“The Federal Circuit concluded that the release payment was in substance a request for relief for TCL’s past infringement of Ericsson’s patented technologies without a license, which required a jury trial. Thus, the Federal Circuit did not reach the question of whether the district court erred in its FRAND analysis.”

Earlier today, the United States Court of Appeals for the Federal Circuit issued a decision in a standard essential patent (SEP) appeal involving Ericsson and TCL Communication Technology—a closely watched case that many hoped would produce some case law relating to what constitutes a FRAND (fair, reasonable and non-discriminatory) offer of a licensing royalty rate relative to SEPs. See TCL Communication Technology Holdings Ltd. V. Telefonaktiebolaget LM Ericsson, No. 2018-1363, 2018-1732 (Fed. Cir. Dec. 5, 2019). Because the Federal Circuit determined that Ericsson was deprived of its constitutional right to a jury trial, the district court decision was reversed, and the case remanded for further proceedings. However, the question of whether Ericsson’s offers to TCL qualified as FRAND offers were not reached by the Federal Circuit.

As is often the scenario in these SEP cases, the parties have a long history. The dealings and negotiations between TCL and Ericsson date back to 2007, when the parties entered into 2G licenses with seven-year terms. Over the ensuing years, as 3G and 4G technologies were developed and rolled out, and as the original 2G licenses expired, the original licensing arrangement turned litigious, with TCL believing Ericsson was not offering FRAND terms as required by a member of the European Telecommunications Standards Institute (ETSI). See § 6.1 of the ETSI Intellectual Property Rights Policy.

District Court and FRAND Analysis

To summarize a detailed history, essentially Ericsson proposed two alternative license offers to TCL; so-called Option A and Option B. Option A proposed a lump-sum payment of $30 million for its first $3 billion in sales with percentage running royalties ranging between. .8% and 2%. Option B proposed only running royalties ranging between .8% and 1.5%, but with a $2.00 floor and a $4.50 cap. Both options also included a “release payment” for TCL’s past unlicensed sales.

During the consolidated bench trial in the Central District of California, after having ruled that Ericsson was not entitled to a jury trial, the district court made four determinations relevant to the Federal Circuit appeal. First, it concluded that Ericsson’s proposed terms to TCL were not FRAND. Second, the district court set a prospective FRAND royalty rate for TCL’s future use of Ericsson’s SEPs, relying on a combination of methodologies, including its own modified version of TCL’s proposed top-down approach and comparable licenses. Third, the court set a “release payment for TCL’s past unlicensed sales” by adjusting its calculated prospective FRAND royalty rate. Fourth, the district court ordered the dismissal of Ericsson’s patent infringement claims and TCL’s related counterclaims of invalidity and non-infringement as moot in light of the relief granted in the release payment.

On appeal, Ericsson argued that all four determinations were erroneous because: (1) they at least in part should have been determined by a jury, and (2) they were premised on various errors in the court’s FRAND analysis.

Jury Required

The Federal Circuit, in a decision authored by Judge Chen (joined by Judges Newman and Hughes) concluded that the release payment was in substance a request for relief for TCL’s past infringement of Ericsson’s patented technologies without a license, which required a jury trial. Thus, the Federal Circuit did not reach the question of whether the district court erred in its FRAND analysis.

“[W]hether we characterize the release payment term as compensation for ‘past patent infringement’ or restitution for ‘TCL’s past unlicensed sales,’ the underlying nature of the relief is legal,” Judge Chen wrote for the majority. As a result, the release payment question was legal in nature, not equitable. Therefore, the Federal Circuit ruled that the district court deprived Ericsson of its Seventh Amendment right to a jury trial.

Ultimately, after finding Ericsson had been deprived of its Seventh Amendment right to a jury trial, the Federal Circuit vacated the district court’s determination of the release payment. Similarly, because both Option A and Option B incorporated a release payment, the Federal Circuit further vacated the determination that Ericsson’s Option A and Option B were not FRAND offers.

Because the release payment will now be submitted to a jury on remand, the Federal Circuit also reversed the dismissal of Ericsson’s patent infringement claims and TCL’s related counterclaims of invalidity and non-infringement as no longer being moot.