District Court Violated Ericsson’s Right to Trial by Jury in Setting FRAND Rate
The US Court of Appeals for the Federal Circuit vacated a district court decision setting license rates for standard-essential patents (SEPs), holding that the district court deprived the patent owner of its constitutional right to trial by jury. TCL Commc’n Tech. Holdings Ltd. v. Telefonaktiebolaget LM Ericsson, Case Nos. 8-1363, -1732 (Fed. Cir., Dec. 5, 2019) (Chen, J.).
Ericsson holds a number of patents that are essential to the 2G, 3G and 4G mobile communications standards set by the European Telecommunications Standards Institute (ETSI). As a member of ETSI, Ericsson has agreed to license its SEPs to implementers of the ETSI standards on fair, reasonable and non-discriminatory (FRAND) terms. TCL manufactures mobile devices that implement the ETSI standards.
Ericsson and TCL have been engaged in a long-running dispute over rates for Ericsson’s SEPs. In 2014, TCL filed suit seeking declaratory judgment that Ericsson had failed to offer FRAND rates for its SEPs. Ericsson responded by seeking damages for infringement of two of its SEPs and a declaration that it had complied with its FRAND commitments.
In 2017, the district court held a 10-day bench trial to determine whether Ericsson’s proposed license rates were FRAND. At trial, the parties proposed different methodologies for computing FRAND rates, but the district court declined to adopt either party’s approach. In a 115-page opinion, the court devised its own methodology and supplied FRAND terms for the parties’ license agreement. Specifically, the district court set a prospective FRAND rate for TCL’s future licensed practice of Ericsson’s SEPs, as well as a cumulative “release payment” for TCL’s past unlicensed practice of Ericsson’s SEPs. The district court calculated the release payment based on a retrospective FRAND rate, which was closely related to the prospective FRAND rate that the district court computed.
On appeal to the Federal Circuit, Ericsson claimed that the district court deprived it of its 7th Amendment right to trial by jury. Ericsson argued that the release payment constituted monetary compensation for past patent infringement, and thus was a form of legal—as opposed to equitable—relief that should have been determined by a jury. In response, TCL argued that the release payment was equitable in nature because the district court ordered it as specific performance of a contract term (or, alternatively, as restitution).
The Federal Circuit concluded that the release payment was legal in nature and thus entitled to a jury trial determination. The Court reasoned that the district court’s own actions showed that the release payment was essentially a substitute for patent infringement damages. In particular, the Court noted that the district court dismissed Ericsson’s patent infringement counterclaims as moot in light of the release payment.
Accordingly, the Federal Circuit vacated the district court’s determination of the release payment. The Court also vacated the district court’s determination that Ericsson’s offers were not FRAND and its calculation of a prospective FRAND royalty rate because those determinations rested on “common issues” to the release payment. On remand, a jury will determine the proper release payment amount.
Because the Federal Circuit did not address the substance of the district court’s FRAND calculations, the ruling does not provide further guidance on what constitutes a FRAND rate for SEPs. There are only a handful of district court decisions setting a FRAND rates for SEPs, and with this ruling the Federal Circuit has vacated one of them. However, the Court’s ruling does clarify that determining FRAND rates is not always a task for judges and that courts must respect parties’ right to trial by jury in FRAND licensing disputes.