WIPOD – Arbitration and Mediation Matters: Transcript of Episode 5

WIPO ADR for Standardized Technology and Patent Licensing Disputes

Selin Ozturk: Three, two, one, and we're back! Welcome back to WIPOD Arbitration and Mediation Matters. Today we're going to be talking about standardization of technology and the obstacle of patent licensing disputes. We are welcomed by Evelyn Chen, director at Ericsson's IP Rights and Licensing group, and Rita Kato, a legal case manager at the WIPO Arbitration and Mediation Center.

Evelyn supports Ericsson's patent licensing policies and practices for its industry leading patent portfolio of over 60,000 patents. Before joining Ericsson, Evelyn was a patent litigator and prosecutor at Sidley Austin LLP, representing both national and international clients.

We are all familiar with standardization of technology, although perhaps just not aware of it by name. Simply put, it is the process of regulating technology to make the production of devices more efficient and to make devices more interoperable or compatible. For example, having the same phone charger type for all mobile phones, which would be wonderful. Rita perhaps you could expand a little bit more.

Margarita Kato: As you said, standardization is a fairly straightforward concept – following on from the example you mentioned, it’s obviously more efficient to have mobile phones that all use the same type of charger, than to have different chargers for every type of mobile phone made - with the inevitable waste that comes with having to have lots of different chargers for different devices.  This is one of the goals of standardization – more efficiency.

There is also, as you mentioned, the interoperability aspect – for example, 5G is a standard (specifically a cellular communication standard). Devices adopting the 5G standard can utilize all of the benefits of 5G, namely all of the global infrastructure enabling 5G. Some estimates have found that there are almost 100,000 patents which make up the 5G standard.  There are many more examples of standards and every-day products that utilize standards.

Selin Ozturk: Thank you, Rita. So, Evelyn, how are patents managed in the context of standardization?

Evelyn Chen: Thanks, Selin. So patents in the context of standardization, it's really a byproduct of standardization. When a standard is set, generally you have many companies that come together and contribute their innovations, their ideas, towards building this entire standard together. It's a collaborative effort. As a result of that, often many of these companies have sought patents on the ideas that they do contribute and eventually are adopted into the standard. And that's where the idea of standard essential patents come in. A lot of these technologies are protected by patents on their own, their regular patents. But when a ultimately a standard is used in a product or in a service, inevitably you probably will be using some of these patents. And so the definition of a standard, essential patent is a patent that necessary has to be used when the standard is implemented and hence the name standard essential patents.

And so over the last few decades, these have really come to the forefront of not just patents but also business when it comes to developing and building out technology and also making products available to the wider market and also to end consumers - everyday consumers like you and myself. We hear a lot about it now through the use just as an example of cellular phones. I'm old enough to remember, back when you were traveling internationally, when you went to a different country, you might needed to buy a new phone because the phone that you had, say, in the US wouldn't necessarily work in certain other countries that you're traveling to and you'd be carrying multiple devices.

As we've now gone into LTE, 4G and 5G, that has largely gone away, where one phone, you can travel the world with it and you just have to worry about which mobile carrier you're on. And that's one of the benefits that we realized through standardization, in particular cellular standardization. Obviously, I work for Ericsson. We are very much a player in the cellular industry. We have been very much involved in the standardization of cellular technology since the beginning, and we have contributed a lot of our innovations and ideas to the various mobile standards. And we also do protect our ideas, our inventions, by patents. So, by extension, we also have standard essential patents that we work with. We also use other people's standard essential patents in the same space. So, we're both a licensor and a licensee when it comes to standard essential patents. And at this point, it's probably also good for me, just to make brief caveat that the views I'm expressing today are of my own. I'm not speaking on behalf of Ericsson and my employer.

Selin Ozturk: Thank you, for that great explanation. I understand that there can be some unintended consequences to standardization. Perhaps Rita, you could dive a little deeper.

Margarita Kato: A patent holder of a technology which has become part of such a standard is in the enviable position of knowing that there will be a large market for its patent. For example, if a patent becomes part of the 5G standard, the patent holder knows its patent will need to be licenced by all relevant manufacturers using the 5G standard. This of course then means that those patent holders could decide to exploit their position and demand higher royalty fees than justified.

To solve this problem, “FRAND” licensing was created. FRAND stands for “fair, reasonable and non-discriminatory” licensing. Patent-holders who wish to have their patents included in a standard must agree to license their patents on FRAND terms. If they do not offer a FRAND license, the licensees may go to court to request the court to set a rate that the court deems to be FRAND. Equally, if a licensee refuses to take a license that is in fact FRAND (while continuing to use the patented technology), the licensee may be sued for patent infringement. 

Selin Ozturk: Thank you, Rita. You know, it's very important to know what FRAND stands for and so, Evelyn, can we break down each of those terms - Fair, Reasonable and non-discriminatory?

Evelyn Chen: Sure I'd be happy to try. First and first foremost, when we talk about FRAND commonly these days, it's often in relation to cellular technology because in Secretariat of the European Telecommunication Standards Institute (ETSI), which is the umbrella organization that does put forth a lot of these cellular standards, their IPR policy is what governs a lot of these disputes. In there that it is required that a patent holder, if they make a positive declaration that they agree to make licenses available on fair, reasonable and non-discriminatory terms. I'm making this a little bit more focused on ETSI because in other standards or other standards organizations, they may use different technology, for example, IEEE, Theirs is just reasonable and non-discriminatory. They don't have the word “fair”. But for purposes of this discussion, we'll go back to FRAND because that is what we hear about most these days. And because FRAND is made in the context of the ETSI IPR policy, we have to look to the words that policy to define FRAND. Fortunately or unfortunately, the ETSI IPR policy does not define specifically what fair, reasonable and non-discriminatory means. So this becomes something that needs to be determined by ultimately, if this goes to a court in litigation or to mediation or arbitration, that is something that the ultimate factfinder has to decide.

Evelyn Chen: And so we've seen a lot of attempts by courts, because these are obviously in the public domain, on how to determine what is fair, reasonable and non-discriminatory. And there are many ways to do that as put forth by the various parties in these litigations. Some may propose looking at licenses with other similarly situated parties or companies and comparing the rates as being offered to the party, in this case, in a case to others in license agreements that the patent licensor has signed for the same standardized technology or standard essential patents. Some other parties have proposed looking at what we call a top down or a bottom up approach, all of which looks at the individual patents in a portfolio and try to compare that to the overall total aggregate collection of patents that may be essential to a particular standard. So at the end of the day, it's still all very fact specific and very situational specific.

Selin Ozturk: If FRAND is a subjective concept and if parties can’t agree on what is “FRAND”, who makes the final determination?

Margarita Kato: In such cases, FRAND licensing negotiations can end up in court with parties asking the court to determine what would be FRAND. The problem is that such court disputes can become very messy and expensive. Since patent portfolios often span many jurisdictions, there have been cases where companies have sued each other in different countries, requested injunctions to prevent causes of action being pursued and even drawn out proceedings for strategic reasons. There are also perceptions which have been created, fair or not, that certain national courts are more favourable to patent holders and some more favourable to implementers. This has resulted in an incentive being created for parties to pursue litigation in one country over another, and to try to block their counterparty (through the use of injunctions) from pursing litigation elsewhere.

Such dynamics do not benefit no one and may of course add to the costs of doing business which may be passed on to end users.

Selin Ozturk: To recap then, the concept of FRAND licensing was created to ensure neither patent-holder nor licensee exploited their positions but the subjectivity of the meaning of FRAND can still lead to parties being forced to go to courts to determine the meaning of FRAND. What do courts think of all this?

Margarita Kato: Courts have been increasingly recommending that parties attempt arbitration or mediation – there are many instances of courts and judges expressing views that court litigation doesn’t seem to be the most efficient place to settle FRAND disputes. Courts with particular expertise in IP in the US and Germany have been encouraging parties to attempt mediation. In addition, the USPTO has also recently expressed its support for mediation, as well as arbitration, by partnering with the WIPO Center to facilitate the resolution of SEP disputes.

Selin Ozturk: Thank you Rita and Evelyn, do you have any additional comments?

Evelyn Chen: I completely agree with you that this issue of piecemeal litigation, especially when you see multi-jurisdictional litigation between a licensor and a potential licensee, can be very inefficient. And we have heard a lot from the courts recently about ways to make this more efficient. I think efficiency is something that we all prize, both in business and when it comes to the courts. And so, as you said in the US, the courts here definitely do encourage mediation as part of the litigation process and sometimes it's helpful and sometimes it works out and sometimes it doesn't. But the context of discussing all of this, I think we do also need to remember that there are really two types, in a way ,of FRAND related litigation out there.

One is the basic patent infringement case where a party (a patent holder) alleges infringement of a standard essential patent, and a defendant in a litigation would then assert a FRAND defense, as we say, in response to this saying “well, okay, I may use this patent, but if it's found that I do infringe it, I'm still entitled to a FRAND rate”. In those situations when it is a patent infringement lawsuit, those are by necessity, jurisdictional. It is only going to be what a court can decide is only relevant to its own jurisdiction. For instance, a US court cannot decide infringement issues for a European patent. The other type of FRAND related dispute is more of a breach of contract dispute where a patent is not asserted against another party. Instead, the parties ask a court to determine what a FRAND licensing rate royalty should be. In those situations you might see that the two parties agree to a particular court to decide this and this will be decided globally. And then sometimes, which is where we get to the injunctions that Rita mentioned earlier, there may be a fight over which court, which jurisdiction should set a licensed royalty of FRAND royalty, and then the parties start racing to the courts or seeking anti-suit injunctions, which leads to more inefficiencies.

Margarita Kato: I would also add that the WIPO Center has seen an increase in the number of FRAND cases, in particular in the number of FRAND mediations. We have seen parties make strategic use of filing mediation requests with the WIPO Center. This is because a crucial element of FRAND licensing is for the licensor to demonstrate it is a “willing” licensor. Depending on the jurisdiction, agreeing to attempt to mediate may be one factor a court considers when determining willingness to mediate.

Selin Ozturk: Thank you, Rita, for this. And so, Evelyn, if you could dive a little bit deeper in what willingness can be defined as.

Evelyn Chen: That is a great question, Selin, because that is always one of the hot topics when it comes to a litigation. You know, who is willing or unwilling to license or to take a license. A lot of the cases that we've seen, particularly coming out of Germany, do deal with this willingness issue. You know, it may be because ultimately, years ago in the Huawei ZTE case, the court there first looked at the issue of being willing to license and willingness to take a license. So based on the cases that we've seen so far where a court has defined what has found a party not to have been willing to take a license, the factors such as what has been perceived by the court to be a delay in responding to negotiation requests or just very sporadic correspondence between the parties. One of the factors that they have looked at is a willingness to mediate or arbitrate or a reasonable response to a request to mediate or arbitrate a FRAND licensing dispute. There are many other factors that are involved in this and goes along with the willingness issue. Also goes very much hand in hand with the definition of FRAND and determination of what is FRAND. It can be very subjective and is case by case specific. So it is not like that willingness to mediate or arbitrate is definitive. A determination to whether or not a party is willing either way. But it is that we've seen that it is a factor that the courts will look at.

Selin Ozturk: So to follow up, what are the benefits of mediation then?

Margarita Kato: Well, Mediation can help parties resolve their disputes confidentially and in a way that focuses on commercial interests. During a mediation, the mediator discusses the dispute with the parties, getting each of their individual perspectives on the dispute. The mediator then uses that information to help the parties reach their own settlement, or suggest possible ways forward.

The focus on what outcome is of mutual commercial benefit to the parties is the key benefit of mediation. The WIPO Center has had experience of cases where instead of just a settlement being reached, parties actually concluded new commercial agreements. Mediation also has the beneft of being low cost - for example, the WIPO Center often sees mediations where a mediator spends approximately 15 hours on the case. With indicative mediator fee rates of between USD 300 – 600 per hour and the costs split between the parties, this can be a very affordable option, particularly for SMEs.

Finally, even if the entire dispute is not settled through mediation, it can still be of benefit as parties can narrow the issues in dispute. We have had cases referred to us from courts where parties did just that, they agreed on certain disputed points and then return to court on a narrower set of issues, and as a result were able to save time and money.

Selin Ozturk: Thank you for providing the WIPO Center's views on mediation, Rita. And so, Evelyn, what are your views on mediation?

Evelyn Chen: I think mediation is a great tool! Not only in the middle of a litigation or a pending dispute, but potentially also before such a dispute is even filed. Sometimes parties who are negotiating, it helps to have a neutral third party who is there to help referee or mediate a discussion or negotiation. And sometimes it helps to just adjust both parties expectations and to better understand each other's positions. We have seen mediators be very helpful in that respect, and this can be particularly effective before a litigation is even filed and really save a lot of headaches and money in time.  In the course of a litigation, I think parties emotions are already invested, money's time is already invested. And in the US, definitely the courts are still very much in favor of mediation, of having somebody come in, hopefully maybe recalibrate the discussions a little bit. Ideally that's what would happen. Not all mediations ultimately result in that that result. Unfortunately, some parties, you go into mediation with the same positions that you come out and there is no resolution. But other times with a mediator offering their perspective on what they're hearing from both parties, you can reach a faster resolution or some kind of negotiated compromise that is ultimately beneficial to both sides.

Selin Ozturk: To follow up, Rita, how about the use of arbitration?

Margarita Kato: So obviously one of the benefits of mediation is its flexibility – the parties can walk away from it at any point if they wish. If however parties want more finality, they can instead opt for arbitration. There are numerous benefits of arbitration over court litigation. For example, when a patent holder alleges breach of its patents in many different jurisdictions, it is inevitable that the patent holder will need to either start proceedings in many different countries or choose to forgo enforcement in certain countries. However, in an arbitration, parties can agree that the arbitration will consolidate all possible claims across all jurisdictions.

Evelyn Chen: I completely agree with you, Rita. Arbitration can definitely be much more efficient where you can resolve all of the disputes and claims each party has against each other in the context of a FRAND and negotiation in one jurisdiction or in one place instead of having it around the world. That is a definite benefit of arbitration. The other benefit is that arbitration is by consent. Both parties have to agree to enter into arbitration before such a proceeding can take place. And so in this situation where you have an arbitration, both parties have reached some kind of agreement or compromise on the framework of this arbitration. And I think both parties can then go in pretty willingly and having an idea at least of what to expect as compared with litigation or a court set FRAND rate where very well could be the situation where one party sues the other in a court that the other party is not comfortable in or doesn't feel is favorable for their position. And then that causes other hurt feelings and things that may ultimately affect the relationship between the parties and the negotiations going forward. And what when we see that kind of situation, that's where we see more of the recent trend towards anti-suit injunctions. And Anti. Anti. sued injunctions which I'll refer to as ASI’s and AASI’s to speed things up a little bit. But that's what we've seen a lot in the last few years, including with cases that involved Ericsson, that there have been situations where parties have asked a particular court to make a determination of the appropriate FRAND royalty for portfolio of standard essential patents and at the same time have asked that court to issue an Anti-suit injunction preventing the other party from asserting any of its standard essential patents in any other court in the world, or to ask any other court to determine a FRAND royalty for that same portfolio of standard essential patents.

Evelyn Chen: As a result, you've seen the kind of the rebound effect of AASI’s,  where the receiving party of that ASI goes to another court to try to limit the reach of the original ASI, which all is great for legal pundits and academics, but not so good really the FRAND ecosystem or for the parties involved.

To add, I think we've hear at least when in the field, when in the middle of these FRAND negotiations, we've started increasingly hearing more discussions of the option of going into arbitration or at least to start off with mediation. And so, I think that is a positive trend towards arbitration and mediation in that regard, and that is more parties understand that this is an option available to them, that perhaps we'll see more of that going forward.

Selin Ozturk: Thank you for listening. As we explored the standardization of technology and the obstacles of patent licensing with Evelyn Chen and Rita Kato, we hope you gained a deeper understanding of the use of mechanisms for FRAND disputes. For more information on Wipo's alternative dispute resolution mechanisms, you may visit the YPO Center's website or follow us on LinkedIn. Until next time.