Federal Circuit Rules No Per Se Prohibition Against Injunctions For FRAND-Encumbered Standard Essential Patents

by Cadwalader, Wickersham & Taft LLP

On April 25, 2014, the U.S. Court of Appeals for the Federal Circuit issued its long-awaited decision in the appeal from Judge Posner’s ruling that denied both Motorola and Apple damages and injunctive relief in Apple Inc. v. Motorola, Inc.1  This decision not only revived Apple and Motorola’s smartphone patent battle by sending the case back for trial, it set precedent for how courts must treat requests for injunctions in connection with a standard essential patent (SEP) that is subject to an agreement to license the patent on fair, reasonable, and non-discriminatory (FRAND) terms.

The Federal Circuit declared that there is no per se rule that injunctive relief is unavailable for a FRAND-encumbered SEPs.  The Court, however, affirmed Judge Posner’s decision to bar Motorola from seeking an injunction on the SEP involved in the litigation because it agreed with the district court’s conclusion that Motorola could not prove it was entitled to an injunction based on the facts of the case.

The dispute began when Apple filed a complaint in October 2010 in the Western District of Wisconsin accusing Motorola of patent infringement.  Motorola counterclaimed.  The action was later transferred to the Northern District of Illinois where Seventh Circuit Judge Richard Posner presided by designation.

Apple accused Motorola’s products of infringing software patents that Apple alleged makes cell phone handsets easy to use.  Motorola countered that Apple’s products infringed its patents, including one that is essential to ensuring that smartphones are interoperable.  That Motorola patent is subject to FRAND obligations.  A jury trial was scheduled to take place in June 2012, but before trial began Judge Posner ruled that neither company could prove it was entitled to damages or an injunction and dismissed the case with prejudice.2

Before trial could take place, Judge Posner concluded that Motorola’s FRAND commitment precluded injunctive relief.  He determined that when Motorola’s patents were included in industry standards it committed to license them to anyone willing to pay a FRAND royalty, thereby implicitly acknowledging that royalties, not an injunction, are adequate compensation for infringement. The district court also entered summary judgment on the remaining dispositive issues between the parties.  Both Apple and Motorola appealed Judge Posner’s dismissal of their respective causes of action to the Federal Circuit.

On appeal, the Federal Circuit clarified that the mere existence of a FRAND commitment does not bar owners of essential patents from seeking injunctions.  Instead, the Court indicated that judges should evaluate whether an injunction is appropriate for an essential patent using the framework in the Supreme Court’s 2006 eBay ruling.4  The Court said that the eBay test “provides ample strength and flexibility for addressing the unique aspects of FRAND committed patents and industry standards in general.”5

The Federal Circuit noted, for example, that “an injunction may be justified where an infringer unilaterally refuses a FRAND royalty or unreasonably delays negotiations to the same effect.”6  The Court, however, emphasized that it “[did] not mean that an alleged infringer’s refusal to accept any license offer necessarily justifies issuing an injunction.”7  The Court pointed out that an injunction may not be available when the license offered is not on FRAND terms.8

Applying the eBay legal framework, the Federal Circuit affirmed the district court’s summary denial of injunctive relief for the Motorola SEP that was asserted in the case.  The Court agreed that Motorola failed to show that it was entitled to an injunction under eBay by reasoning that it had licensed its essential patent to many other companies, which “strongly suggest that money damages are adequate to fully compensate Motorola for any infringement.” In addition, the Court noted that there was no evidence that Apple refused to negotiate.10

Chief Judge Rader dissented by asserting that there was a genuine factual dispute as to whether an injunction was proper under the eBay factors.11  Chief Judge Rader noted that whether Apple was an unwilling licensee and that untangling the value of the patent from the value of being in a standard as well as issues of patent “holdup” versus “hold out” were complex factual issues not likely susceptible to summary judgment.12  Chief Judge Rader, therefore, would have allowed Motorola to press forward and attempt to prove that Apple was an unwilling licensee and entitled to injunctive relief.13

Judge Prost, in a separate dissent, also agreed with the majority that there is no categorical rule that a patentee can never obtain an injunction on a FRAND-committed patent.  Unlike Chief Judge Rader, however, she supported the affirmance of Judge Posner’s denial of injunctive relief.  She noted that Judge Posner had conformed to the majority’s rationale because he did not apply a bright-line rule, and, instead, decided the question using the eBay framework.14

Judge Prost “disagree[d with the majority] as to the circumstances under which an injunction might be appropriate.”15  She supported the idea that implementers of standards, like Apple in this case, should have the right to defend themselves against infringement allegations before agreeing to pay up for a license, and saw no reason “why a party’s pre-litigation conduct in license negotiations should affect the availability of injunctive relief.”16

Not surprisingly, various entities filed amicus briefs with the Federal Circuit.  For example, the Federal Trade Commission (FTC) expressed concern that the potential for injunctive relief increases the possibility of patent holders engaging in “hold up,” which can increase costs, deter innovation, and harm consumers.  The FTC argued that Judge Posner properly applied the eBay factors in denying Motorola’s request for injunctive relief.  Intel weighed in with an amicus brief that supported Apple’s view that injunctions should generally not be available for FRAND-encumbered SEPs, while Qualcomm and Nokia supported Motorola’s contention that there is no such blanket restriction.

The injunctive relief aspects of the ruling in Apple Inc. v. Motorola, Inc. are important.  It is the first time a U.S. appeals court has ruled on the issue of the availability of injunctive relief for infringement of FRAND-encumbered SEPs.  The Federal Circuit concluded there is no categorical rule that owners of FRAND-encumbered SEPs cannot obtain injunctions — the Court left the door open for injunctions to be applied to FRAND-encumbered SEPs.

Accordingly, for now, an owner of a FRAND-encumbered SEP may seek an injunction and an accused infringer can continue to make arguments that the patent owner is not entitled to an injunction.  The Federal Circuit’s affirmance of Judge Posner’s refusal to grant an injunction to Motorola will assist litigants in navigating through relevant questions as they decide how they will address remedial positions and claims tied to FRAND-encumbered SEPs.

1   Apple Inc. v. Motorola, Inc., No. 2012-1548, -1549, Slip op. (Fed. Cir. Apr. 25, 2014).

2   Apple, Inc. v. Motorola Inc., 869 F. Supp. 2d 901, 913-14 (N.D. Ill. 2012).

3   Id.

4   eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (“[In order to obtain an injunction,] [a] plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”).

5   Apple, No. 2012-1548, -1549, Slip op. at 71, 72.

6   Id. at 72.

7   Id.

8   Id.

9   Id.

10 Id.

11 Id., Rader Dissent at 1 (Rader, J., dissenting-in-part).

12  Id. at 2.

13  Id. at 4.

14  Id., Prost Dissent at 16 (Prost, J., concurring-in-part and dissenting-in-part).

15  Id.

16   Id. at 17.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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