Under what conditions may the holder of standard-essential patents (SEPs) seek to enjoin an infringing implementer without breaching the SEP holder's contract with the standard-setting organization (SSO) to provide access to those SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms? I show that the SEP holder's contractual obligations still permit it to seek an injunction. A FRAND commitment requires the SEP holder to offer a license for the SEPs on FRAND terms (or otherwise to grant implementers access to the SEPs). Extending an offer containing a price within the FRAND range discharges the SEP holder's contractual obligation. Thereafter, the SEP holder may seek to enjoin an implementer that has rejected a FRAND offer. This analysis indicates the imprudence of categorically banning injunctions for the infringement of SEPs, as some scholars have advocated and as one of the world's most significant SSOs-the Institute of Electrical and Electronics Engineers (IEEE)-actually did in 2015 in amendments to its bylaws. Such a ban would invite opportunism by implementers and is unnecessary. Courts already can prevent opportunism by SEP holders by conditioning an injunction on the implementer's actual or constructive rejection of a FRAND offer.
A patent holder that joins a standard-setting organization (SSO) typically agrees to license its standard-essential patents (SEPs) on fair, reasonable, and nondiscriminatory (FRAND) terms to future implementers of the standard. In the United States, a court "may grant injunctions . . . to prevent the violation of any right secured by patent."1 However, an SEP holder's right to enjoin implementers that infringe FRAND-committed patents is a controversial topic in patent law and competition policy throughout the world.2 In this article, I analyze whether, and under what conditions, an SEP holder may seek and enforce an injunction against an implementer without breaching the SEP holder's FRAND contract with the SSO-including the SEP holder's commitments to the contract's third-party beneficiaries (namely, implementers of the standard).3
Some commentators have suggested that an SEP holder should never be allowed to seek or enforce an injunction after it has committed to offer to license its SEPs on FRAND terms. Mark Lemley and Carl Shapiro are leading proponents of this view and argue that an SEP holder's use of an injunction facilitates patent holdup.4 According to Lemley and Shapiro, an SEP holder's mere threat to exclude an implementer's products from the market, even if only for a limited period of time, could enable the SEP holder to extract licensing fees from implementers that exceed the SEP's genuine economic value.5 Lemley and Shapiro urge courts to deny injunctions to SEP holders.
Citing these theoretical conjectures, some implementers of SEPs have sought to amend an SSO's bylaws to impose a categorical ban on injunctions for infringement of SEPs. On February 8, 2015 one of the world's most significant SSOs, the Institute of Electrical and Electronics Engineers (IEEE) ratified amendments to its bylaws to diminish the rights of SEP holders in various ways, including categorically banning the SEP holder's right to an injunction. (The IEEE has promulgated, among other important standards, the 802.11 and subsequent standards for Wi-Fi.) Draft 39 of the IEEE Standard Board Bylaws defines the new term "Prohibitive Order" to "mean an interim or permanent injunction, exclusion order, or similar adjudicative directive that limits or prevents making, having made, using, selling, offering to sell, or importing a Compliant Implementation."6 The significance of the IEEE's new definition of a Prohibitive Order becomes clear when one examines how the IEEE then defines another new term, "Reasonable Rate," to mean:
appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim's technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of:
- The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
- The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
- Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.7
J. Gregory Sidak is an Expert Economist in the fields of Antitrust, Telecommunications Regulation, Commercial and Investment Arbitration, and Intellectual Property Law. Prof. Sidak is the Ronald Coase Professor of Law & Economics at Tilburg University and the Chief Economic Expert at Criterion Economics in Washington, DC. The focus of his research has been regulation of network industries, antitrust policy, the Internet and electronic commerce, intellectual property, and constitutional law issues concerning economic regulation.
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