Availability of Injunctive Relief for Standard-
Essential Patent Holders
Brian T. Yeh
Legislative Attorney
September 7, 2012
Congressional Research Service
7-5700
www.crs.gov
R42705
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Availability of Injunctive Relief for Standard-Essential Patent Holders
Summary
An “industry standard” is a set of technical specifications that provides a common design for a
product or process. Standardization is crucial to the functioning of the modern innovation-based
economy and in particular to the interoperability of technologically complex consumer electronic
devices. Standards allow several firms to supply services and products that incorporate the
standard, which may help to lower prices and provide greater consumer choices. Standard-setting
organizations (SSOs) are voluntary membership organizations in which industry participants
collaboratively select particular technical standards to be used by products in that industry. Many
SSOs require their members to adhere to licensing policies and bylaws that try to preempt the
potential conflict between industry standards and patent rights; such policies generally require
that members of the SSO (1) disclose patent rights that are pertinent to a proposed standard and
(2) license the patented invention within a standard to others on “fair, reasonable, and
nondiscriminatory” terms, a standard commonly known as “FRAND licensing.”
In the past several years, there has been considerable debate over whether injunctive relief in a
patent infringement lawsuit (or exclusionary relief at the International Trade Commission (ITC))
should be available to companies that own patents that cover a particular industry standard (so-
called “standard-essential patent” or SEP), when those companies have previously committed
themselves to license their patented technology to anyone (corporate partners or competitors) on
FRAND terms. The question particularly impacts the computing and telecommunications
industries, as consumer electronic products such as smartphones, GPS devices, tablets, and
gaming consoles incorporate a number of industry standards that include patented technology.
Many high technology companies have been involved in patent infringement lawsuits and cases
before the ITC that concern disputes over SEPs and FRAND licensing. Some of the electronic
device manufacturers object to what they believe are unreasonably excessive royalty requests by
the SEP holder and thus do not reach an agreement to license the SEP. In such a situation, the SEP
holder has sought out a judicial determination of the royalty rate or even an injunction (from
federal courts) or exclusion order (from the ITC) against the sale or importation of products made
by companies that did not obtain a license.
Some argue that a company that owns an SEP and that has promised to license such patent on
FRAND terms essentially waives its right to seek an injunction against another company that
implements the standard but fails to reach a license agreement with the SEP holder. They raise
concerns about the potential negative effects on competition and U.S. consumers of allowing
injunctive or exclusionary relief in cases involving FRAND-encumbered SEPs. They also believe
that the threat of an injunction weighs heavily in negotiations over SEP licensing in a way that
disproportionately rewards the SEP holder. However, others argue that an SEP holder is entitled
to injunctive relief because an SSO’s FRAND agreement does not include a promise not to seek
an injunction in appropriate circumstances. Yet, they assert that if an SSO required its members to
give up their right to exclude others (which is the primary right that a patent confers),
participation in the voluntary standard-setting process may diminish. Furthermore, if SEP holders
were limited to only damages and not injunctive relief, implementers of the industry standard
may forgo negotiating a license before introducing a product and then wait for a federal court to
decide on an award of damages for the infringement.
Although no legislation has been introduced in this area, the 112th Congress has demonstrated its
interest in evaluating the need for possible legislative remedies by holding several hearings
relating to SEPs, FRANDs, injunctive relief, and patent disputes at the ITC.
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Availability of Injunctive Relief for Standard-Essential Patent Holders
Contents
Introduction...................................................................................................................................... 1
Background...................................................................................................................................... 1
Patent Law Fundamentals.......................................................................................................... 1
IT Industry Products and Patents............................................................................................... 2
Standard-Setting Organizations and FRAND Licensing ................................................................. 3
Patent Hold Up .......................................................................................................................... 5
Calculating a Reasonable Royalty for a FRAND-Encumbered SEP......................................... 5
International Trade Commission...................................................................................................... 7
Injunctive Relief in the Federal Courts and at the ITC: Applicable Standards................................ 9
Standards for Injunctive Relief in the Federal Courts ............................................................... 9
Standards for Exclusionary Relief in the ITC.......................................................................... 11
Recent Developments Relating to Standard-Essential Patents and FRAND Licensing ................ 13
U.S. Department of Justice Antitrust Division’s Review of Patent Portfolio
Acquisitions.......................................................................................................................... 13
Recent Cases Before the ITC Involving Standard-Essential Patents....................................... 14
Hearings in the 112th Congress ...................................................................................................... 18
June 20, 2012, Senate Judiciary Committee............................................................................ 18
July 11, 2012, Senate Judiciary Committee............................................................................. 19
July 18, 2012, House Judiciary Subcommittee on Intellectual Property, Competition
and the Internet..................................................................................................................... 20
Contacts
Author Contact Information........................................................................................................... 22
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Availability of Injunctive Relief for Standard-Essential Patent Holders
Introduction
This report provides on overview of the current debate over whether a holder of a patent essential
to an industry standard, who has promised to license such patented technology on fair, reasonable,
and non-discriminatory (FRAND) terms, may nevertheless obtain an injunction from a federal
court or an exclusion order from the International Trade Commission against infringing products
that implement the industry standard. The report first summarizes several fundamental principles
of patent law, then discusses the relationship between standard-setting organizations and FRAND
licensing. It continues with an explanation of the role and duties of the International Trade
Commission (ITC) and how there are different legal standards that apply to the award of
injunctive relief in federal courts and in the ITC. Finally, the report closes with an overview of
recent developments relating to standard-essential patents and FRAND licensing that have
occurred in federal agencies responsible for antitrust enforcement, ITC cases, and congressional
hearings.
Background
Patent Law Fundamentals
The U.S. Patent and Trademark Office (PTO) issues a patent to an inventor after PTO examiners
approve the submitted patent application for an allegedly new invention.1 An application for a
patent consists of two primary parts: (1) a “specification,” which is a written description of the
invention enabling those skilled in the art to practice the invention, and (2) one or more claims
that define the scope of the subject matter which the applicant regards as his invention.2
Therefore, these claims define the scope of the patentee’s rights under the patent.3
According to section 101 of the Patent Act, one who “invents or discovers any new and useful
process, machine, manufacture, or any composition of matter, or any new and useful
improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of
this title.”4 Thus, in order for an invention to qualify for patent protection, it must fall within one
of the four statutory categories of patent-eligible subject matter: processes, machines,
manufactures, and compositions of matter. However, the U.S. Supreme Court has articulated
certain limits to § 101 of the Patent Act, stating that “laws of nature, natural phenomena, and
abstract ideas” may not be patented.5
Before a patent may be granted, the PTO examiners must find that the new invention satisfies
several substantive requirements that are set forth in the Patent Act.6 For example, one of the
1 35 U.S.C. § 131.
2 35 U.S.C. § 112.
3 3-8 DONALD S. CHISUM, CHISUM ON PATENTS § 8.01 (2006).
4 35 U.S.C. § 101.
5 Diamond v. Diehr, 450 U.S. 175, 185 (1981).
6 35 U.S.C. §§ 102, 103(a).
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statutory requirements for patentability of an invention is “novelty.”7 For an invention to be
considered “novel,” the subject matter must be different than, and not be wholly “anticipated” by,
the so-called “prior art,” or public domain materials such as publications and other patents.
Another statutory requirement is that the subject matter of an alleged invention must be
“nonobvious” at the time of its creation. A patent claim is invalid if “the differences between the
subject matter sought to be patented and the prior art8 are such that the subject matter as a whole
would have been obvious at the time the invention was made to a person having ordinary skill in
the art to which said subject matter pertains.”9 Finally, the invention must also be “useful,” which
means that the invention provides a “significant and presently available,” “well-defined and
particular benefit to the public.”10
The Patent Act grants patent holders the exclusive right to exclude others from making, using,
offering for sale, or selling their patented invention throughout the United States, or importing the
invention into the United States.11 Whoever performs any one of these five acts during the term of
the invention’s patent, without the patent holder’s authorization, is liable for infringement.12 A
patent holder may file a civil action against an alleged infringer in order to enjoin him from
further infringing acts (by securing an injunction, also referred to as injunctive relief).13 The
patent statute also provides federal courts with discretion to award damages to the patent holder
that are “adequate to compensate for the infringement, but in no event less than a reasonable
royalty for the use made of the invention by the infringer.”14 The usual term of patent protection
is 20 years from the date the patent application is filed.15 At the end of that period, others may use
the invention without regard to the expired patent.
The U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) is a specialized tribunal
established by Congress that has exclusive appellate jurisdiction in patent cases.16 Parties
dissatisfied with the Federal Circuit’s rulings may petition the U.S. Supreme Court to review the
appellate court’s decision. However, the Supreme Court is not required to entertain the appeal; it
has discretion to decide whether to grant certiorari to review the case.17
IT Industry Products and Patents
Products in the information technology (IT) industry usually incorporate many component parts
that could be subject to hundreds or thousands of patents, “with no one company holding all the
7 35 U.S.C. § 102.
8 “Prior art” is a legal term of art that refers to the materials (usually called “references” in patent law) that comprise the
available knowledge regarding the subject matter of the invention sought to be patented, such as other issued patents,
publications, and evidence of actual uses or sales of the technology. ROGER SCHECHTER & JOHN THOMAS, PRINCIPLES OF
PATENT LAW 4-1 (2d ed. 2004).
9 35 U.S.C. § 103(a).
10 In re Fischer, 421 F.3d 1365, 1371 (Fed. Cir. 2005).
11 35 U.S.C. §§ 154(a)(1), 271(a).
12 35 U.S.C. § 271(a).
13 35 U.S.C. § 283.
14 35 U.S.C. § 284.
15 35 U.S.C. §154(a)(2).
16 28 U.S.C. § 1295(a)(1).
17 28 U.S.C. § 1254(1).
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[patent] rights necessary to manufacture a product.”18 Commentators indicate that the IT sector is
mired in what they call a “patent thicket,” meaning a “dense web of overlapping [patent] rights
that a company must hack its way through ... to actually commercialize new technology.”19
According to many observers, the set of potentially relevant patents for any IT product is
overwhelming due to both the number of (overlapping and possibly invalid) patents granted in
this area and the number of components incorporated in each product.20
Smartphones, tablets, and other wireless devices comprise many patented technologies that are
made to comply with a large number of industry standards that relate to cellular communications,
wireless Internet connectivity, and video and audio compression technology.
Standard-Setting Organizations and FRAND
Licensing21
An “industry standard” is a set of technical specifications that provides a common design for a
product or process.22 Standards sometimes arise through government action (such as the Federal
Communications Commission) or through the operation of the marketplace (such as a large
majority of consumers that choose one product over another). However, private industry groups
called standards setting organizations (SSO) or standards developing organizations (SDO) have
long been active in promulgating standards for their members. Many technology companies are
members of dozens of standards bodies.23
Standards bodies and their members have increasingly encountered claims that a patent covers an
industry standard. If the patent is valid and enforceable, it is possible that the standard cannot be
employed without infringing that patent.
Industry standards potentially bring economic benefits ranging from a broad range of
interoperable products to more robust, competitive markets. In turn, patent rights may promote
innovation, the disclosure of new inventions and technology transfer. Conflicts between industry
standards and patent rights require a careful weighing of these competing interests.
Many standards bodies have established disclosure and licensing polices to attempt to preempt
the potential conflict between industry standards and patent rights. Although these policies vary,
they generally require that members of the standards body (1) disclose patent rights that are
pertinent to a proposed standard and (2) license the patented invention that is essential to an
adopted standard to others, often on “reasonable and nondiscriminatory” terms, a standard
18 Federal Trade Commission, The Evolving IP Marketplace (March 2011), available at http://www.ftc.gov/os/2011/03/
110307patentreport.pdf, at 221 (hereinafter “FTC Report”).
19 Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in
INNOVATION POLICY AND THE ECONOMY 119, 125 (2001).
20 JAMES BESSEN AND MICHAEL J. MEURER, PATENT FAILURE 8 (2008).
21 Portions of this section of the memorandum have been borrowed and adapted from an earlier CRS report that
examines the potential conflicts between industry standards and intellectual property, see CRS Report RL31951,
Innovation, Intellectual Property, and Industry Standards, by John R. Thomas.
22 Mark A. Lemley, “Intellectual Property Rights and Standard-Setting Organizations,” 90 CALIFORNIA LAW REVIEW
(2002), at 1889.
23 Id. at 1907.
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commonly known as “RAND licensing” or “FRAND licensing” (some policies call for fair,
reasonable, and nondiscriminatory terms). FRAND commitments “facilitate the bilateral licensing
of patents that are needed to allow a standard to become successful and to provide assurances to
implementers of the standard that the patented technologies will be available to those willing and
able to license them.”24
However, SSO policies often do not provide a specific royalty rate for a FRAND license nor do
they define what would be considered “reasonable” license terms. As the Federal Trade
Commission has observed, “No court has yet directly addressed the definition of FRAND, but a
manufacturer that believes a patentee’s license offer is unreasonable may raise the issue in a
contract dispute.”25 SSO policies regarding FRAND also do not apply or bind patent holders that
are not participating in the standard setting process.26
In the information technology (IT) industry, “products use industry standards to ensure
interoperability, necessitating that manufacturers license technology that is essential to the
standard.”27 Standard-essential patents (SEPs) are those patents that disclose and claim one or
more inventions that are required in order to implement a particular industry standard. SEPs that
are subject to a promise by the patent holder to license the technology on FRAND terms will
often be referred to in this report as “FRAND-encumbered SEPs.”
One federal court has explained SEPs and FRAND licensing as follows:
Standards are important for several reasons. First, they facilitate the adoption and
advancement of technology as well as the development of products that can interoperate with
one another. Standards also lower costs by increasing product manufacturing volume, and
they increase price competition by eliminating “switching costs” for consumers who desire
to switch from products manufactured by one firm to those manufactured by another. They
also lead to earlier adoption of new technology. There is, however, one downside to
standards: they create “essential patents.” The term “essential patents” refers to patents that
are essential to a standard – i.e., patents that claim technologies selected by a standards
development organization (“SDO”). Once a patent becomes an essential patent, it gains
undue significance as a result. Companies that produce products governed by a standard
become “locked in” to the technologies included in the standard. Customers have no
practical choice other than to buy products that comply with the standard. Thus, the owners
of essential patents gain market power. ... “FRAND commitments” are intended to prevent
owners of essential patents from acquiring too much of the market power that would
otherwise be inherent in owning an essential patent.28
24 Oversight of the Impact on Competition of Exclusion Orders to Enforce Standard-Essential Patents: Hearing Before
the Senate Judiciary Committee, 112th Cong., 2d Sess., July 11, 2012 (statement of Joseph F. Wayland, Acting Assistant
Attorney General, Antitrust Division, U.S. Department of Justice), at 5 (hereinafter “SEP Hearing”).
25 FTC Report, supra note 18, at 194.
26 Id. at 192-93.
27 Id.
28 Research in Motion Ltd. v. Motorola, Inc., 644 F. Supp. 2d 788, 790-91 (N.D. Tex. 2008) (internal quotations and
citations omitted); see also Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 210 (3rd Cir. 2007) (“Industry
participants who have invested significant resources developing products and technologies that conform to the standard
will find it prohibitively expensive to abandon their investment and switch to another standard. They will have become
‘locked in’ to the standard. In this unique position of bargaining power, the patent holder may be able to extract
supracompetitive royalties from the industry participants.”).
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Patent Hold Up
Concerns have been raised by several parties, including the U.S. Department of Justice and the
Federal Trade Commission (FTC), that companies that own FRAND-encumbered SEPs may
opportunistically use the threat of an injunction as leverage against other firms (colloquially
referred to as a “hold up”) in demanding higher royalties after the patented technology has been
incorporated into an industry standard than they could have otherwise obtained had the
technology not been used in the standard.29 SEP holders could also try to use its patent to exclude
a potential competitor from the U.S. market. As recently explained in a court opinion written by
federal judge Richard Posner, “[O]nce a patent becomes essential to a standard, the [SEP patent
holder’s] bargaining power surges because a prospective licensee has no alternative to licensing
the patent; he is at the patentee’s mercy.”30 Patent hold-up can also lead to other problems, such as
inducing companies to delay or “avoid incorporating standardized technology in their products”
and harming consumers “to the extent that companies implementing the standard pass on higher
royalties in the form of a higher price.”31
Calculating a Reasonable Royalty for a FRAND-Encumbered SEP
The FTC has stated that when a court decides to deny an injunction to a patent holder,
the question naturally arises of what [monetary] remedy to apply. The court opinions that
address the question most commonly require ongoing royalties that allow the manufacturer
to continue making the infringing product. The Federal Circuit has held that this remedy can
be appropriate in lieu of an injunction. ... No consensus on how to set the royalty rate has
emerged from the case law, however. The Federal Circuit has stated that district courts must
articulate a reasonable basis for determining the amount, and that the award should account
for the changed relationship of the parties resulting from an adjudicated finding of
infringement of a valid patent.32
Furthermore, the FTC notes that in the specific context of SEPs, “[w]hen a patentee and
implementer of standardized technology bargain for a licensing rate, they do so within a
framework defined by patent remedies law. That law sets the implementer’s liability if
negotiations break down and the parties enter patent litigation, and therefore heavily influences
the negotiated amount.”33 Yet, marketplace circumstances often make the determination of an
appropriate damages award in patent litigation very difficult. In some cases, the product or
process that is found to infringe may incorporate numerous additional elements beyond the
patented invention. In such circumstances, a court may apply “the entire market value rule,”
which “permits recovery of damages based upon the entire apparatus containing several features,
where the patent-related feature is the basis for consumer demand.”34 On the other hand, if the
court determines that the infringing sales were due to many factors beyond the use of the patented
29 SEP Hearing, supra note 24, statement of Edith Ramirez, Commissioner of the FTC, at 1.
30 Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540 (N.D. Ill.), Opinion and Order of June 22, 2012, slip op. at 18,
available at http://betanews.com/wp-content/uploads/2012/06/Posner-June-22-Apple-order.pdf.
31 SEP Hearing, supra note 24, statement of Joseph F. Wayland, at 4.
32 FTC Report, supra note 18, at 236.
33 Id. at 193.
34 State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).
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invention, the court may apply principles of “apportionment” to measure damages based upon the
value of the patented feature alone.35
But as American University Washington College of Law Professor Jorge L. Contreras has
explained, “the actual scope and contours of FRAND licenses have puzzled lawyers, regulators
and courts for years, and past efforts at clarification have never been very successful.”36 He has
also further described FRAND as follows:
[T]here continues to be significant disagreement among market participants over the
meaning of FRAND. This disagreement arises both in reference to the level of royalties that
should be considered “reasonable,” and whether other tactics, such as seeking injunctive
relief, are fair game when FRAND commitments have been made. Such disagreements have
serious consequences because a commitment to grant a license on FRAND terms is not itself
a license. A license to operate under a patent is not granted until the parties can agree on
those “fair, reasonable and non-discriminatory” terms. So, if the parties can’t agree on the
terms of the FRAND license for a particular “standards-essential” patent, the frustrated
licensee must either refrain from implementing the standard (and lose a significant market
opportunity) or risk infringing the patent. The typical result: litigation.37
In a June 22, 2012, ruling by federal judge Richard Posner that dismissed with prejudice a patent
infringement lawsuit between Apple and Motorola, Judge Posner offered his guidance to courts
on how to calculate an appropriate royalty for a FRAND-encumbered SEP:
The proper method of computing a FRAND royalty starts with what the cost to the licensee
would have been of obtaining, just before the patented invention was declared essential to
compliance with the industry standard, a license for the function performed by the patent.
That cost would be a measure of the value of the patent qua patent. ... The purpose of the
FRAND requirements ... is to confine the patentee’s royalty demand to the value conferred
by the patent itself as distinct from the additional value—the hold-up value—conferred by
the patent’s being designated as standard-essential.38
In a July 18, 2012, letter from Apple to Senators Leahy and Grassley (the Chairman and Ranking
Member of the Senate Judiciary Committee, respectively), Apple offered its opinion on the proper
determination of FRAND royalties:
[I]t is wrong to charge FRAND royalties on the end price of a device like the iPhone, whose
value arises more from product-differentiating technology than standardized technology, and
whose price reflects this. A FRAND royalty on an iPhone should be no higher than a
FRAND royalty on any other 3G phone. It is akin to a toll on a highway: the toll is identical
for a jalopy and a new sports car—the sports car does not pay more just because it is faster,
more stylish, and has a better sound system. Nor is it FRAND to seek royalties based on the
mere fact that a particular technology was standardized; a FRAND royalty should be limited
35 Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915).
36 Jorge L. Contreras, The February of FRAND, Mar. 6, 2012, Patently-O Patent Law Blog, at
http://www.patentlyo.com/patent/2012/03/february-of-frand.html.
37 Jorge L. Contreras, The Frand Wars: Who’s on First?, April 17, 2012, Patently-O Patent Law Blog, at
http://www.patentlyo.com/patent/2012/04/the-frand-wars-whos-on-first.html.
38 Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540 (N.D. Ill.), Opinion and Order of June 22, 2012, slip op. at 18,
available at http://betanews.com/wp-content/uploads/2012/06/Posner-June-22-Apple-order.pdf.
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to the true technical value of a patented technology, not the artificially inflated value based
on the fact that it has been included in a mandatory industry standard.39
International Trade Commission
Besides seeking legal relief for infringement in the federal courts, U.S. patent holders may also
obtain an order from the U.S. International Trade Commission (ITC or Commission) preventing
the importation of foreign goods that infringe their rights. The ITC is an independent,
nonpartisan, quasi-judicial federal government agency responsible for investigating and
arbitrating complaints of violations of section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337),
which prohibits unfair methods of competition or other unfair acts in the importation of products
into the United States. Section 337 also prohibits the importation of articles that infringe valid
U.S. patents, copyrights, processes, trademarks, or protected design rights. (The majority of
unfair competition acts asserted under section 337 involve allegations of patent infringement.40)
However, a patent holder must satisfy section 337’s “domestic industry” requirement in order for
the ITC to adjudicate a patent dispute. That is, section 337 declares unlawful the importation into
the United States of articles that infringe a U.S. intellectual property right, but only if “an industry
in the United States, relating to the articles protected by the patent, copyright, trademark, mask
work, or design concerned, exists or is in the process of being established.”41 As the Federal
Circuit has explained, Congress included the domestic industry requirement because it
“recognized that the Commission is fundamentally a trade forum, not an intellectual property
forum, and that only those intellectual property owners who are actively engaged in steps leading
to the exploitation of the intellectual property should have access to the Commission.”42 A patent
holder can satisfy the domestic industry requirement by showing one of the following:
1. significant investment in plant and equipment;
2. significant employment of labor or capital; or
3. substantial investment in its exploitation, including engineering, research and
development, or licensing.43
Congress added the third provision listed above in 198844 in order to help more companies satisfy
the domestic industry requirement, including those that lack manufacturing activities but instead
engage in licensing and research.45 The ITC has in rem jurisdiction over accused imported
39 Letter from Bruce Sewell, General Counsel, Apple, Inc., to Senators Leahy and Grassley, July 18, 2012,at 3,
available at http://www.scribd.com/doc/100758337/Apple-to-Senate-Google-Abuses-FRAND.
40 Colleen V. Chien, Patently Protectionist, 50 WILLIAM & MARY L. REV. 63, 70 (2008 (patent cases comprise 85% of
the ITC’s section 337 docket). For more information about Section 337 proceedings, see CRS Report RS22880,
Intellectual Property Rights Protection and Enforcement: Section 337 of the Tariff Act of 1930, by Shayerah Ilias.
41 19 U.S.C. § 1337(a)(2).
42 John Mezzalingua Assocs. v. ITC, 660 F.3d 1322, 1327-28 (Fed. Cir. 2011) (internal quotations and citation
omitted).
43 19 U.S.C. § 1337(a)(3)(A)-(C).
44 Omnibus Trade and Competitiveness Act of 1988, P.L. 100-418, 102 Stat. 1107 (1988).
45 John Mezzalingua Assocs., 660 F. 3d at 1327.
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products, and the ITC need not have personal jurisdiction over accused manufacturers or meet
venue requirements.46
The ITC’s Administrative Law Judges (ALJs) manage litigation, preside over evidentiary
hearings, and make an initial determination (ID) in the agency’s investigations involving unfair
practices in import trade. The ID as to whether Section 337 has been violated is certified to the
Commission (a six-member decision-making body that heads the ITC); the Commission may then
review and adopt, modify, or reverse the ALJ’s ID; if the Commission declines to review the ID,
then the ID becomes the determination of the Commission.47
The Commission’s determination is sent to the President; he may veto such determination “for
policy reasons” within a 60-day review period.48 If the President notifies the Commission of his
disapproval of the determination, the determination “shall have no force or effect.”49 If the
President does not veto the determination within the 60-day review period, the determination
becomes final on the day after the close of the period, or the day on which the President expressly
notifies the Commission of his approval.50
Anyone adversely affected by a decision of the ITC may appeal the decision, within 60 day after
the determination becomes final, to the Federal Circuit.51 The agency’s decisions are reviewed in
accordance with the standards of judicial deference provided by the Administrative Procedure
Act.52 The largely deferential review standards provide that the court shall uphold the agency’s
factual findings when the court determines that they are supported by substantial evidence53 on
the record as a whole, and that the agency’s action is not arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law. However, the Federal Circuit has held that the
construction and interpretation of patent claims are a matter of law that receive de novo review by
a reviewing court.54 In addition, federal district courts do not give res judicata or collateral
estoppel effect to ITC decisions; thus, patent holders that win a case before the ITC must
relitigate the issue of patent infringement liability before the federal courts.55
The ITC has the power to order several forms of prospective injunctive relief, including ordering
the U.S. Customs and Border Protection (CBP) to stop imports from entering U.S. borders (an
exclusion order), or issuing cease and desist orders that prohibit parties from distributing or
selling infringing articles from existing U.S. inventory. However, unlike the federal courts, the
46 Russell E. Levine, The Pro’s and Con’s of Patent Litigation Before the International Trade Commission, at 2,
available at http://apps.americanbar.org/litigation/committees/intellectual/roundtables/1106_outline.pdf.
47 See U.S. Int’l Trade Comm’n, Section 337 Investigations: Answers to Frequently Asked Questions (March 2009),
available at http://www.usitc.gov/intellectual_property/documents/337_faqs.pdf.
48 19 U.S.C. § 1337(j).
49 19 U.S.C. § 1337(j)(2).
50 19 U.S.C. § 1337(j)(4).
51 19 U.S.C. § 1337(c).
52 5 U.S.C. § 706(2)(E).
53 Substantial evidence is “such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” Universal Camera Corp. v. NLRB, 340 U.S. 474, 477 (1951).
54 Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454 (Fed. Cir. 1998).
55 Tandon Corp. v. Int’l Trade Comm’n, 831 F.2d 1017 (Fed. Cir. 1987); Texas Instr. v. Cypress, 90 F.3d 1558 (Fed.
Cir. 1996).
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ITC lacks the statutory authority to award monetary damages for patent infringement (past or
future).56
Injunctive Relief in the Federal Courts and at the
ITC: Applicable Standards
Standards for Injunctive Relief in the Federal Courts
To prevent the violation of any right secured by a patent, the Patent Act provides that a federal
court “may grant injunctions in accordance with the principles of equity ... on such terms as the
court deems reasonable.”57 An injunction prevents the adjudicated infringer from practicing the
patented invention until the patent expires. Without the right to obtain injunctive relief, “the right
to exclude granted to the patentee would have only a fraction of the value it was intended to have,
and would no longer be as great an incentive to engage in the toils of scientific and technological
research.”58
In practice, for much of its history the U.S. Court of Appeals for the Federal Circuit routinely
granted injunctions to patent owners that prevailed in infringement litigation, in keeping with its
opinion that “[b]ecause the right to exclude recognized in a patent is but the essence of the
concept of property, the general rule is that a permanent injunction will issue once infringement
and validity have been adjudged.”59 However, the U.S. Supreme Court in its May 2006 opinion,
eBay v. MercExchange,60 unanimously vacated the Federal Circuit’s “general rule” calling for a
permanent injunction upon a finding of patent infringement. Writing for the Court, Justice
Clarence Thomas explained that traditional principles of equity that govern issuance of injunctive
relief “apply with equal force to disputes arising under the Patent Act.”61 Thus, in order for a
court to grant injunctive relief, a plaintiff must satisfy a four-factor test by demonstrating:
1. that it has suffered an irreparable injury;
2. that remedies available at law, such as monetary damages, are inadequate to
compensate for that injury;
3. that, considering the balance of hardships between the plaintiff and defendant, a
remedy in equity is warranted; and
4. that the public interest would not be disserved by a permanent injunction.62
56 FTC Report, supra note 18, at 239.
57 35 U.S.C. § 283.
58 Smith Int’l, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1578 (Fed. Cir. 1983) (citation omitted).
59 MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1338 (Fed. Cir. 2005) (citation and internal quotations omitted).
60 eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). For a more detailed explanation and analysis of the eBay
case, see CRS Report RL33429, Availability of Injunctive Relief in Patent Cases: eBay, Inc. v. MercExchange, L.L.C.,
by Brian T. Yeh.
61 eBay, 547 U.S. at 391.
62 Id.
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Two concurring opinions, written by Chief Justice John Roberts, Jr., and Justice Anthony
Kennedy, were filed in eBay and reveal an apparent disagreement among the justices. Chief
Justice Roberts’ concurring opinion, joined by Justices Antonin Scalia and Ruth Bader Ginsburg,
predicted that injunctive relief will likely continue to be the usual remedy for patent infringement,
consistent with the “long tradition of equity practice.”63 A district court’s equitable discretion in
granting or denying an injunction in patent cases, therefore, is not unfettered, in the view of these
three Justices.
While agreeing with Chief Justice Robert’s concurrence that “history may be instructive” in
applying the traditional four-factor test for deciding whether an injunction should issue or not in
patent infringement cases, Justice Kennedy’s concurring opinion, joined by Justices John Paul
Stevens, David Souter, and Stephen Breyer, suggested that historical practice might not
necessarily be helpful for courts to follow when dealing with some patent infringement suits in
the current business environment: “[T]rial courts should bear in mind that in many instances the
nature of the patent being enforced and the economic function of the patent holder present
considerations quite unlike earlier cases.”64 Justice Kennedy acknowledged the emergence of
patent holding companies (so-called “patent trolls”)65 and their impact on patent litigation today:
An industry has developed in which firms use patents not as a basis for producing and selling
goods but, instead, primarily for obtaining licensing fees.... For these firms, an injunction,
and the potentially serious sanctions arising from its violation, can be employed as a
bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice
the patent.... When the patented invention is but a small component of the product the
companies seek to produce and the threat of an injunction is employed simply for undue
leverage in negotiations, legal damages may well be sufficient to compensate for the
infringement and an injunction may not serve the public interest.66
The eBay case “represented a sea change in patent litigation” and helped reduce the problem of
patent holdup.67 Before eBay, “[p]atentees who owned rights in very small pieces of complex,
multi-component products could threaten to shut down the entire product. As a result, even a very
weak patent could command a high royalty in settlement from defendants afraid of gambling their
entire product on a jury’s decision.”68 However, in following Justice Kennedy’s concurrence in
eBay, federal courts have rarely issued injunctions to patent holding companies.69 In addition,
eBay has impacted the availability of injunctive relief for SEP holders that promised to license on
FRAND terms. The Commissioner of the FTC has observed that because federal courts must
apply the eBay equitable analysis in deciding whether to grant injunctive relief, “it may be
difficult for RAND-encumbered SEP holders to show that money damages are inadequate
because they have already committed to license their intellectual property on RAND terms.”70 In
63 eBay, 547 U.S. at 395 (Roberts, C.J., concurring).
64 Id. at 396 (Kennedy, J., concurring).
65 For more information on patent trolls, see CRS Report R42668, An Overview of the "Patent Trolls" Debate, by Brian
T. Yeh.
66 eBay, 547 U.S at 396-97.
67 Colleen V. Chien and Mark A. Lemley, Patent Holdup, the ITC, and the Public Interest, at 9, available at
https://www.law.stanford.edu/display/images/dynamic/events_media/Panel%202%20-%20Chien%20&
%20Lemley%20-%20Patent%20Holdup,%20the%20ITC,%20and%20the%20Public%20Interest.pdf.
68 Id.
69 Id. at 11.
70 SEP Hearing, supra note 24, statement of Edith Ramirez, at 7.
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the recent patent infringement lawsuit between Apple and Motorola that Judge Posner dismissed,
he opined:
To begin with Motorola’s injunctive claim, I don’t see how, given FRAND, I would be
justified in enjoining Apple from infringing the ’898 unless Apple refuses to pay a royalty
that meets the FRAND requirement. By committing to license its patents on FRAND terms,
Motorola committed to license the ’898 to anyone willing to pay a FRAND royalty and thus
implicitly acknowledged that a royalty is adequate compensation for a license to use that
patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an
invention that it contends Apple must use if it wants to make a cell phone with UMTS
telecommunications capability—without which it would not be a cell phone.71
Standards for Exclusionary Relief in the ITC
As an administrative agency and not an Article III court, the ITC has asserted that the Supreme
Court’s eBay decision does not apply to ITC remedy determinations under section 337; thus, the
ITC is not required to apply the traditional four-factor test for injunctive relief used by federal
district courts. This position was upheld by the Federal Circuit in its December 2010 opinion,
Spansion, Inc. v. ITC.72 According to the Federal Circuit:
The legislative history of the amendments to Section 337 indicates that Congress intended
injunctive relief to be the normal remedy for a Section 337 violation and that a showing of
irreparable harm is not required to receive such injunctive relief. This is shown by two
distinct actions of Congress. First, in passing the Tariff Act of 1930, Pub. L. No. 71-361, 46
Stat. 590, Congress eliminated the monetary remedy for intellectual property import
violations, representing a legislative determination that an injunction is the only available
remedy for violations of Section 337. Second, in 1988, Congress amended Section 337 by
passing the Omnibus Trade and Competitiveness Act of 1988, P.L. 100-418, 102 Stat. 1107,
explicitly removing the requirement of proof of injury to the domestic industry and making it
unnecessary to show irreparable harm to the patentee in the case of infringement by
importation.
As contrasted with the remedial scheme established by Congress for proceedings before the
Commission, the statutory remedies available in proceedings before the district courts are
quite different. In addition to the remedy of damages under 35 U.S.C. § 284, Congress gave
district courts the discretion to grant injunctive relief and in doing so made explicit that such
discretion is to be exercised “in accordance with the principles of equity ... on such terms as
the court deems reasonable.”73
Section 337 of the Tariff Act of 1930 permits the ITC, in deciding whether to issue an exclusion
order, to consider the effect of such exclusion upon:
1. the public health and welfare,
2. competitive conditions in the United States economy,
3. the production of like or directly competitive articles in the United States, and
71 Apple, Inc. v. Motorola, Inc., No. 1:11-cv-08540 (N.D. Ill.), Opinion and Order of June 22, 2012, slip op. at 18-19,
available at http://betanews.com/wp-content/uploads/2012/06/Posner-June-22-Apple-order.pdf.
72 629 F.3d 1331 (Fed. Cir. 2010).
73 Spansion, 629 F.3d at 1358-59 (internal citations and quotations omitted).
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4. United States consumers.74
Law professors Colleen Chien and Mark Lemley note that although the ITC appears to have
sufficient statutory authority to take into account a variety of public interest factors (including
consumers and competition) when deciding whether to grant an exclusion order, the ITC rarely
has exercised that power.75 The ITC has refrained from imposing an exclusion order based on
these considerations on only three previous occasions, and none in the past quarter century. These
cases, however, involved products that are important to human health or other critical national
policy goal, including “car parts necessary for improved fuel efficiency, scientific equipment for
nuclear physics research, and hospital burn beds.” 76 The law professors surmise that the reason
the ITC rarely finds that an exclusion order would threaten the public interest is because “the ITC
views enforcing patents as in the public interest, with the result that the public interest analyst
starts out with a thumb on the scale in favor of the patentee.”77
The Federal Trade Commission (FTC) has observed that “unlike the situation in district court, a
finding of infringement in the ITC leads to a nearly automatic exclusion order.”78 Thus, the FTC
explained that some parties are “worried that patentees might bring suit in the ITC more
frequently in the future in the hope of obtaining exclusion orders in circumstances where
injunctions might not have been granted in federal district court.”79 Law professors Chien and
Lemley argue that in the aftermath of eBay, patent assertion entities (so-called “patent trolls”)
“are flocking to the ITC” in search of an injunction or the threat of one.80 However, in June 2012,
the ITC published an analysis of its caseload data that it claims does not support the suggestion
that eBay has greatly contributed to an increase in complaint filings by patent trolls at the ITC.81
Law professors Chien and Lemley have noted that “[l]egislative and judicial improvements made
to patent law procedures and remedies simply don’t apply in the ITC,”82 citing the eBay example
as well as the recently enacted Leahy-Smith America Invents Act of 2011 (AIA). The AIA
restricts the ability of plaintiffs to sue multiple unrelated defendants for infringement in the same
case or same trial “based solely on allegations that they each have infringed the patent or patents
in suit,” 83 which is a common practice among patent assertion entities (“patent trolls”). However,
Congress did not extend this joinder limitation to the ITC, the law professors observed. Thus,
“[w]hile the number of defendants per case declined in the district court immediately following
passage of the [AIA], it has stayed steady in the ITC.”84
74 19 U.S.C. § 1337(d)(1).
75 Chien and Lemley, supra note 67 at 23.
76 Id.
77 Id.
78 FTC Report, supra note 18, at 240.
79 Id.
80 Chien and Lemley, supra note 67 at 3, 30.
81 U.S. International Trade Commission, Facts and Trends Regarding USITC Section 337 Investigations, June 18,
2012, available at http://www.usitc.gov/press_room/documents/featured_news/337facts.pdf.
82 Chien and Lemley, supra note 67 at 18.
83 P.L. 112-29, § 19 (2011).
84 Chien and Lemley, supra note 67 at 18.
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Recent Developments Relating to Standard-
Essential Patents and FRAND Licensing
The question arises, and has been the subject of much debate in federal courts, government
agencies, scholarly publications, mass media, and congressional hearings, whether the
incorporation of a patent into an industry standard should be regarded as limiting the SEP
holder’s ability to obtain injunctive or exclusionary relief from federal courts and the ITC against
alleged infringers. Few would disagree that the SEP holder should be entitled to monetary
damages in a situation where an SEP holder offers a FRAND license to an implementer of a
standard, but the implementer (believing that the proposed royalty rates are too excessive) refuses
to license the SEP and produces the infringing product anyway. However, in such a situation, is
injunctive or exclusionary relief appropriate for the SEP holder against any party that wants to
practice the standard but does not agree to the SEP holder’s licensing terms? The debate on this
question generally centers around the “appropriateness” of such relief—those who favor limiting
injunctions in this situation would like to see injunctive relief rarely awarded to an SEP holder
unless there were extraordinary circumstances.85 On the other side of the debate are those who
oppose a diminishment of the patent holder’s right to exclude others from making, using, or
selling a patented invention without the patent holder’s express authorization, fearing that it
would “tip the balance in favor of infringers to the detriment of innovation and ultimately
consumers.”86
U.S. Department of Justice Antitrust Division’s Review of Patent
Portfolio Acquisitions
The U.S. Justice Department Antitrust Division has noted that the recent acquisitions in 2011 of
substantial patent portfolios by prominent technology companies (Google, Apple, and Microsoft)
which include SEPs “highlight the complex intersection of intellectual property rights and
antitrust law and the need to determine the correct balance between the rightful exercise of patent
rights and a patent holder’s incentive and ability to harm competition through the anticompetitive
use of those rights.”87 A partnership that included Apple and Microsoft purchased 6,000 patents
from Nortel Networks in a June 2011 bankruptcy auction, many of which covered wireless
communication standards and to which that Nortel had committed to license on FRAND terms.
Google entered into an agreement in August 2011 to acquire Motorola Mobility, which holds
85 See, e.g., July 9, 2012 Submission to the U.S. International Trade Commission by 19 Economics and Law Professors,
Re: In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices,
Computers and Components Thereof, Investigation No. 337-TA-745, at 2, available at
http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1436&context=facpubs.
86 The International Trade Commission and Patent Disputes: Hearing Before the House Judiciary Committee,
Subcommittee on Intellectual Property, Competition and the Internet, 112th Cong., 2d Sess., July 18, 2012 (statement of
Bernard J. Cassidy, Executive Vice President & General Counsel, Tessera Technologies, Inc.), at 9 (hereinafter “ITC
and Patents Hearing”).
87 U.S. Dep’t of Justice, Statement of the Department of Justice’s Antitrust Division on Its Decision to Close Its
Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Certain Patents
by Apple Inc., Microsoft Corp. and Research in Motion LTD., Feb. 13, 2012, available at http://www.justice.gov/atr/
public/press_releases/2012/280190.htm.
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17,000 patents, several hundreds of which pertain to wireless Internet and cellular communication
standards and to which Motorola Mobility had committed to license on FRAND terms.
The Antitrust Division of the Justice Department approved the acquisition of these patent
portfolios because it believed that “neither acquisition was likely to substantially lessen
competition for wireless devices.”88 Furthermore, the Division was reassured by these companies’
public commitments to adhere to FRAND licenses, which are excerpted below:
Microsoft: “Industry standards are vitally important to the development of the Internet and to
interoperability among mobile devices and other computers. The international standards
system works well because firms that contribute to standards promise to make their essential
patents available to others on fair, reasonable and nondiscriminatory terms. Consumers and
the entire industry will suffer if, in disregard of this promise, firms seek to block others from
shipping products on the basis of such standard essential patents.”89
Apple: “A party who made a FRAND commitment to license its cellular standards essential
patents or otherwise acquired assets/rights from a party who made the FRAND commitment
must not seek injunctive relief on such patents. Seeking an injunction would be a violation of
the party’s commitment to FRAND licensing.”90
The Antitrust Division noted that Google’s commitment to FRAND is not as straightforward as
Apple’s and Microsoft’s, explaining that “Google has stated ... that its policy is to refrain from
seeking injunctive relief for the infringement of SEPs against a counter-party, but apparently only
for disputes involving future license revenues, and only if the counterparty: forgoes certain
defenses such as challenging the validity of the patent; pays the full disputed amount into escrow;
and agrees to a reciprocal process regarding injunctions.”91 Thus, in the Antitrust Division’s view,
Google “does not directly provide the same assurance as the other companies’ statements
concerning the exercise of its newly acquired patent rights.”92
Nevertheless, the Antitrust Division concluded, “[i]f adhered to in practice, these positions could
significantly reduce the possibility of a [patent] hold up or use of an injunction as a threat to
inhibit or preclude innovation and competition.”93
Recent Cases Before the ITC Involving Standard-Essential Patents
Several cases before the ITC involve whether a FRAND-encumbered SEP holder is entitled to
exclusionary relief.
88 SEP Hearing, supra note 24, statement of Joseph F. Wayland, at 8.
89 Microsoft’s Support for Industry Standards, Feb. 8, 2012, available at http://www.microsoft.com/about/legal/en/us/
IntellectualProperty/iplicensing/ip2.aspx.
90 U.S. Dep’t of Justice, Statement of the Department of Justice’s Antitrust Division on Its Decision to Close Its
Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Certain Patents
by Apple Inc., Microsoft Corp. and Research in Motion LTD., Feb. 13, 2012, available at http://www.justice.gov/atr/
public/press_releases/2012/280190.htm.
91 Id.
92 Id.
93 Id.
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In the Matter of Certain Gaming and Entertainment Consoles, Related Software,
and Components Thereof
The ITC is currently investigating a case involving Motorola Mobility’s claims of patent
infringement against Microsoft’s Xbox 360 gaming console; at issue is whether to grant an
exclusion order in favor of Motorola Mobility,94 a holder of standard-essential patents relating to
video transmission and compression and wireless connectivity, that has previously agreed to
license its technologies on FRAND terms and yet has not reached an agreement with Microsoft
on reasonable license terms.95 In May 2012, the ALJ assigned to the case recommended a ban on
the importation of Xbox consoles96 after he had made an earlier determination that the device
infringed four patents owned by Motorola.97
In the wake of the ALJ’s initial determination in the Xbox case, several Members of Congress
submitted letters to the Chairman of the ITC to express their concerns over the potential
exclusionary order against the gaming console, while other Members have urged the ITC to
protect Motorola’s patent rights.98 A June 7, 2012 letter from the House Judiciary Committee to
the ITC signed by Representatives Lamar Smith, John Conyers, and Melvin Watt, argued that:
A party making a RAND commitment for SEPs promises not to deny a license to anyone
who implements the standard. Patent owners agree that they will seek reasonable royalties
and not pursue a court order or an exclusion order to prevent the importation or sale of an
implementer’s product. The aims underlying RAND arrangements may be undermined when
a patent owner either petitions the Commission for an exclusion order or makes an
unreasonable royalty demand. ...
In our view, a failure to honor a RAND commitment undermines confidence in the standards
system and disrupts competition and innovation. If companies refuse to comply with their
RAND commitments and instead treat their SEPs as a weapon to block others from
distributing products that implement key standards, they will prevent and inhibit innovation
and competition. Ultimately, this behavior threatens to disrupt competition and undermines
the creation and adoption of standards that are at the heart of modern communications
technologies and the digital networks that are critical to the global economy. Technological
innovation, predictable and stable commerce, and strong competition may be harmed by
inappropriate assertions of SEP rights through exclusion orders.99
Several Members of Congress from Illinois, where Motorola is based, wrote in their letter to the
ITC:
94 Motorola Mobility was acquired by Google on May 22, 2012. See Press Release: Google Acquires Motorola
Mobility, at http://mediacenter.motorola.com/Press-Releases/Google-Acquires-Motorola-Mobility-3aeb.aspx.
95 John Letzing, Motorola Seeks New Licensing Deal with Microsoft, WALL ST. JOURNAL, June 21, 2012.
96 U.S. Int’l Trade Comm’n, In the Matter of Certain Gaming and Entertainment Consoles, Related Software, and
Components Thereof, Inv. No. 337-TA-752, Recommended Determination on Remedy and Bonding, May 18, 2012,
available at http://www.wired.com/images_blogs/gadgetlab/2012/05/748131-480637.pdf.
97 U.S. Int’l Trade Comm’n, In the Matter of Certain Gaming and Entertainment Consoles, Related Software, and
Components Thereof, Inv. No. 337-TA-752, Notice, April 23, 2012, available at http://www.usitc.gov/press_room/
documents/337_752_ID.pdf.
98 Members of Congress Write to ITC to Express Concern About Potential Xbox Ban, FOSS PATENTS Blog, June 12,
2012, at http://www.fosspatents.com/2012/06/members-of-congress-write-to-itc-to.html.
99 Id.
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We strongly support vigorous intellectual property right protection, including injunctive and
exclusionary relief, that appropriates and reasonably rewards past innovation and encourages
new development, which has been and must continue to be the foundation of this country’s
economic success. Indeed, to maintain a level playing field in circumstances in which entities
are found to be infringing U.S. intellectual property rights but will not provide reasonable
compensation to the owner and developer of these rights, injunctive and exclusionary relief
must be available and rigorously enforced. Denying legitimate patent protection adversely
affects domestic commerce and business in a very meaningful way by preventing domestic
companies from protecting their innovations, and thus discouraging domestic companies
from investing in future innovation.100
A June 19, 2012 letter to the ITC from Senators Herb Kohl, Mike Lee, Jon Kyl, John Cornyn, Jim
Risch, and John Hoeven urged the ITC to consider the public interest arguments carefully in cases
in which SEPs are at issue:
Any precedent that would enable or encourage companies to include their patented
technology in a standard, commit to license included patents on RAND terms, and then seek
to secure an exclusion order despite a breach of that commitment would thus implicate
significant policy concerns. Such an outcome would severely undermine broad participation
in the standards-setting process, which would in turn threaten the meaningful benefits these
standards provide for both industries and consumers.101
On June 29, 2012, the Commission ordered a remand of the Xbox investigation to the ALJ with
instructions for the ALJ to apply newly issued Commission opinions that some observers predict
may change the ALJ’s determination in favor of Microsoft.102 In any case, the remand to the ALJ
will cause significant delay in the case, with a target date for the final decision being set as July
23, 2013.103
In the Matter of Certain Wireless Communications Devices, Portable Music and
Data Processing Devices, Computers, and Components Thereof
At issue in this investigation by the ITC is whether Apple infringes certain patents pertaining to
3G wireless technology that are held by Motorola Mobility with its importation into the United
States and sale within the United States of iPhone and iPad devices. The ALJ made an initial
determination in April 2012 that Apple infringed one of Motorola’s patents, which is a FRAND-
encumbered SEP.104 On June 25, 2012, the Commission provided notice that it was planning on
reviewing the ALJ’s initial determination and requested written submissions from parties (and
non-parties) on several questions relating to FRAND, including:
100 Id.
101 Six Republican Senators Oppose Exclusion Orders Over Standard-Essential Patents, FOSS PATENTS Blog, June
28, 2012, at http://www.fosspatents.com/2012/06/six-republican-senators-oppose.html.
102 No Xbox Import Ban in 2012: ITC Remands Investigation of Motorola Complaint, FOSS PATENTS Blog, June 29,
2012, at http://www.fosspatents.com/2012/06/no-xbox-import-ban-in-2012-itc-remands.html.
103 Google’s ITC Case Against Microsoft’s Xbox to be Decided in 12 months (July 2013), FOSS PATENTS Blog, July
25, 2012, at http://www.fosspatents.com/2012/07/googles-itc-case-against-microsofts.html.
104 In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices,
Computers and Components Thereof, Investigation No. 337-TA-745, Notice Regarding Initial Determination on
Violation of Se4ction 337, April 24, 2012, available at http://www.usitc.gov/press_room/documents/337_745_ID.pdf.
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1. If the record of an investigation lacks evidence sufficient to support a RAND-
based affirmative defense (e.g., equitable estoppel, implied license, waiver, etc.),
under what circumstances (if any) should a RAND obligation nonetheless
preclude issuance of an exclusion order?
2. Does the mere existence of a RAND obligation preclude issuance of an exclusion
order?
3. Should a patent owner that has refused to offer a license to a named respondent in
a Commission investigation on a RAND obligated patent be able to obtain an
exclusion order?
4. Should a patent owner that has refused to negotiate a license on RAND terms
with a named respondent in a Commission investigation be precluded from
obtaining an exclusion order?
5. Should a patent owner who has offered a RAND license that the named
respondent in a Commission investigation has rejected be precluded from
obtaining an exclusion order?105
The FTC submitted a statement to the ITC that sets forth the potential economic and competitive
impact of injunctive relief on disputes involving SEPs:
ITC issuance of an exclusion or cease and desist order in matters involving RAND-
encumbered SEPs, where infringement is based on implementation of standardized
technology, has the potential to cause substantial harm to U.S. competition, consumers, and
innovation. ... [W]e are concerned that a patentee can make a RAND commitment as part of
the standard setting process, and then seek an exclusion order for infringement of the
RAND-encumbered SEP as a way of securing royalties that may be inconsistent with that
RAND commitment.106
A submission to the ITC by 19 economics and law professors argued that “ITC exclusion orders
generally should not be granted under § 1337(d)(1) on the basis of patents subject to obligations
to license on ‘reasonable and non-discriminatory’ (RAND) terms” because such an exclusion
“would undermine the significant pro-competitive and pro-consumer benefits that RAND
promises produce and the investments they enable.” 107 The submission contends that “[t]hrough
their promises [to license on FRAND terms], [SEP] patent holders have traded the right to
exclude for the privilege of being declared essential to the standard.”108 However, the professors
105 In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices,
Computers and Components Thereof, Investigation No. 337-TA-745, Notice of Commission Decision to Review in
Part a Final Initial Determination Finding a Violation of Section 337; Request for Written Submissions, June 25, 2012,
at 4-5, available at http://www.usitc.gov/secretary/fed_reg_notices/337/337_745_Notice06252012sgl.pdf.
106 Federal Trade Commission’s June 6, 2012 Submission to the U.S. International Trade Commission, Statement on
the Public Interest In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing
Devices, Computers and Components Thereof, Investigation No. 337-TA-745, available at http://www.ftc.gov/os/2012/
06/1206ftcwirelesscom.pdf.
107 July 9, 2012 Submission to the U.S. International Trade Commission by 19 Economics and Law Professors, Re: In
the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and
Components Thereof, Investigation No. 337-TA-745, at 2, available at http://digitalcommons.law.scu.edu/cgi/
viewcontent.cgi?article=1436&context=facpubs.
108 Id.
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recognized that an exception to this general rule might be if “district court jurisdiction is lacking,
the patent is valid and infringed, and the public interest favors issuing an exclusion order.”109
On August 24, 2012, the Commission reversed the ALJ’s determination that Apple infringed
Motorola’s SEP.110 The decision, however, does not discuss the Commission’s position on the
questions it posed to the parties relating to FRAND and whether an exclusion order is appropriate
in cases involving SEPs.
Hearings in the 112th Congress
In June and July 2012, Congress held several oversight hearings that examined the issue of SEPs
and the ITC.
June 20, 2012, Senate Judiciary Committee
The U.S. Patent and Trademark Office Director David Kappos offered his views on standard-
essential patents in response to questions posed by Senators Patrick Leahy and Mike Lee in a
Senate Judiciary Committee hearing held on June 20, 2012.111 Senator Leahy asked Director
Kappos whether holders of SEPs that seek an exclusion order from the ITC after previously
committing to FRAND licensing could have anti-competitive effects. Director Kappos stated that
the situation is “cause for careful study,” but nevertheless he stated that pledges by competitors to
adhere to FRAND must be kept. Yet, he also emphasized that a FRAND commitment does not
stand for licensing under any terms and conditions. Furthermore, he argued that FRAND should
not eliminate all opportunities to enforce a patent because then no company will have any
incentive to take a license for the patented technology in the first place. In response to a question
posed by Senator Lee, Director Kappos further expressed his concerns about the use of exclusion
orders in SEP cases before the ITC. But he noted that there is a need to find a proper balance that
is beneficial to both patent owners and those that engage in standard setting.
On July 10, 2012, Google sent a letter to Senators Leahy and Grassley in which it urged caution
in taking any steps to change the status quo in the area of FRAND-encumbered SEPs:
Google agrees that courts and the International Trade Commission (the “ITC”) may consider
whether a patentee has complied with its licensing obligation as a relevant factor in
determining whether the public interest supports awarding exclusionary relief based on a
standard-essential patent (“SEP”). ... But at the same time, courts and regulators must avoid
the temptation to adopt categorical rules that deprive patentees of the rights that Congress
109 Id.
110 In the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices,
Computers and Components Thereof, Investigation No. 337-TA-745, Notice of Commission Decision Finding No
Violation of Section 337 as to Three Patents and Remanding the Investigation to the ALJ as to One Patent, August 24,
2012, available at http://www.usitc.gov/secretary/fed_reg_notices/337/337_745_notice08242012sgl_1.pdf.
111 Oversight of the United States Patent and Trademark Office: Implementation of the Leahy-Smith America Invents
Act and International Harmonization Efforts: Hearing Before the Senate Judiciary Committee, 112th Cong., 2d Sess.,
June 20, 2012, available at http://www.judiciary.senate.gov/hearings/hearing.cfm?id=
d1d944e8c0b3e2a582633afaeb6ba43a.
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and the Patent Office conferred on them and that the patentees did not intend to relinquish
through their FRAND licensing promises.”112
July 11, 2012, Senate Judiciary Committee
The Senate Judiciary Committee held a hearing on July 11, 2012 with the title, “Oversight of the
Impact on Competition of Exclusion Orders to Enforce Standards-Essential Patents.” The hearing
had two witnesses, Joseph Wayland, the Acting Assistant Attorney General, Antitrust Division of
the U.S. Department of Justice, and Edith Ramirez, the Commissioner of the Federal Trade
Commission. Acting Assistant Attorney General Wayland noted that in the Antitrust Division’s
review of the 2011 patent portfolio acquisitions by the major technology companies, it
“investigated whether patent acquisitions would change the incentives or abilities of the new
owners to obtain higher royalties from their competitors, particularly by using the threat of an
injunction or exclusion order.”113 In addition, he revealed that the Antitrust Division has
“continued closely to monitor the use of F/RAND-encumbered standard-essential patents in the
wireless device industry, particularly as they relate to smartphones and computer tablets, to
ensure that they do not stifle competition and innovation in this important industry.”114
Commissioner Ramirez stated that SSO members do not typically negotiate licenses for SEPs
before a standard is adopted, but rather require SEP owners to agree to license SEPs on FRAND
terms “as a quid pro quo for the inclusion of their patents in a standard.”115 She observed,
however, that while “[t]his [practice] makes it easier to adopt a standard, [it] also creates the
potential for hold-up because it defers the negotiation on price until after the standard is
adopted.”116 Commissioner Ramirez argued that the injunctive relief for a FRAND-encumbered
SEP holder is likely inappropriate in most cases:
“A royalty negotiation that occurs under threat of an injunction or an exclusion order may be
weighted heavily in favor of the patent holder in a way that is in tension with the RAND
commitment. High switching costs combined with the threat of an exclusion order could
allow a patent holder to obtain unreasonable licensing terms despite its RAND commitment,
whether or not the invention is highly valuable on its own, because implementers are locked
into practicing the standard. This is an even bigger problem when the hold-up creates a very
high cost for a very small component of the overall product. In these ways, the threat of
injunctive relief, including an exclusion order, may allow the holder of a RAND-encumbered
SEP to realize royalty rates that reflect patent hold-up, rather than the value of the patent
relative to alternatives. This can raise prices to consumers, distort incentives to innovate, and
undermine the standard setting process.”117
Finally, Commissioner Ramirez asserted that the ITC possesses sufficient statutory authority to
limit the possibility of hold-up under its obligation to consider several public interest factors
before deciding whether to grant an exclusion order to an FRAND-encumbered SEP holder that
has not complied with its FRAND obligation. However, she offered that if “the ITC finds that its
112 Letter from Kent Walker, General Counsel of Google, to Senators Leahy and Grassley, July 10, 2012, at 1, available
at http://www.scribd.com/doc/99843544/Leahy-Grassley-Letter-Final-1-Copy.
113 SEP Hearing, supra note 24, statement of Joseph F. Wayland, at 8.
114 Id. at 9-10.
115 SEP Hearing, supra note 24, statement of Edith Ramirez, at 5.
116 Id.
117 Id. at 6-7.
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public interest authority is not flexible enough to allow this analysis, then Congress should
consider whether it should amend Section 337 to give the ITC more flexible authority to prevent
hold-up.”118
July 18, 2012, House Judiciary Subcommittee on Intellectual
Property, Competition and the Internet
The House Judiciary Subcommittee on Intellectual Property, Competition and the Internet held a
hearing on July 18, 2012, entitled “The International Trade Commission and Patent Disputes.”
Witnesses included Professor Colleen Chien of Santa Clara University School of Law as well as
general counsels from several U.S. companies. Unlike the July 11th Senate Judiciary Committee
hearing on SEPs and the ITC, this hearing focused primarily on the impact of non-practicing
entities (which include “patent trolls”) on the ITC’s docket; however, the topic of SEPs was
discussed by some of the witnesses. First, Professor Chien explained that “now that most
technology products are manufactured abroad and Congress has relaxed the domestic industry
requirement [in 1988], nearly every patentee is a potential ITC complainant and nearly every
patent defendant is a potential ITC respondent.”119 Furthermore, because many patent holders in
the high technology industry are filing complaints with the ITC in the hopes of obtaining
injunctive relief that is more difficult to find in federal courts, this litigious behavior “undoes the
progress that eBay represents, and it contributes to the favorable climate for patent trolling and
holdup present in today’s patent system.”120 Finally, she suggested that the ITC could change the
way it issues exclusion orders in a way that “minimizes disruption to consumers and the holdup to
manufacturers;” for example, the ITC could carefully tailor the scope of the injunction and also
delay the effective date of an injunction in order to give time to the infringer to “design around”
the patent (if that is a feasible option).121 However, “designing around” a patent may not be
possible in the case of a SEP because doing so may mean that the product does not comply with
the standard:
Critically, SEPs cannot, by definition, be designed around without sacrificing compliance
with the standard. This makes them different than non-SEP patents that, if they cover minor
features, can be designed around without sacrificing key functionality. While inventing
around does not eliminate the danger of patent hold-up, it does provide a check on the
bargaining power wielded by patent holders that seek injunctive relief. This check is much
weaker when the patents are standards-essential. There, disabling even a single feature to
avoid infringement of an SEP can greatly detract from the value of a product by making it
inoperable for its intended purpose, for example, a laptop that cannot connect to a Wi-Fi
network. Furthermore, many consumers, counting on standards to provide the functionality
they require, are unwilling to purchase noncompliant products. An exclusion order that
forces manufacturers to produce noncompliant products would undermine the network
effects associated with successful standards and harm consumers.122
118 Id. at 14.
119 ITC and Patents Hearing, supra note 86, statement of Colleen V. Chien, Professor, Santa Clara University School of
Law, at 1.
120 Id. at 3.
121 Id. at 6.
122 July 9, 2012 Submission to the U.S. International Trade Commission by 19 Economics and Law Professors, Re: In
the Matter of Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and
Components Thereof, Investigation No. 337-TA-745, at 3, available at http://digitalcommons.law.scu.edu/cgi/
(continued...)
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Albert Foer, president of the American Antitrust Institute (AAI), testified that:
Although it is not feasible to establish perfect rules on what price for licensing a SEP would
be fair and reasonable, some minimal standards are appropriate. The AAI agrees with the
FTC’s promotion of two principles. First, the determination should rest on ex ante
incremental value rather than ex post total market value. Second, the royalty base should be
the smallest affected component rather than the entire device. Because FRAND
commitments are today so generally vague that they do not provide adequate protection
against holdup conduct, SSOs should be required to move in the direction of ex ante
disclosure of proposed or maximum license terms.123
Furthermore, Mr. Foer argued that “[a]n injunction is not an appropriate remedy for SEP
infringement as a matter of both good law and good policy” and that “SSO rules should make
clear that the provider of a FRAND commitment in the course of a standard development
proceeding waives any right to seek either injunctive relief in court or an exclusion order at the
International Trade Commission.”124
Bernard Cassidy, General Counsel of Tessera Technologies, Inc., urged Congress not to make any
changes to Section 337 that would weaken the ITC’s jurisdiction or powers, because doing so, he
claimed, “would benefit foreign economies, foreign competitors, and other foreign manufacturers
to the detriment of the U.S. economy.”125 He also rejected arguments by some commentators that
Congress apply the eBay case to the ITC because “[g]iven that the only remedy available to the
ITC is exclusion orders, mandating application of eBay would substantially weaken the power of
the ITC to deal with unfair trade practices.”126 Finally, he predicted that reducing or eliminating
the availability of exclusion orders or injunctions for FRAND-encumbered SEP holders would
mean that “fewer innovators would participate in SSOs with such IPR rules (or make FRAND
commitments if they do participate) or engage in R&D for technologies that may be standardized.
Reduced participation in SSOs or reduced funding of R&D would likely result in delay,
technologically inferior standards, and reduced information about patents implicated by
standards.”127
In an August 2, 2012 letter sent by the American Intellectual Property Law Association (AIPLA)
to Congressmen Bob Goodlatte and Mel Watt (the Chairman and Ranking Member of the House
Judiciary Subcommittee on Intellectual Property, Competition and the Internet, respectively),
AIPLA argued against the application of the eBay rule for ITC proceedings and expressed several
concerns about proposals to categorically deny injunctive or exclusionary relief to SEP holders:
Like all patent owners, SEP owners should have the right to protect their intellectual
property from infringement. Removing this patent enforcement option at the ITC may be
harmful to the rapidly growing IT and telecommunications industries that often participate in
(...continued)
viewcontent.cgi?article=1436&context=facpubs.
123 ITC and Patents Hearing, supra note 86, statement of Albert Foer, president of the American Antitrust Institute, at 7.
124 Id. at 9-10.
125 ITC and Patents Hearing, supra note 86, statement of Bernard Cassidy, General Counsel of Tessera Technologies,
Inc., at 3.
126 Id. at 9.
127 Id. at 10.
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the SSOs. Additionally, a categorical exclusion of SEPs from Section 337 proceedings would
make it easier for foreign companies to import infringing goods into the U.S.128
Author Contact Information
Brian T. Yeh
Legislative Attorney
byeh@crs.loc.gov, 7-5182
128 Letter from AIPLA to the Honorable Bob Goodlatte and Mel Watt, Aug. 2, 2012, at 3-5, available at
http://www.aipla.org/advocacy/congress/Documents/
AIPLA%20Letter%20to%20the%20House%20Judiciary%20Subcommittee%20on%20ITC%20and%20Patent%20Disp
utes%20-%208.2.12.pdf.
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