Specialist Chapter: Navigating High Stakes Patent Injunction Abuse

In summary

This article emphasises the importance of prioritising valid and infringed patents for all stakeholders, including individual parties, courts, multi-jurisdictional bodies such as the Unified Patent Court, and regulatory agencies. Additionally, it provides relevant background information to better comprehend the European Commission’s objectives in its draft policy to address standard essential patents. Further, this article demonstrates how unjust injunctions can disrupt fair competition, hinder market entry and lead to overpayments that stifle innovation and economic growth. We begin by discussing historic high-stakes examples, modern disputes and assessing industry performance over time. We analyse lessons learned and conclude with summarised findings.

Discussion points

• High-stakes examples and recent disputes
• Patent performance in litigation
• Lessons learned

Referenced in this article

• Nokia v OPPO
• Nokia v Daimler
• eBay Inc v MercExchange, LLC
• NTP, Inc v Research in Motion, Ltd
• Unwired Planet v Huawei
• InterDigital v Lenovo
• Microsoft Corp v Motorola, Inc

Negotiating licences under the looming shadow of injunction threats can be as daunting as Dorothy’s encounter with the Wizard of Oz. Yet, much like Dorothy discovered, a closer examination often reveals these threats to be more smoke and mirrors than genuine power.

This article emphasises the importance of prioritising valid and infringed patents for all stakeholders, including individual parties, courts, multi-jurisdictional bodies such as the Unified Patent Court, and regulatory agencies. Additionally, it provides relevant background information to better comprehend the European Commission’s objectives in its draft policy to address standard essential patents.^[1]

Prioritising legitimacy preserves system integrity, ensures fairness in dispute resolution, promotes efficiency and instils confidence in the patent system. Further, this article demonstrates how unjust injunctions can disrupt fair competition, hinder market entry and lead to overpayments that stifle innovation and economic growth.

We begin by discussing historic high-stakes examples, modern disputes such as OPPO and Daimler, and assessing industry performance over time. We analyse lessons learned and conclude with summarised findings.

Historic high-stakes example

In 2001, NTP Inc sued Research in Motion (RIM),^[2] the maker of BlackBerry smartphones, to get better terms in patent negotiations. RIM made costly concessions under the threat of injunction. Ironically, the United States Patent and Trademark Office (USPTO) later found that all but one of the critical patents NTP relied on were invalid (see below).

Background

During the NTP lawsuit, BlackBerry devices and email services were widely used by international businesses, the US/Canadian governments and foreign government personnel. RIM could have settled early but believed the patents wouldn’t survive a challenge. The US Supreme Court had yet to set limitations on injunctions in the eBay v Merc Exchange case.^[3] The US district court thus ordered an injunction barring the sales of all BlackBerry devices and services. Faced with market exclusion, RIM settled with NTP for a staggering US$612 million. Later USPTO and appeal court decisions found four of the five asserted patents invalid.

Timeline

• In 2001, NTP Inc sued RIM for patent infringement, alleging that RIM’s BlackBerry devices violated five of NTP’s wireless email patents.
• In November 2002, the jury ruled in favour of NTP.^[4] The jury’s decision was upheld on appeal on 2 August 2005, and an injunction was set for 24 March 2006.
• On 4 March 2006, RIM and NTP reached a settlement, where RIM agreed to make a (non-refundable) payment of US$612 million.^[5]
• As of 2009, three patents were removed from the case and the USPTO found the two remaining NTP patents invalid.
• In 2011, the US Court of Appeals for the Federal Circuit, affirmed one of the invalidation decisions and remanded the other back to the USPTO.^[6]

OPPO and Daimler cases

In recent events, Nokia filed lawsuits against OPPO in multiple jurisdictions^[7] to gain leverage in licensing negotiations. However, an unexpected twist occurred when the European Patent Office (EPO) Board of Appeals invalidated Nokia’s patents.^[8] Interestingly, Nokia had previously used the same patents against Daimler in Munich just a couple of years before, coercing them into an undeserved settlement.

Regrettably, the EPO decision came too late for Daimler, as they had already made substantial payments and agreed to unfavourable terms to avoid the potentially massive damage that an (unjust) injunction would have caused.

Timeline of the Daimler case

• In August 2020, the Mannheim District Court issued an injunction order against Daimler.^[9]
• In January 2021, the European Patent Office upheld the patents asserted against Daimler. As a result, the infringement case against Daimler proceeded without delay, and the associated injunction remained in effect.
• On 1 July 2021, the parties settled.^[10] Until then, they had significant differences in the terms of a bilateral licence. The settlement prevented the injunction from going into effect.
• However, in May 2023, OPPO was able to invalidate two patents of Nokia^[11] that had been asserted against Daimler.

Patent performance in litigation

In many licensing negotiations, disputes are resolved without going to court. However, in high-stakes cases, the patents initially claimed to be infringed often ultimately fail scrutiny in litigation. For example, in the UK Unwired Planet v Huawei case,^[12] the court found only two out of five asserted patents valid and infringed. Similarly, in the UK case of InterDigital v Lenovo,^[13] only one out of five claimed patents were deemed valid and infringed.^[14] In July 2023, OPPO successfully defended against two Nokia lawsuits in a French Court.^[15] This case raised concerns for cases in Germany where Nokia could face accusations of wrongfully enforcing injunctions.^[16] See Figure 1 for a summary of these outcomes.

More injunction performance data on SEPs

Few asserted patents survive to the end of the litigation process. A study conducted in 2013 by John (Jay) Jurata and David Smith^[17] analysed 85 adjudicated SEPs asserted by highly litigious companies over five years. The findings revealed that the courts recognised only one out of eight asserted SEPs as valid and essential, amounting to just 12.5 per cent of the initially claimed SEPs.

A subsequent study covering the period from 2013 to 2017 examined 71 asserted SEPs. The courts determined that only eight patents were valid and infringed, accounting for a meagre 11 per cent of the initially claimed SEPs.^[18] In many of these cases, courts found none of the asserted patents valid and infringed.

The data from the study highlights that only a tiny fraction of initially claimed (presumably best) SEPs prove to be valid and essential or infringed.

SEP injunctions drastically impact negotiation prices

With injunctions in play, the threatening prospect of market exclusion holds significant leverage in any patent negotiation, potentially leading to extortive tactics. Eliminating non-infringed and invalid patents, if feasible, would shrink the negotiation scope and should reduce the amount of royalties due. In the study examples above, the 12 per cent survival means a staggering reduction in infringed patents. Also note that eight of the 13 cases studied resulted in zero patents surviving,^[19] meaning no compensation.

Exaggerated patent valuations also succumb to scrutiny at trial

In Microsoft v Motorola,^[20] all patents survived, but Judge Robart described Motorola’s 2.25 per cent per unit offer as a ‘naked royalty’ that is ‘unreasonable and unfair’. His final determination was 3.471 cents and 0.55 cents per unit for the respective patents. His findings were much lower than the initial demand: about US$4.48 per unit.^[21] In Optis Cellular v Apple (UK decision, May 2023), the court set the royalty determination at 0.5 per cent, which was one-quarter of the 2 per cent initial Optis demand leaked to the press. In Interdigital v Lenovo (UK decision in March 2023), Interdigital sought a global FRAND rate of US$0.489 per unit. However, the court found that InterDigital had not provided sufficient evidence to support its damages claim. The court set the global FRAND rate at US$0.175 per unit, 36 per cent of InterDigital’s original demand.^[22]

This section delved into injunction-inspired cases where the excessive number of patents claimed to be valid and infringed and the overstated royalty demands did not stand up to scrutiny. Examples such as RIM and Daimler (worth hundreds of millions of dollars) demonstrate that initial court decisions may be insufficient. Issuing an injunction before court and patent office processes are complete frequently results in inequitable and irreversible consequences. The enormous legal costs, the lost management time and the reputational impact, regardless of the outcome, were also staggering. Many similar cases exist beyond what’s covered here. Additionally, the fear of market exclusion has forced other companies to accept detrimental terms to avoid litigation, leading to overpayments that hamper research and development, payroll and capital expansion. Significant improvements are needed to address this major economic impact of a flaw in the overall system.

Lessons learned

The essence of a patent system is to incentivise innovation and drive economic growth. Courts must not facilitate abusive licensing schemes centred around dubious patents that should never have been granted. While refining patent validation processes and enhancing patent quality are crucial, they merit distinct attention and won’t be covered here. The emphasis here lies on the need for courts to maintain the integrity of the patent system by discerning and handling questionable patents.

Easily obtained unjust injunctions reward the wrong behaviour

Easily obtained unjust injunctions undermine the patent system’s purpose of fostering innovation and economic growth. Courts must avoid inadvertently supporting abusive negotiations that divert resources from crucial areas like production, research, payroll and employment. Affected companies may fall behind on significant innovations of their own (consider medical devices as just one example). In addition, the companies that supply supporting infrastructure to injuncted companies (eg, suppliers, retailers, restaurants and food stores) also suffer.

Other companies will accept unfair terms to avoid litigation. The cost impact can easily affect economic growth. Critical nascent industries, such as the Internet of Things, may be especially vulnerable to excessive and unpredictable hardware costs.^[23]

Additionally, unjust injunctions disrupt a patentee’s commitment to accepting monetary compensation for infringements, impeding the beneficial adoption of standards.

Equitable solutions provide a way forward

Courts have many tools to ensure fairness and equity. In the United States, the eBay decision established important guidelines for granting injunctions. Many jurisdictions worldwide also value equitable solutions. However, in some jurisdictions, courts focus on infringement without considering patent validity. Ignoring validity while enforcing injunctions worsens negotiation imbalances.

Prudent injunction use is vital; fair solutions can offer just compensation

Misusing injunctive relief can obstruct settlements.^[24] Treating the patent as a right to enjoin the use of a product that is many orders of magnitude more complex than the patent claims is neither good law nor economics. Properly assessing patent rights would boost innovation and growth.

Timely patent validity decisions are crucial

An early resolution before exclusion orders take effect can be a key tool to ensure a fair and just outcome for legitimately challenged validity. The US Patent Trial and Appeal Board (PTAB) provides for fair and efficient proceedings. By allowing only ‘reasonably likely’ challenges, the PTAB filters out unwarranted challenges and maintains a streamlined process, with an average resolution time of just 10.5 months.

A constructive and thorough examination of equitable solutions does not hinder innovation

Some argue an economy will grow faster with more patents of any quality extracting high royalties. Their argument allows undeserving patent holders to profit from the efforts of genuine inventors. Diverting funds from true innovators and hardworking, productive companies would stifle their investment in research and development, payroll and capital expenditures. A thorough examination of equitable solutions is essential for innovation to grow productivity.

Patent systems may advantage foreign entities outside of the domestic economy

According to the USPTO,^[25] in 2022, 56 per cent of all utility patents granted in the United States were owned by foreigners. The European Patent Office^[26] numbers for 2022 show 49.2 per cent held outside the European Union. There is a valid concern that some foreign entities, especially those funded by large banks and investment funds, will repatriate their profits from litigation, taking funds away from the respective economies.

Courts have resources to deal with bad actors

For patent holders monetising their patents, seeking deterrents against uncooperative licensees is reasonable. Striking a balance and exploring equitable alternatives is crucial. Courts often use timely remedies such as stays, escrow, interest payments and punitive actions. Jurisdictions lacking appropriate remedies may wish to consider legislative actions. Courts can ensure fair compensation by implementing suitable measures and recognising the potential for patent invalidity while minimising the need for injunction enforcement reserved for exceptional cases.

Conclusion

This article highlighted the pitfalls of injunction threats in patent licensing negotiations. While many negotiations culminate amicably, the shadow of aggressive injunction threats can paradoxically stifle the innovation they’re meant to protect. It’s crucial for stakeholders – innovators, businesses, policymakers and judicial authorities – to adopt a balanced approach, emphasising equitable solutions and fair compensation. It’s time for all involved to take proactive steps: engage in transparent discussions, support reforms prioritising patent validity and quality, and collaboratively develop frameworks that deter patent abuse. By actively addressing the misuse of injunctions, we safeguard genuine innovation and pave the way for a more collaborative and constructive patent landscape.

Footnotes