Anything you say can and will be used against you – As Illustrated in a Recent FRAND Rate-Setting Case

The warning “anything you say can and will be used against you” applies to many patent law situations. From prosecution history estoppel, to inequitable conduct, to admissions of willful infringement, and many others. The recent (Dec. 2017) FRAND rate-setting decision (TCL v. Ericsson) illustrates another instance. In this case, Judge Selna of the Central District of California applied a “top-to-bottom” approach. Under this approach, the judge must first estimate the Aggregate Royalty Burden (ARB) for the standard as a whole. For this estimate, Judge Selna relied on Ericsson’s own public statements, made around the time the 2G and 3G standards were adopted, about the rates phone makers should pay to license all patents covering the standards. Next, the judge must estimate the patent holder’s share of the ARB by apportioning the ARB across SEP holders according to the relative values of their respective portfolios. Here, Judge Selna relied on the parties’ expert reports that analyzed the “contribution” and “importance” of Ericsson’s SEP portfolio. The judge effectively found in this case that the relative strength of the Ericsson SEP portfolio could be estimated by its share (in number of patents) of the total number of all SEPs for the standard at issue. The judge also considered the non-discrimination prong of FRAND by analyzing comparable licenses and concluded that larger players, such as Apple, Samsung, HTC, Huawei and ZTE were “similarly situated to TCL.” In the end, the judge arrived at FRAND rates significantly lower than requested by the patent holder during the litigation. The CAFC will likely review the case, but in the meantime SEP holders might be more careful with making statements about license rates. The full decision (115 pages!) case be read here. We could comment on the imprecision and subjectivity of FRAND rate analyses, but such comments could be used against us.