On February 28, 2013, the Tokyo District court held that an alleged infringer of a standard essential patent may provoke FRAND defense according to Article1(3) of Japanese Civil Code which provides prohibition of abuse of right and therefore may block exercise of such patent.
This case is between Apple Japan Godo Gaisha, a Japanese subsidiary of Apple Inc., and SAMSUNG ELECTRONICS CO., LTD., a Korean multinational company, where Samsung first filed a request for provisional injunction seeking prohibition of Apple Japan’s import, assignment, etc., of Subject Products based on an infringement of Subject Patent, and Apple Japan counterfiled a lawsuit for declaratory judgment seeking declaration of non-infringement. Subject Products here are: (i) “iPhone 3GS”; (ii) “iPhone 4”; (iii) “iPad Wi-Fi＋3G model”; and (iv) “iPad 2 Wi-Fi＋3G model”.
Here, Subject Patent at issue is SAMSUNG’s JP patent No.4642898 corresponding to US7675941, etc., which relates to “Method and Apparatus for Transmitting and Receiving Packet Data by Using Pre-Established Length Indicator in a Mobile Communication System”. This patent has been decided to be a standard patent for manufacture, sale and method for use of products based on “substitutive E bit construction” described in the specification V6.9.0 of UMTS standard. Representative claims are Claim 1 (method for data transmission) and Claim 8 (data transmission apparatus).
In conclusion, the Tokyo District Court confirmed that defendant SAMSUNG is not entitled to claim for damages against Apple Japan’s acts under Subject Patent.
First, the court found that the iPhone 4 and iPad 2 Wi-Fi＋3G model fall under the technical scope of claims 1 and 8 of the Subject Patent, while the iPhone 3GS and iPad Wi-Fi＋3G model do not fall under the technical scope of claims 1 and 8 of the Subject Patent.
That said, the court proceeded to decide whether a FRAND defense based on the Japanese Civil Code Article 1(3) (Prohibition of Abuse of Right) is available for Apple Japan against SAMSUNG’s claim for damages. The court answered this question affirmatively. The reasons are as follows:
The court first stated that they had to decide the governing law on this issue because this case is between a Japanese corporation and a Korean corporation about the existence of a claim for damages against the import and sale of Subject Products and thus this case includes an international factor.
In this regard, the court decided that the governing law of the issue shall be the laws of Japan. The court held that since the nature of a claim for damages based on patent infringement is a tort, governing law on this issue shall be decided according to Article 17 of the Act on General Rules for Application of Laws, which provides that the formation and effect of a claim arising from a tort shall be governed by the law of the place where the result of wrongful act occurred. Here, the court held, “the law of the place where the result of the wrongful act occurred” is Japan, considering the fact that Subject Products are imported into and sold in Japan, and the damages at issue here are related to infringement of a patent right protected under Japanese Patent Act.
After having decided that the laws of Japan shall be applied, the court held that although there is no specific provision under the Japanese Civil Code providing obligation for parties who are in the stage of preparation for execution of a contract, in some cases, parties who are negotiating with each other for contractual relationship shall owe the duties to disclose important information and to negotiate in good faith with other parties. According to said good faith principle, the court continued, SAMSUNG, in this case, shall bear the duties to disclose important information to and to negotiate in good faith with Apple Inc. for a license with FRAND terms for UMTS Standard “3GPP TS25.322 V6.9.0” (“Standard”) under Subject Patent, because (i) SAMSUNG notified European Telecommunications Standard Institute (“ETSI”) that Intellectual Property Right (“IPR”) for Subject Patent is essential for UMTS Standards and declared that SAMSUNG is ready to grant a license with FRAND terms in accordance with ETSI’s IPR Policy, (ii) ETSI’s IPR Guideline provides that ETSI’s member shall grant a license for essential IPR with FRAND terms, a member of ETSI may have a right to have a license for standards with FRAND terms and a third party may have a right to have a license for standards at least for manufacture, sale, lease, repair, use or operation with FRAND terms and (iii) Apple Inc. specifically requested the license of Subject Patent to SAMSUNG.
The court proceeded to find a breach of such duties by SAMSUNG through course of negotiation between SAMSUNG and Apple Inc. The court noted that SAMSUNG did not provide necessary information to Apple Inc., such as information about license agreements of other essential patents between SAMSUNG and other companies, for Apple Inc. to judge whether SAMSUNG’s license proposal or Apple Inc.’s license proposal was in line with FRAND terms, despite repeated requests from Apple Inc., and did not propose a specific counter offer to the license terms proposed by Apple Inc.
Finally, the court held that Apple Japan is entitled to a FRAND defense against SAMSUNG’s claim for damages based on said Japanese Civil Code Article 1(3), because (i) SAMSUNG breached its duties through the course of negotiation with Apple Inc., (ii) SAMSUNG still maintains a request for a provisional injunction against Apple Japan’s acts, and (iii) SAMSUNG notified ETSI that IPR for Subject Patent was probably essential for UMTS Standards around 2 years after “substitutive E bit construction” had been adopted in Standard according to its own proposal.
In finding SAMSUNG’s breach of its duties and granting Apple Japan of FRAND defense, the court considered various relevant facts not limited to the fact that SAMSUNG declared that they were ready to grant a license of Subject Patent with FRAND terms. This might mean that a FRAND declaration by a patentee is by itself not sufficient for courts to grant FRAND defense.