NDCA finds violation of FRAND for seeking ITC exclusion order

On May 20, Judge Whyte in the Northern District of California issued his second FRAND-related opinion of the month, this time in Realtek Semiconductor Corp. v. LSI Corp., Case No. 5:12-cv-03451. According to the Court

This dispute concerns whether a holder of patents essential to an industry standard ("standard-essential patents") may commence an action before the U.S. International Trade Commission ("ITC") pursuant to Section 337 of the Tariff Act of 1930 ("Section 337 action") seeking an exclusion order and injunctive relief against a party practicing that standard without violating its obligation to license the standard-essential patents on reasonable and non-discriminatory ("RAND") terms.

Realtek had moved for summary judgment that LSI and Agere had breached their FRAND obligations by failing to offer a license on reasonable terms prior to seeking an exclusion order from the ITC. Realtek also moved for an order barring LSI and Agere from enforcing or seeking to enforce an exclusion order. The patents at issue related to 802.11 wireless standards, and Agere had agreed to license its 802.11-related patents on FRAND terms.

The parties had licensing negotiations back in 2002/2003, but nothing materialized. Then, nine years later, LSI again contacted Realtek and asserted that certain Realtek products infringed. At that time, no license was offered - LSI merely informed Realtek to cease and desist. Less than a week later, LSI and Agere filed a complaint with the ITC naming Realtek and others as respondents on the same patents. At that point, Realtek reached out to LSI and Agere, requesting a license to the patents on RAND terms. But after receiving a RAND proposal, Realtek filed suit in the Northern District of California, labeling the proposal as "inherently unreasonable" because it was based on the value of the end-product, rather than the component parts ostensibly related to 802.11 - i.e., that the rate improperly invoked the entire market value rule.

On Realtek's motion for partial summary judgment for breach of contract, Realtek argued that injunctive relief (including seeking an exclusion order) was not an appropriate remedy at any time, and that LSI and Agere's attempt to seek an exclusion order was an improper attempt to extract royalties in excess of a FRAND rate. LSI and Agere argued that the motion was premature, as very little discovery had been conducted prior to the motion being filed. LSI and Agere also argued that the District Court action should be stayed pending resolution of the ITC action, since there would only be an issue if an exclusion order were actually granted. To that, Realtek countered that the ITC did not deal with RAND licensing issues, and thus the issue was ripe.

case, and explained that injunctive relief was inappropriate for standards-essential patents. The Court went on to say that "while an injunction may be warranted where an accused infringer of a standard-essential patent outright refuses to accept a RAND license...there is no indication that Realtek is not willing to accept a RAND license." Realtek wanted the ability to, and the Court had already agreed Realtek could, "simultaneously pursue a determination of the RAND royalty rate while denying infringement or asserting invalidity, even though those issues may ultimately obviate the need for a license." The Court also noted that there is no reason the RAND royalty rate could not be determined first, which, as a case management tool, would presumably be effective for assisting the parties in reaching a settlement figure.

The Court found that LSI and Agere had breached their obligations, and their conduct was a "clear attempt to gain leverage in future licensing negotiations." The Court also granted a preliminary injunction enjoining LSI and Agere from enforcing any exclusion order or injunctive relief by the ITC that they might obtain against Realtek on the standards-essential patents.

This case stands to be a game-changer for ITC actions involving standards-essential patents. It is no surprise that the threat of an exclusion order provides significant leverage to patentees, but Judge Whyte's decision holds that this leverage is improper where the Defendant is willing to accept a FRAND offer and the patentee will not make such an offer. Undoubtedly, however, the next step will be numerous fights over whether an offer was in fact FRAND, and exactly how "willing" a Defendant was to accept that offer. In this case, Judge Whyte found that no FRAND offer had been made before the ITC suit was filed, but in cases where a plaintiff makes some attempt, a different Court may come out a different way.