Let judges set FRAND rates, SCOTUS told

An association of app developers wants the US Supreme Court to allow judges to set the rates of standard-essential patent (SEP) licences.

The country’s top court is currently weighing up whether to reverse a  lower appeals court ruling which said that Swedish telecoms company and major SEP owner  Ericsson was deprived of a jury trial over the terms of a backdated royalty.

The  ruling, issued by the US Court of Appeals for the Federal Circuit last December, was a blow for Chinese smartphone maker  TCL.

TCL now wants the Supreme Court to reverse the decision, and has attracted the support of a trade body representing application software developers who warn the decision will imbalance the patent system.

In an  amicus brief, ACT The App Association said that patent owners prefer jury trials because they “tend to produce larger damages awards”.

“With the knowledge that they may secure a jury trial on claims alleging violations of FRAND licensing obligations, patent holders now have less to fear from unreasonably insisting on non-FRAND terms and conditions while trying to negotiate license agreements,” the ACT submission said.

ACT argues that the Federal Circuit’s decision will strengthen SEP owners’ hand and allow them to engage in ‘patent hold-up’ and extract higher royalties from licensees.

“[Patent owners] can hold out knowing that if a prospective licensee sues to enforce the patent holder’s FRAND obligations, they can follow Ericsson’s playbook by alleging that any backward-looking royalties must be decided by the jury,” the brief said.

The Federal Circuit said that Ericsson was entitled to a jury trial on the terms of the royalty under the Seventh Amendment.

That’s because the purpose of a “release payment”, included in an injunction in favour of the Swedish company, was to compensate Ericsson for infringement of its SEPs.

“It is a well-settled principle that jury trials are available for damages for patent infringement,” the Federal Circuit said.

But ACT argued that the Federal Circuit “misidentified” the release payment as analogous to infringement damages.

“It is part of the consideration TCL owes Ericsson in exchange for specific performance of Ericsson’s FRAND obligations, it originates entirely from the district court’s injunction, and it far exceeds any legal relief Ericsson could have obtained in a patent infringement suit,” the amicus brief said.

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