IP lawyer: Japanese IP court seeks a little help from friends on FRAND licensing dispute

On May 16 2014, in Apple v Samsung cases 2005(ne) 10043 and 2005(ra) 10007 and 10008, Japan’s IP High Court handed down landmark decisions on the enforcement of patents which have been declared ‘essential’ for standards established by standards-setting organisations and must be licensed on fair, reasonable and non-discriminatory (FRAND) terms.

The court ruled that, in principle, the holder of an essential patent may seek damages only up to the amount of royalties that may be charged under FRAND terms. Holders of essential patents are basically prevented from seeking damages that exceed the amount of royalties under FRAND terms or from seeking injunctions.

This case is remarkable because the IP High Court asked the public for opinions about FRAND issues, inviting amicus briefs on the subject, and also ruled on patent exhaustion in case of the first sale of a product which is exclusively used to manufacture patented products.

Samsung filed an original patent application in South Korea on May 4 2005 and the invention applied for was registered as Japanese Patent 4642898, “method and apparatus for transmitting and receiving packet data”, on December 10 2010. Meanwhile, Samsung participated in the UMTS (3GPP) working group and proposed introducing its invented technology in May 2005. On August 7 2007 Samsung made a FRAND declaration stating that various pieces of its intellectual property, including the patent concerned, were essential to the UMTS standard and it was prepared to license these intellectual properties under FRAND terms.

On April 21 2011 Samsung filed for a preliminary injunction against Apple before the Tokyo District Court claiming that Apple’s products infringed Samsung’s patent. On September 16 2011 Apple filed for a declaratory judgment before the Tokyo District Court, claiming that its products did not infringe Samsung’s patent and therefore Samsung did not have the right to seek damages from it. In July 2011 Samsung and Apple opened negotiations with regard to entering a licence agreement for Samsung’s patent. However, in spite of repeated requests from Apple, Samsung did not disclose information such as licence agreements between it and other licensees.

In the preliminary injunction case and the declaratory judgment case the Tokyo District Court ruled that, based on the premise that Samsung’s was an essential patent, Samsung could not seek a preliminary injunction or damages because it had not disclosed to Apple the necessary information described above and had thus failed to perform its obligation to negotiate faithfully. Samsung appealed to the IP High Court.

These cases were deemed important and were thus brought before the Grand Panel of the IP High Court, which comprises five judges.

The IP High Court first established the general grounds for the enforcement of essential patents, considering their importance in implementing the relevant standards of standards-setting organisations.

First, with regard to an injunction, the IP High Court ruled that a patent holder may not seek an injunction based on its essential patent if the alleged infringer has proved that the patent holder made a FRAND declaration on the essential patent and the alleged infringer is willing to obtain a licence for the essential patent under FRAND terms.

Second, with regard to damages, the court ruled that the holder of an essential patent may not seek damages that exceed the amount of royalty that may be charged under FRAND terms unless there are exceptional circumstances (eg, the alleged infringer had no intention of obtaining a licence for the essential patent). However, the patent holder may seek damages up to the amount of royalties that may be charged under FRAND terms unless it is found significantly unfair to allow it to do so.

Based on these general ideas on essential patents, and presuming that Apple had continued to negotiate and propose royalty rates, the IP High Court then found that Apple did intend to obtain a licence for Samsung’s patent and therefore Samsung could not seek an injunction. The court dismissed Samsung’s appeal on the preliminary injunction case.

It also found that there were no exceptional circumstances indicating that Apple did not intend to obtain a licence for the essential patent and it was unfair to allow Samsung to seek damages amounting to royalties given that it would not disclose its licence agreements with others to Apple. As a result, Samsung could seek only damages up to the amount of royalties that could be charged under FRAND terms. The IP High Court calculated the damages amounting to royalties under FRAND terms, taking into account the contribution of the UMTS standard to Apple’s products and the contribution of Samsung’s patent, as well as the need to limit total royalties of all essential patents to a certain threshold amount. If the contents of the other essential patents are not clear, then the value of each essential patent should be assumed to be equal. The IP High Court thus partially overturned the Tokyo District Court’s decision on the declaratory judgment case.

There have been many arguments in Japan as to the extent to which essential patents can be enforced and these latest decisions provide valuable guidance. They suggest that holders of essential patents may claim only damages equivalent to royalties that may be charged under FRAND terms and are prohibited from seeking injunctions. These decisions directly tackle the abuse of essential patents. So-called patent trolls holding essential patents will be unable to seek injunctions abusively in order to pressure potential infringers – such as manufacturers, distributors and importers of products subject to standards set out by standard organisations – and subject them to unreasonably steep royalties.