LSI loses ‘sue first, negotiate second’ RAND case
US electronics company LSI breached its contract to license standards-essential patents by suing chip-maker Realtek before offering it a licensing deal, a court has ruled.
A Californian district court granted a preliminary injunction blocking LSI from enforcing an import ban against Taiwanese company Realtek in their parallel, pending dispute at the US International Trade Commission (ITC).
The court dispute covers two LSI patents deemed essential to the Wireless Internet connectivity (WLAN) 802.11 industry standard, which the US company agreed to license on reasonable and non-discriminatory (RAND) terms.
LSI asked Realtek in 2002 to license one of its patents, before the talks broke down in 2003. It was not until March 2012 that LSI demanded Realtek stop infringing the two patents, but LSI did not make a licensing offer.
LSI then complained to the US ITC a week later, alleging that Realtek (and others) infringed the patents. The filing prompted Realtek to ask LSI to license the patents under a RAND deal, with it claiming that LSI’s subsequent offer was “inherently unreasonable”.
In June 2012, Realtek sued LSI for breaching its 802.11 standards contract, to which Realtek is a third party beneficiary.The claim covered whether by seeking an ITC injunction against Realtek before offering a RAND licence, LSI breached its licensing obligations.
In a ruling on May 20 at the US District Court for the Northern District of California, Judge Ronald Whyte said LSI made “no meaningful argument” that it offered Realtek a RAND deal before taking ITC action.
Whyte said the initial correspondence, between 2002 and 2003, did not amount to a RAND offer, partly because the talks broke down before any specific offer was made.
“Moreover,” the judge continued. “LSI's March 7, 2012 letter did not offer a license, but rather asked Realtek to immediately cease and desist from the allegedly infringing activities.”
“[The] defendants did not even attempt to offer a license, on ‘RAND’ terms or otherwise, until after seeking injunctive relief,” the judge found.
“This conduct is a clear attempt to gain leverage in future licensing negotiations, and is improper.”
Whyte blocked LSI from enforcing any potential exclusion order against Realtek in their pending ITC dispute, noting that “the preliminary injunction shall remain in effect until this court determines defendant's RAND obligations and defendants have complied therewith”.
That ruling does not prevent the ITC, which is expected to rule on the case in February 2014, from issuing an injunction against Realtek, but it would stop LSI from enforcing a favourable ITC injunction.
In general, it is not unusual for judges to issue orders relating to ITC rulings, said Chris Larus, partner at Robins, Kaplan, Miller & Ciresi LLP, but he could not verify Realtek’s claims that this is the first such order covering RAND agreements.
Larus said this is one of a small number of closely-watched RAND cases winding their way through the district courts, noting that the US law covering RAND agreements is very unsettled and there is very little appellate authority on them.
While district court rulings are not binding on other courts, he said, this is a relatively new and developing area and other courts will cite it when looking at complying with RAND obligations.
He added: “It’s too early to tell its full impact and it is likely to be appealed, but the facts are somewhat unique compared with typical RAND cases, as the patent owner approached Realtek and then waited nine years before doing so again. This definitely counted against them. It’s hard to know why they waited so long.”
Usually in RAND disputes, he said, the main source of contention is how reasonable the terms are, not whether RAND deals have been offered or not. Here, he said, the judge emphasised there was no meaning meaningful effort to negotiate, and LSI could have secured a favourable ruling if it had negotiated harder.
