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IP Alert: Federal Circuit Rules Release Payment in FRAND Dispute Must Be Jury's Decision

December 16, 2018

On December 5, in TCL Communication Technology Holdings Ltd. et al. v. Telefonaktiebolaget LM Ericsson, the Federal Circuit held that Ericsson had a constitutional right to a jury trial with respect to the calculation of a release payment amount under fair, reasonable, and nondiscriminatory (FRAND) terms in a licensing agreement.

TCL sued Ericsson in March 2014 seeking declaratory judgment that Ericsson had failed to offer TCL a FRAND rate under certain Ericsson 2G, 3G, and 4G standard-essential patents. Ericsson responded with an action for patent infringement. The parties agreed to court adjudication of the terms for a worldwide portfolio license, including a “release payment” for past patent infringement. Ericsson argued that it was entitled to a jury trial on the amount of the release payment because the release payment was to compensate Ericsson for past patent infringement and therefore was legal in nature. The district court disagreed and held a bench trial, at the conclusion of which the court imposed FRAND rates in a binding worldwide license for Ericsson’s patents. The court determined a release payment for TCL’s past unlicensed sales as well as a prospective FRAND royalty rate to be paid by TCL going forward.

Ericsson appealed, arguing that it should have been entitled to a jury trial on the amount of the release payment. Ericsson also argued that the district erred in concluding that Ericsson’s proposed terms were not FRAND, in setting the prospective FRAND royalty rate, and in ordering the dismissal of Ericsson’s patent infringement claims. Specifically, Ericsson argued these four determinations were flawed because they should have been determined by a jury at least in part and because they were based on errors in the district court’s FRAND analysis. 

The Federal Circuit agreed that denial of Ericsson’s right to a jury trial with respect to determination of the release payment was a sufficient basis for overturning all four determinations and, as such, did not need to address the court’s FRAND analysis or the other bases for arguing it was wrongly denied a jury trial. The Federal Circuit began its analysis of Ericsson’s right to a jury trial by noting the “Seventh Amendment provides that ‘[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.’” The law had historically distinguished between legal claims, in which there exists a right to jury determination, and equitable claims, in which there is no right to a jury trial. The court noted that in situations involving both legal and equitable claims and having issues common to both, a court must allow for a jury trial of any legal issues if properly demanded.

With respect to the release payment, the Federal Circuit agreed with Ericsson that the relief was legal in nature because this payment was, in substance, compensation for past patent infringement. Further, the court held that that would be the result even if the release payment were characterized as restitution for TCL’s past unlicensed sales. The court rejected TCL’s argument that the release payment was equitable because it was included in an injunction order, holding “[t]hat the release payment was ordered in the form of an injunction does not necessarily make it equitable.” Further, the Federal Circuit found the district court’s use of the label “equitable relief” unpersuasive, given the court’s own characterization of the release payment as a release for past infringement.

TCL also argued that Ericsson had waived its right to a jury trial in view of it stating, in response to an interrogatory, that the release payment “will be determined by the Court at the conclusion of this litigation.” The Federal Circuit rejected this contention in view of the record as a whole, concluding that a more reasonable interpretation was that the statement was conditioned upon a jury first determining whether Ericsson’s offers were FRAND. The court noted a joint report, filed on the same day as the interrogatory response, set out that a jury would decide whether Ericsson’s offers were FRAND. Also, the district court had explicitly acknowledged in a final pre-trial conference order that Ericsson had requested a jury trial and preserved its request, and Ericsson had renewed its objection to the bench trial just before it began.

Accordingly, the Federal Circuit vacated the district court’s release payment determination. The Federal Circuit also vacated the court’s determination that Ericsson’s offers were not FRAND and its determination of prospective FRAND royalty rates, given both were predicated on issues common to the release payment. From these holdings, the court also reversed the dismissal of Ericsson’s patent infringement claims and TCL’s counterclaims as no longer being moot.

The TCL decision is significant for companies concerned with FRAND licenses. The fact that a patentee is entitled to a jury trial for past unlicensed conduct can markedly change the negotiating posture between the patentee and a potential FRAND licensee.

Fitch Even senior licensing specialist and patent analyst Curtis S. Dodd (not a U.S.-licensed attorney) prepared this alert. For more information on this case, please contact Curtis or a member of Fitch Even’s IP Transactions practice.
 

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