Jacob Schindler

A US judge last week dismissed a lawsuit accusing Huawei of infringing of 9 patents owned by South Korea’s Electronics and Telecommunications Research Institute (ETRI) after four years of maneuvering. The finding that plaintiff SPH America, LLC lacked standing to assert the ETRI-owned rights also brought to an end four other active cases. Judge Cathy Ann Bencivengo’s verdict revealed details of the arrangement between the publicly funded R&D organisation and its third party “litigation agent”, and raises questions about how it will proceed with future efforts to monetise IP.

The US patents involved in the Huawei suit (RE 40,385; RE 40,253; 5,960,029; 8,121,173; RE 44,507; RE 44,530; 8,565,346; 8,532,231 and 7,443,906) are all owned by ETRI. They are among a number of patents licensed by ETRI to a Korean entity called SPH in 2006, which transferred the licence rights to SPH America. SPH America subsequently brought a number of US infringement suits based on ETRI-owned rights. A first wave launched between 2008-2009 went after mobile phone manufacturers including Nokia and Apple. A second wave, filed in 2013-2014, targeted (among others) Huawei, Samsung and four US telecoms. Last week’s ruling also resulted in the dismissal of cases against AT&T, Verizon, Sprint and T-Mobile. Prior to that, records at Lex Machina indicate that most of the previous suits had likely been settled.

The ETRI-SPH relationship generated a small media flap back in 2010. A front-page article in Korean newspaper Hankook Il-Bo claimed sensationally and inaccurately that ETRI had “sold a foreign entity” important patents developed with taxpayer money (the English-language Korea Herald ran a similar story around the same time). ETRI stepped in to clarify, saying that it had in fact granted an exclusive licence to SPH because it lacked the US litigation experience to monetise US patents on its own. In a press statement translated to English and submitted as evidence in the Huawei case, it further clarified that ETRI retained “the right to make all decisions” in litigation brought by SPH, and that the entity could not reach license agreements “unilaterally”.

Huawei challenged the US entity’s standing after learning that ETRI itself, not SPH, had negotiated the licence agreement that ended its litigation with Samsung. “ETRI simply sent the final agreement to SPH America for signature when the deal was completed”, the order noted. The judge described the agreement between ETRI and SPH as a “hunting licence”, and ruled that it wasn’t sufficient to give SPH standing: “In sum, SPH America cannot act in a manner contrary to ETRI’s interests without being subject to a breach of contract claim and loss of the license arrangement […] Thus, although ETRI has made SPH America its agent for licensing and litigation, ETRI has not transferred substantial ownership of the patents to SPH America.”

While the agreement between ETRI and SPH is under seal, the judge summarised its key points in her ruling as follows:

In summary, the ETRI-SPH America agreement and its amendments purport to grant an exclusive license to SPH America to use the licensed patents, including to sublicense them to third parties and bring infringement actions. SPH America, however, is obligated use its best efforts to make licensing and litigation decisions that protect the interests of ETRI. SPH bears all the expense of any litigation and is required to pay ETRI between 50% to 70% of any third-party royalties and any litigation proceeds SPH America collects. SPH America has guaranteed minimum payments to ETRI that increase from approximately $268 million per year in 2007, to $896 million per year from 2016 and thereafter […] Certain of the licensed patents (the WiFi patents) are deemed to be returned to ETRI if SPH America fails to make guaranteed royalty payments.

Those financial figures reveal very ambitious revenue goals at the time the contract was made. We don’t know exactly how much of that money ETRI managed to collect over the years. The litigation record seems to show that ETRI/SPH may have reached settlements with some major players in addition to Samsung, but it’s impossible to know on what terms. Last week’s ruling is certainly a setback, but it’s hard to make a judgment on ETRI’s US monetisation efforts overall.

One big question going forward however, is whether ETRI will continue to focus on US enforcement to drive its monetisation efforts. The organisation has been pretty successful at PTAB, with none of the 4 IPRs targeting ETRI patents having been instituted. But the Huawei ruling is a reminder that it is not easy out there for plaintiffs. The litigation environment is unrecognisable from the one that existed when ETRI and SPH embarked on their alliance ten years ago. The winding up of the partnership’s active litigation in the US (pending an appeal of course) should give it an opportunity to plot its next move.