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Monday, 25 March 2013

Apple v Samsung, or FRAND, Japanese-style

From the IPKat's charming and erudite friend Kaori Minami comes news that the keenly-awaited judgment of the Tokyo District Court in Apple v Samsung has just been released (the judgment was handed down on 28 February). Explains Kaori:

The Tokyo District Court held that Apple succeeded in its request for confirmation of the absence of a right on the part of Samsung to seek damages based on a patent. The court found that Samsung's non-compliance with its own fair, reasonable and non-discriminatory (FRAND) declaration constituted an abuse of patent right. Accordingly Samsung was not allowed to seek damages against Apple based on the patent in suit.

The patent in suit was JP4642898, relating to a wireless data packet system. In particular, Claims 1 and 8 were in issue. The parties argued infringement, contributory infringement, invalidity and exhaustion, but the significant part of this judgment began at around page 80, deciding the issues relating to negotiation between the parties based on Samsung's FRAND declaration. The relevant standard was Universal Mobile Telecommunications Standard (UMTS) for 3GPP.

The Court first discussed infringement. It found that among four products in issue, Apple's iPhone 3GS, iPhone 4, iPad wi-fi 3G and iPad 2, the iPhone 4 and iPad 2 fell within the technical scope of Claim 1 and 8. The Court thus decided the following FRAND issues only in relation to those products.

Regarding FRAND-related issues, Apple stated various reasons including Samsung's failure to negotiate licensing in good faith which created a 'hold-up situation', to argue that Samsung's exercise of right based on the patent in suit would become an abuse of right. The Court first decided that, by the time that Apple sent a letter to Samsung and proposed a licence, Samsung owed an obligation to negotiate the licence in good faith, this being because Samsung's declaration was made under ETSI IPR Policy which obliged Samsung to negotiate licensing of UTMS standard in good faith.

Samsung also alleged that Apple's intention to enter into a licence was not definitive since its letter challenged the validity of the patent in suit. The court disagreed: since Apple's proposal was clear and specific, Apple's intention to enter the licence was definitive.  The court also pointed out that validity was argued in separate proceedings for a preliminary injunction filed by Samsung when Apple sent the letter. Samsung tried to rebut Apple's intention to enter the licence by alleging that Apple's proposed royalty rate was unreasonable (being too low). The court did not however find that the rate of Apple's proposal represented its intention to enter the licence.

The court then concluded that Samsung was in breach of the obligation to negotiate in good faith: that company had, among other things, failed to show how its proposed royalty rate was calculated, failed to disclose relevant information regarding the royalty rates agreed with third parties, and failed to counter-propose any specific royalty rate with the calculation base for Apple. When the parties started negotiation on a possible licence agreement on a FRAND basis in 2011, Samsung offered a licence with 5% royalty rate, to -which Apple counter-offered 0.275 %. According to Apple's evidence, Samsung's patent was only 5.5% of 1,889 essential patent families and Apple multiplied Samsung's proposed rate by it (5% x 5.5 % = 0.275%). Apple further proposed X % (* the percentage is redacted in the judgment) for three patents including the patent in suit, which was simply declined by Samsung.

The original judgment can be read in full here, though it is available only in Japanese.
Kaori Minami is a Japanese-qualified lawyer who is also qualified in England & Wales. Kaori is pleased to hear from readers who are interested in this judgment: they can contact her via the IPKat or by email to kminami@dd.iij4u.or.jp.

3 comments:

Kelly Bennett said...

Interesting that FRAND is a kind of amalgamation of BRAND+FRAUD

Sonia Surma said...

FRAND declarations still remain a disputable issue - FRAND should allow an effective competition on the market and do not impede access of 'small market' players, however as we see from the recent cases between gigantic companies as e.g. Apple v. Samsung - FRAND disputes usually include the biggest companies on the market, that almost create a monopoly. Apparently the court in the instant did not deal with reasonability of royalty rate - it did not weigh any out of 15 factors developed by the US courts in Georgia-Pacific case that help courts determine the proposed rate nor weighed up the differences between patents forming the essential patent family (consisting out of 1,889 patents where Samsung patents created just 5%). Although in numeric proportionality the courts must assess a different nature of essential patents in one patent family. As a result in my opinion, such a decision can lead to other disagreements regarding the reasonability of the standard patent royalty cause licensee - i. e. Apple is willing to pay much lower rate than originally proposed by the standard patent owner.

Sonia Surma said...
This comment has been removed by the author.

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