair, reasonable, and nondiscriminatory (FRAND), in compliance with the membership requirements for the European Telecommunications Standards Institute (ETSI), which oversees 5G development and standard drafting. Nonetheless, after many years of negotiations, Ericsson and Lenovo could not agree on license terms. Towards the end of 2023, Ericsson filed patent infringement actions against Lenovo across the globe, including the US, UK, Brazil, and Colombia. In its US complaint, filed in EDNC (the home district of Lenovo's US subsidiary), Ericsson asked the court to declare Ericsson's latest offer of 1% royalties per unit with a $4 cap as FRAND. Ericsson also asked the court to determine a global FRAND rate in the event the court found that Ericsson's offer was not FRAND.
Shortly after Ericsson launched suits in multiple jurisdictions, both the Colombian and Brazilian courts enjoined Lenovo from selling 5G products based on Ericsson's SEPs in those countries. Lenovo, believing that the South American injunctions were contrary to ETSI's FRAND obligations, sought an ASI from the US court, seeking to prevent Ericsson from enforcing the foreign injunction orders. Lenovo based its request on the argument that resolution of the US case would be dispositive of the Colombian and Brazilian litigations because resolution of the US case would result in a global license.
Order Denying the ASI
To set the stage, Judge Boyle's order provides a helpful background, both for SEPs/FRAND and for the test for obtaining an ASI. Judge Boyle correctly emphasized that, among other requirements, a party requesting as ASI must show that resolution of the case before the court will be dispositive of the foreign actions to be enjoined. Only if this is true will a court proceed to assess whether an ASI would otherwise be appropriate on the merits.
Here, Judge Boyle stopped at the first step in the ASI analysis. Rejecting Lenovo's argument, he found that deciding a FRAND rate would not be dispositive of the Brazilian and Colombian cases. Although Lenovo claimed that it would accept a FRAND rate set by the court, Lenovo never agreed to accept the FRAND rate offered by Ericsson if Judge Boyle agreed that Ericsson's original offer was FRAND. In other words, Lenovo only agreed to accept an independent rate set by the court, and was not agreeing to accept the results should the court adopt Ericsson's already offered rate. Reading between the lines, Lenovo would only accept Judge Boyle's FRAND rate if it was lower than the one already on the table from Ericsson.
The court explained that Lenovo could do one of three things if the court agreed that Ericsson's offer was FRAND: (1) take it; (2) reject it and not implement the SEPs; or (3) reject it and implement the SEPs anyway. Of course, there is a fourth option not enumerated by the court: Lenovo could abandon the US 5G market if Lenovo was displeased with the Ericsson rate (or a different rate set by the court), as Apple threatened to do in the UK in the PanOptis case. Ultimately, because Lenovo sought to maximize its optionality by leaving doors open to avoiding a licensing outcome it didn't like, Judge Boyle concluded that "the Court is not persuaded that resolving the underlying contract issues will force either Lenovo or Ericsson into a global licensing agreement that would resolve the patent infringement claims at the core of the Brazilian and Colombian actions."
Takeaway
Lenovo is just one example of implementers of ETSI SEPs continuing to seek ways to avoid paying SEP owners in the telecom space. Implementers have repeatedly attempted to obtain anti-suit injunctions in the US—and courts have repeatedly rejected them. Judge Boyle's ruling in this case is instructive, as it sees past the purported promises made by an implementer, and shines a light on what was not said. Lenovo did not say that it would accept any outcome from the court; only certain ones that it deemed acceptable.
Judge Boyle's reasoned conclusion in this case underscores that this type of implementer intransigence—attempting to leave doors open to continue holding out—will be seen for what it is by US courts. To obtain an ASI for disputes involving FRAND patent claims, an infringer would likely have to enter into a binding agreement to accept FRAND terms before such terms are even determined. Even if implementers were to take this remarkable step, it is still not clear that an ASI would be viable. Regardless, given the vanishingly small possibility that a patent infringer would actually enter into such an agreement, which may require abandoning the massive US market just to shirk its obligations to pay a FRAND rate, ASIs will continue to be a white rabbit for implementers.
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