Technology: Standard adopters need to beware of injunctions

Owners of standard essential patents can enjoin companies from using standard products or services

In these times, companies in the telecommunications and computing industries must be particularly careful when it comes to offering a product or service that uses a particular standard, such as the WiFi, 3G or JPEG standards. This is because an owner of patent covering a standard, known as a standard-essential patent (SEP), may be entitled to enjoin a company from offering the product or service if it is unable to negotiate a license. In cases where a company has made substantial investments in reliance upon the standard, enjoining it from further use of the standard can be detrimental.

Although standards serve an important role in today’s world and are crucial to many industries, issues invariably arise around SEPs. As discussed in a previous article, an organization responsible for adopting a standard (standard-setting organization or SSO) typically requires the owner of an SEP to license the patented technology on reasonable and nondiscriminatory (RAND) terms when the owner participates in activities associated with adopting a standard. Despite these and other efforts by SSOs to ensure that licensing terms are reasonable for those seeking to adopt the standard, the problem of patent hold-up remains a serious issue.

Patent hold-up typically arises when the owner of an SEP makes a demand for higher royalties, or other burdensome licensing terms, after a standard has been implemented. Since the standard is already being relied upon in the industry and substantial investments have been made by its adopters, SEP owners have substantial bargaining power in licensing negotiations. Of particular concern is the fact that SEP owners are currently able to obtain an injunction from a district court, or an exclusion order from the International Trade Commission (ITC), to enjoin adopters from using a standard when licensing negotiations break down. In recent times, a debate has ensued over whether injunctive relief should be available to SEP owners who have agreed to license on RAND terms.

In response to the Federal Trade Commission (FTC) request for comments on the issue, companies such as Apple, Cisco, Hewlett Packard, IBM, RIM and Broadcom have voiced support for a no-injunction rule, which would effectively bar an SEP owner from obtaining injunctive relief if the owner has agreed to license the patent on RAND terms. Proponents of this view argue that the availability of injunctive relief permits SEP owners to exploit industry investments that have already been made in a particular standard, and provides an SEP owner with enormous bargaining power which is inconsistent with the “reasonable” prong of RAND.

On the other side of the debate are proponents, such as Microsoft and Nokia, who feel that injunctive relief serves an important role and should remain an available judicial remedy. Proponents of this view often argue that a RAND commitment represents a contract, and that the addition of a no-injunction provision to that contract without the mutual consent of these parties would be inconsistent with freedom of contract principles. They view the current legal framework in place for assessing the availability of injunctive relief as a better option and argue that implementation of a no-injunction rule may reduce efforts by adopters of the standard to engage in good faith negotiations.

Recently, on July 11, the Commissioner of the FTC addressed this issue before the Senate. The FTC’s statement discusses the ongoing collaboration between the FTC and ITC in addressing the problem of patent hold-up. Of particular importance are the closing statements which conclude that the ITC has the authority to resolve the issue of whether a RAND obligation precludes issuance of an exclusion order. Until a decision is reached, the world is left speculating what the outcome will be and whether the holding of the ITC will directly affect the availability of injunctions in district courts as well.

Contributing Author

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Seth Ostrow

Seth Ostrow is a founder and managing partner of the law firm of Ostrow Kaufman LLP, a patent boutique based in NY which specializes in...

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