Last week, the Federal Circuit heard oral argument in Koninklijke Philips N.V. v. Thales USA, Inc., a patent case in which Thales appeals a district court’s denial of a motion for a preliminary injunction. Thales sought to “prevent Philips from pursuing an . . . exclusion order against Thales” at the International Trade Commission based on a commitment by Philips to license its patents on fair, reasonable, and non-discriminatory terms. We’ve been following this case because two amicus briefs were filed in support of Thales. This is our argument recap.
R. Paul Zeineddin argued for Thales. Judge Chen almost immediately brought up the impending ITC decision and the question of whether the decision of the ITC will bring harm to Thales. Judge Dyk then proposed that, without an exclusion order, there is no irreparable injury for the district court to remedy. In response, Zeineddin claimed that Thales could have customers walk away as a result of the “cloud” over their business. He emphasized that Thales is attempting to capture market shares in a burgeoning industry, and the “cloud” Philips has placed over Thales has caused harm.
Judge Chen asked for evidence that customers had walked away from Thales, and, relatedly, Judge Dyk pointed out that it is Zeineddin’s burden to establish irreparable harm. Judge Chen questioned whether there was enough evidence or instead merely paranoia of possible lost customers. Zeineddin responded by comparing the threat of an exclusion order to having a lien on a house.
Judge Dyk observed that there is a potential for a remedy at the ITC, and he asked why that remedy is not an adequate remedy. Zeineddin responded that he was disheartened by past ITC decisions because they placed little importance on FRAND commitments.
Judge Chen indicated that it is unclear whether a “willing licensee in the context of an ITC proceeding will necessarily be forced to confront an exclusion order.” In response, Zeineddin said that the uncertainty is part of the problem.
Chief Judge Moore indicated that if the ITC decides not to review the matter, then this case is moot. Zeineddin stressed that the case is not moot if Philips continues to appeal the matter.
Judge Chen then took on a line of questioning over whether an implementer could be considered a willing licensee if the implementer operated in bad faith for years and then, when finally taken to court, said, “please set the rate, and I will comply.” Zeineddin argued it would depend on the circumstances, but he ultimately conceded that good faith is very important.
Eley O. Thompson argued for Philips. Judge Chen asked Thompson if he agreed French law protects against injunctions if the party in question acted in good faith. Thompson hesitated to agree with this statement. He instead said that anyone who complies with the European Telecommunications Standards Institute (ETSI) agreement has a right to an injunction. Thompson asserted that an implementer “can’t be a willing licensee” if the patent holder complied with its ETSI-imposed FRAND licensing obligation.
Judge Chen then asked Thompson to confirm that there should never be an exclusion order against a willing licensee. Thompson refused to agree with this statement, arguing that the duty of good faith is dependent upon the circumstances of the negotiation. In particular, he pointed out that when one party makes an ETSI-compliant offer to the other, it is incumbent upon the party receiving the offer to accept it.
Judge Chen questioned whether Philips planned to appeal the decision if the ITC were to decline review. Thompson did not provide an explicit answer, but said it was within the “realm of possibility.”
One judge asked Thompson whether his client ultimately wanted a FRAND license or to enjoin Thales from practicing the relevant patents. Thompson replied that his client’s desire is for Thales to accept the FRAND offers it has provided.
Chief Judge Moore indicated that Thales may not actually be a willing licensee if Philips made five different FRAND offers and Thales did not accept any of them. Thompson agreed and went on to say that, by not accepting, Thales caused a delay.
Judge Dyk, however, pointed out that the administrative law judge found that Thales was negotiating in good faith. In response, Thompson maintained that Thales’s presentation to the ALJ was intentionally incomplete. Thompson, moreover, said that Thales failed to demonstrate that its counteroffers during negotiation were FRAND-compliant offers.
In rebuttal, Zeineddin emphasized that the ALJ found that Thales negotiated in good faith and that Thales was a willing licensee because it agreed to adjudicate the FRAND rates. He concluded by saying that the district court made a clear error that a patent owner who encumbers its patent with a promise to license on FRAND terms has no restrictions in excluding willing licensees from the market through exclusion orders.
We will continue to monitor the case and report on any developments.