By: Sloane Kyrazis
In TCL Comm’n Tech. Holdings v. Telefonaktiebolaget LM Ericsson, 943 F.3d 1360 (Fed. Cir. 2019) (“Ericsson”), the Federal Circuit held that Ericsson’s Seventh Amendment rights guaranteed a jury trial in its suit against TCL involving the royalty dispute between the two parties related to the fair, reasonable, and non-discriminatory (“FRAND”) licensing of Ericsson’s patent portfolio. The case was closely watched because many thought it was finally the time when the Federal Circuit, and possibly the Supreme Court, would provide some guidance over what constitutes a FRAND licensing scheme for standard essential patents. Instead of providing much needed guidance, the Federal Circuit reversed the district court decision below, holding that the district judge’s announcement of a FRAND royalty in a bench trial violated Ericsson’s Seventh Amendment right to a jury trial. The Supreme Court denied certiorari on appeal. This blog post discusses why such a denial was well-founded.
The Seventh Amendment states that “[i]n [s]uits at common law, . . . the right of trial by jury shall be preserved[.]”[i] The Seventh Amendment right to trial by jury applies to patent litigation, but the extent to which the Seventh Amendment applies to patent suits has been heavily litigated. Illustratively, whether a party was entitled to a jury trial in a lawsuit regarding the licensing of a standard essential patent (“SEP”) was the dispositive issue in TCL Comm’n Tech. Holdings v. Telefonaktiebolaget LM Ericsson (“Ericsson”).[ii] Ericsson was a closely-watched case, as many thought the Federal Circuit would shed some light on the largely unanswered question of what constitutes a fair, reasonable, and non-discriminatory (“FRAND”) commitment to license a standard essential patent (“SEP”) as required by standard setting organizations (“SSOs”).[iii] The dispute arose out of Ericsson’s proposal of two alternative license offers to TCL, both of which included a release payment for TCL’s past unlicensed sales infringing Ericsson’s SEP portfolio.[iv] After negotiations broke down and litigation ensued, Ericsson was denied a jury trial in the district court, and the judge announced a FRAND royalty rate in a bench trial.[v] The Federal Circuit overturned the decision because the bench trial below violated Ericsson’s Seventh Amendment right to trial by jury.[vi] The case was widely studied because high-tech industries are a part of an unstable legal landscape due to the interplay between private industry “SSOs” and the laws governing patents, competition, and procedure.[vii] The nature of the technology in these industries makes it necessary to have uniformity among manufacturers of technological components so that the components can communicate and operate seamlessly, and the industries can achieve large network effects.[viii] Thus, industry-wide standards are necessary.[ix] The bodies that determine these standards are SSOs made up of industry participants. Technological standards adopted by SSOs are usually covered by SEPs.[x] To ensure that firms wanting to implement the SSO’s standard can access the technology required for compliance with the standard, upon adoption of the technology into a standard, the SSO may require the patent owner to license the technology on FRAND terms.[xi]The SSOs and the courts have provided very little guidance on what constitutes a FRAND commitment.[xii] Thus, the Ericsson decision was slated to provide needed clarity on FRAND commitments. Although the decision did not clarify what constitutes a FRAND commitment, it did clarify that parties litigating this type of license agreement are entitled to a jury trial.[xiii] The Supreme Court confirmed this when it denied certiorari on October 5, 2020.[xiv] This blog post will discuss why the denial was well-founded. First, jury trials in litigation of FRAND royalty disputes for licensing of SEPs is consistent with past application of the Seventh Amendment to patent litigation, and second, a jury trial is a logical choice for a FRAND dispute.
First, the right to a jury trial to decide what constitutes a FRAND commitment is consistent with the general application of the Seventh Amendment to patent litigation. Generally, courts hold that under Tull v. United States,[xv], [xvi] plaintiffs seeking damages in patent suits can assert their right to trial by jury, but plaintiffs seeking injunctive relief cannot.[xvii] Although a FRAND commitment is a commitment to license, it is much more than a contractual commitment. The agreement is one between an owner of SEP and a manufacturer who is implementing technology that is coextensive with the owner’s patented technology. In other words, this is infringement. Therefore, this is a suit arising out of a patent dispute, not out of a contract dispute. As long as the suit is styled as a patent damages lawsuit brought by the patent owner, consistent with Seventh Amendment jurisprudence in patent litigation, the right to a jury trial attaches.
Second, legal scholarship on jury trials in patent litigation usually takes the position that patent law is too complex for juries of laypeople, and parties demanding a jury trial in patent cases risk vast uncertainty in a jury verdict.[xviii] But a jury is well-suited to decide FRAND disputes based merely on the language of the requirement—fair,reasonable, and non-discriminatory are standards that are not difficult to understand. Moreover, juries use these kinds of words to decide all kinds of cases, like the overarching standard of “reasonableness” in tort law.[xix] Although the complex nature of the technology underlying the commitments may add a wrinkle that some would argue muddies a jury’s ability to make a good decision, the Supreme Court has maintained that the Seventh Amendment right should be preserved whenever possible, even in complex cases.[xx] Critics argue that potential jurors lack the education, experience, and ability to understand and decide complex matters like patent, securities, and antitrust litigation.[xxi]But FRAND disputes are a species of patent suits that can be distilled down to whether or not a party honored its commitment to an SSO. If jurors are capable of consuming evidence and making a decision in a nationwide securities litigation that consolidated eighteen cases and certified five classes,[xxii] then jurors are capable of deciding FRAND disputes. The policy rationale that juries of laymen lack the education and experience to decide complex cases crumbles when asking a jury to announce a FRAND royalty rate. Although FRAND royalty rates disputes are not contract disputes, they involve judgment of similar concepts that non-patent lawyers engage with every day. That is, whether a license agreement or commitment to license is fair, reasonable, and non-discriminatory is a concept that is simple to grapple with. Even though complexity is added when you look at the substance of the license based on the patented technology, jurors do not automatically become incapable of deciding patent cases just because the underlying dispute is technical. Every law is technical in nature, and juries apply technicalities and legal nuances to fact patterns in every case they are asked to decide.
In conclusion, the Supreme Court’s most recent nod in Ericsson in its continued campaign to expand the Seventh Amendment right to trial by jury is a decision that is consistent with Seventh Amendment jurisprudence in patent litigation, and is a logical decision in view of the nature of FRAND royalty disputes. As for shedding light on what constitutes a FRAND royalty rate, high-tech industry participants will have to wait for the result of the remanded jury trial in Ericsson. Depending on whether and how far the jury strays from the original court-ordered license that was appealed, FRAND royalty litigation may increase as patentees and their licensees see opportunities to secure more favorable jury-decided terms.
[i] U.S. Const. amend. VII.
[ii] 943 F.3d 1360 (Fed. Cir. 2019) (“Ericsson”).
[iii] Gene Quinn, Mystery Science: What Lemley and His Colleagues Get Wrong in Their Push for SCOTUS to Review TCL v. Ericsson, IP Watchdog (July 19, 2020) https://www.ipwatchdog.com/2020/07/19/mystery-science-lemley-colleagues-get-wrong-push-scotus-review-tcl-v-ericsson/id=123380/.
[v] J. Gregory Sidak, Judge Selna’s Errors in TCL v. Ericsson Concerning Apportionment, Nondiscrimination, and Royalties Under the FRAND Contract, 4 Criterion J. on Innov. 101, 101 (2019).
[vi] Ericsson, 943 F.3d at 1364.
[vii] See, e.g., Broadcomm v. Qualcomm, 501 F.3d 297 (3d Cir. 2007) (holding that a firm’s deceptive conduct before an SSO could constitute an antitrust violation under the Sherman Act).
[viii] Id. at 303.
[x] Anne Layne-Farrar & Michael Salinger, The Policy Implications of Licensing Standard Essential FRAND-Committed Patents in Bundles, Federal Trade Commission, July 2016, https://www.ftc.gov/system/files/documents/public_comments/2018/07/ftc-2018-0055-d-0002-147597.pdf.
[xiii] Ericsson, 943 F.3d at 1364.
[xiv] TCL LTD., et al. v. Telefonaktiebolaget LM, et al., No. 19-1269, 2020 WL 5882244 (U.S. Oct. 5, 2020).
[xv] 481 U.S. 412 (1987).
[xvi] The generally applicable test to determine whether the right to a jury trial applies was announced in Tull v. United States, 481 U.S. 412, 417–18 (1987) (“First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. . . .Second, we examine the remedy sought and determine whether it is legal or equitable in nature.”).
[xvii] Brian D. Coggio & Timothy E. DeMasi, The Right to a Jury Trial in Actions for Patent Infringement and Suits for Declaratory Judgment, 13 Fordham Intell. Prop. Media & Ent. L.J. 205, 209 (2002).
[xviii] Devon Curtis Beane, Whose Right Is It Anyway?: The Evisceration of an Infringer’s Seventh Amendment Right in Patent Litigation, 2011 U. Ill. L. Rev. 1853, 1853 (2011).
[xix] See 74 Am. Jur. 2d Torts § 2 (2020) (stating that a principal function of tort law is to compensate a victim of unreasonable conduct of the tortfeasor).
[xx] See In re U.S. Financial Securities Litigation, 609 F.2d 411, 413 (9th Cir. 1979) cert. denied sub nom. Gant v. Union Bank, 446 U.S. 929 (1980) (refusing to read a complexity exception into the Seventh Amendment).
[xxi] Lex Hawkins, The Case for Trial by Jury in Complex Civil Litigation, 7 Trial by Jury 15, 15 (Fall 1980).
[xxii] See In re U.S. Financial Securities Litigation, 609 F.2d at 411 (consolidating eighteen cases and certifying five classes).