Federal Circuit Finds Term Of Court-Imposed FRAND License Violated Seventh Amendment Right To A Jury Trial
On December 5, 2019, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion vacating-in-part, reversing-in-part and remanding for further proceedings the decision and order of the United States District Court for the Central District of California imposing “fair, reasonable and non-discriminatory” (FRAND) rates in a binding worldwide license between an owner of certain standard-essential patents (SEPs) and a manufacturer of mobile devices that implement technology covered by the SEPs. TCL Commc’n Tech. Holdings Limited v. Telefonaktiebolaget LM Ericsson, F.3d (Fed. Cir. Dec. 5, 2019). The CAFC ruled that the district court deprived the SEP owner of its right to a jury trial when the district court decided from the bench to impose a term of the FRAND license that was—in substance—compensatory relief for the mobile phone manufacturer’s past wrongful acts.
The Seventh Amendment provides that, “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .” U.S. CONST. amend. VII. The Supreme Court has interpreted “Suits at common law” to refer to actions that are “analogous” to 18th-century suits brought in the English courts of law prior to the Amendment’s adoption. Tull v. United States, 481 U.S. 412, 417 (1987). To determine whether a particular action will resolve legal rights, the court examines both the nature of the issues involved and the remedy sought. Chauffeurs v. Terry, 494 U.S. 558, 565 (1990). First, the court compares the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. And, second, the court examines the remedy sought and determine whether it is legal or equitable in nature. Tull, 481 U.S. at 417–18 (internal citations omitted). “The second inquiry is the more important in [this] analysis.” Chauffeurs, 494 U.S. at 565.
The parties to this appeal have been negotiating—for over a decade—licensing terms for a certain portfolio of SEPs incorporated into 2G, 3G and 4G mobile communications standards. Before the parties could reach agreement as to the terms, each party filed a lawsuit against the other: the first of which was a declaratory judgment action, filed by the mobile phone manufacturer, seeking a declaration that the SEP owner had failed to offer a license on FRAND terms; the second was a patent infringement lawsuit, filed by the SEP owner, seeking damages against the mobile phone manufacturer for infringement of two of its SEPs. The case below is a consolidation of these two district court actions, during which the parties agreed to engage in a binding court adjudication of the terms for a worldwide portfolio license.
Below, the district court sought submissions from both parties as to how the terms of the FRAND license should be determined. The district court subsequently rejected the parties’ methodologies and created its own FRAND terms based on its own methodology. Among other licensing terms, the district court imposed a “release payment” for the mobile phone manufacturer’s past unlicensed sales. The district court did so—against the SEP owner’s objections that it was entitled to a jury trial on this issue—from the bench.
The CAFC found that the district court erred when it concluded that a jury trial was not necessary to adjudicate the release payment term because, contrary to the district court’s view, the release payment provides legal, not equitable, relief. The CAFC pointed to the fact that the district court explained that the function of the release payment was compensation for past patent infringement, and to the fact that the district court dismissed the SEP owner’s patent infringement claims as moot in light of the release payment. “Thus, the court’s own actions confirm that the release payment functions as a substitute for patent infringement damages.” In doing so, the CAFC also rejected the mobile phone manufacturer’s argument—that the release payment term was equitable in nature based on the form the relief took—siding instead with the SEP owner, which argued that the substance, not the form, of the relief, should govern. The CAFC further rejected the mobile phone manufacturer’s argument that the SEP owner waived its right to a jury trial by allegedly consenting to a bench trial. The CAFC found that in light of the record as a whole—which included an explicit preservation objection from the SEP owner that it had not waived its right to a jury trial—that the SEP owner had not waived its jury trial right.
The CAFC, therefore, vacated the district court’s determination of the release payment and remanded the case so that, among other things, adjudication of the release payment term could be decided by a jury.