InterDigital v. Arima

Anne Layne-Farrar Demonstratives

December 9, 2013

Summary of Opinions

• Highly unusual to argue that a signed contract is not FRAND

• Mr. Murtha’s analyses of licensing agreements are incorrect− Licenses much earlier/later are far less relevant

− No “similarly-situated” analysis, math and fact errors

• Mr. Murtha’s “Most favored licensee” (or “MFL”) clause opinions are incorrect − Lack of MFL not a FRAND violation

− FRAND does not works like an MFL clause

ETSI Intellectual Property Rights Policy

§ 4.1 Subject to Clause 4.2 below, each MEMBER shall use its

reasonable endeavours, in particular during the development

of a STANDARD or TECHNICAL SPECIFICATION where it

participates, to inform ETSI of ESSENTIAL IPRs in a timely

fashion. In particular, a MEMBER submitting a technical

proposal for a STANDARD or TECHNICAL SPECIFICATION

shall, on a bona fide basis, draw the attention of ETSI to any

of that MEMBER’s IPR which might be ESSENTIAL if

that proposal is adopted. (emphasis added)

Ex. 346, p. 34

ETSI Intellectual Property Rights Policy

Ex. 346, p. 39

§ 15(6) “ESSENTIAL” as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing

that IPR. For the avoidance of doubt in exceptional cases where a STANDARD can only be implemented by technical solutions, all of which are infringements of IPRs, all such IPRs shall be considered ESSENTIAL.

The PLA Was Fair And Reasonable at the Time It Was Negotiated and Signed

• PLA royalty rates on the low end of industry 0.5 to 4.0 % range

• Arima acknowledged royalty and compensation are “reasonable” in the PLA

• Arima’s Mr. Hung said the PLA included a “fair rate”

• PLA is identical / similar to contemporaneous IDG license agreements

§ 3.8 Sales to InterDigital group Licensees. Unless otherwise agreed to in writing

by InterDigital Group, Licensee shall be required to pay royalties to InterDigital

Group on Sales of Licensed Products and Limited Market GSM Terminal Units

to any third party regardless of whether such third party is an lnterDigital

Group licensee. Licensee may request that Licensee not be required to pay

certain royalties to InterDigital Group on Sales of Licensed Products and/or

Limited Market GSM Terminal Units to a specific third party that may be an

InterDigital Group licensee. Within 15 days of such a written request, or upon

InterDigital Group’s own initiative, InterDigital Group may, in its sole discretion,

designate that Licensee not be required to pay royalties on Sales of Licensed

Product and/or Limited Market GSM Terminal Units by Licensee to such

specific third party, including the types of Licensed Terminal Units for which no

royalty payment is required, and for how long. In the event InterDigital Group

grants Licensee the right to make such Sales without paying royalties

hereunder, such Sales by Licensee or its Affiliates (and the Licensed Products

and/or Limited Market GSM Terminal Units being Sold) to such third party

without royalty payment shall not be licensed hereunder and Licensee and its

Affiliates enjoy a personal immunity from suit for infringement of the Licensed

Patents as regard such Sales as so specified by InterDigital Group.

IDG and Arima Patent License Agreement

Ex. 19, pg. 5

Non-Discrimination Analysis

• Offers to similarly-situated potential licensees should be similar

• ND analysis must consider whether licensees are similarly situated

• Comparison of terms must be done as a whole

• Differences among concluded agreements do not mean discrimination

1996SamsungEx. 436

Timeline of Agreements Relied on by Mr. Murtha

2003HTCExs. 430; 432

2005QuantaEx. 409

2006NokiaEx. 560

2006LGEx. 405

6-7/05IDG and Arima enter into PLA

2006InventecEx. 408

1999NokiaExs. 410; 437

2010Inventec AmendmentEx. 433

2008PegatronEx. 407

2008SamsungEx. 435

2007AsustekEx. 406

2007AppleEx. 429

2011AcerEx. 427

2012QuantaAmendmentEx. 434

2012Acer AmendmentEx. 428

2004 20082006200019981996 2002 2010 2012// / / / / / /

2002SEMC Ex. 421

Timeline of Agreements Relied on by Mr. Murtha

2003HTCExs. 430; 432

2005QuantaEx. 409

6-7/05IDG and Arima enter into PLA

2006InventecEx. 408

2010Inventec AmendmentEx. 433

2008PegatronEx. 407

2007AsustekEx. 406

2011AcerEx. 427

2012QuantaAmendmentEx. 434

2012Acer AmendmentEx. 428

2004 200820062002 2010 2012/ / / / /

2002SEMC Ex. 421

Comparison of Arima and Quanta PLAs

Provision Arima (Ex. 19) Quanta (Ex. 409)

Effective Date 1/1/2005 1/1/2005

Royalty Rate for Licensed Terminal Units 1.65% 1.65%

Royalty Rate Cap for Licensed Terminal Units $3.00 $3.00

Non-Assert Royalty Rate Limited Market GSM Terminal Units: 1.10% Limited Market GSM Terminal Units: 1.00%Limited Manufacture GSM Terminal Units: 1.10%

Definition of Products Covered Subject to 1.10% Royalty Rate

“Limited Market GSM Terminal Units” means Terminal Units compliant with GSM (but no other

Covered Standard), which units are manufactured in China or Taiwan.

“Limited Manufacture GSM Terminal Units” means Terminal Units compliant with GSM (but no other Covered Standard), which units are manufactured solely within China or Taiwan.

Limitations on License GrantSection 2.2 (does not allow sublicensing;

excludes component sales except as incorporated into products)

Section 2.2 (Same as Arima)

Cross License Grant Section 2.3 Section 2.3 (Same as Arima)

Capture Period Effective Date (1/1/2005) + 3 Years Effective Date (1/1/2005) + 3 Years

Term Terminates upon last-to-expire of the Licensed Patents

Terminates upon last-to-expire of the Licensed Patents

Prepayment Benefit Royalty Credit equal to 125% of optional prepayment Discount of 12%/year

Reporting Obligations Section 7.3 Section 7.3 (Same as Arima)

Ex. 19 vs. Ex. 409

Comparison of Arima and Inventec PLAs

Provision Arima (Ex. 19) Inventec (Ex. 408)

Effective Date 1/1/2005 9/1/2006

Basic Royalty Rate for Licensed Terminal Units 1.65% 1.65%

Royalty Rate for Certain Narrowly-Defined Categories of Licensed Terminal Units

N/A 1.35%

Non-Assert Royalty Rate 1.10% 1.00%

Prepayment Benefit Royalty Credit equal to 125% of optional prepayment

Royalty Credit equal to 130% of optional prepayment

Limitations on License GrantSection 2.2

(does not allow sublicensing; excludes component sales except

as incorporated into products)Section 2.2 (Same as Arima)

Cross License Grant Section 2.3 Section 2.5 (Same as Arima)

Reporting Obligations Section 7.3 Section 6.3 (Same as Arima)

Ex. 19 vs. Ex. 408

Comparison of Arima and HTC PLAs

Provision Arima (Ex. 19) HTC (Exs. 430/432)

Effective Date 1/1/2005 12/31/2003

Relevant Product Definitions

“Licensed Terminal Units” means Terminal Units designed to operate substantially in

accordance with one or more Licensed Standards but excluding Limited Market GSM

Terminal Units.

“Covered Terminal Units” means Terminal Units designed to operate in accordance with one or more Covered Standards. Covered Terminal Units shall exclude devices that operate only on 802.XX standards, and do not operate on

any Covered Standard.

Royalty Rate for Covered/Licensed Terminal Units 1.65% 1.66% (of Deemed Price)

Royalty Rate Cap for Covered/Licensed Terminal Units $3.00 $4.40

Limitations on License GrantSection 2.2 (does not allow sublicensing;

excludes component sales except as incorporated into products)

Section 2.2 (Same as Arima)

Cross License Grant Section 2.3 Section 2.3 (Same as Arima)

Prepayment Benefit Royalty Credit equal to 125% of optional prepayment Discount of 12%/year

Capture Period Effective Date (1/1/2005) + 3 Years Effective Date (12/31/2003) + 5 Years

Term Terminates upon last-to-expire of the Licensed Patents

Terminates upon last-to-expire of the Licensed Patents

Reporting Obligations Section 7.3 Section 7.3 (Similar to Arima)

Ex. 19 vs. Exs. 430/432

Ex. 19 vs. Ex. 427

Comparison of Arima and Acer PLAs

Provision Arima (Ex. 19) Acer (Ex. 427)

Effective Date 1/1/2005 1/1/2011

Royalty Rates

Licensed Terminal Units: 1.65% of actual Net Selling Price

Limited Market GSM Terminal Units:

1.10% of actual Net Selling Price

2G Licensee Terminal Units: 1.00% of Deemed Price

3G Licensee Terminal Units: 1.50% of Deemed Price

4G Only Licensee Terminal Units: 1.50% of Deemed Price

4G Multi-mode Licensee Terminal Units:

2.00% of Deemed Price

Definition “Net Selling Price” “Deemed Price”

Cross License Grant Section 2.3 Section 2.3 (Same as Arima)

SEMC Decreasing Royalty Rates

Ex. 421

# of Covered Terminal Units Sold Royalty Rate for 2003/2004 Royalty Rate for 2005/2006

0-5,000,000 1.95% 1.85%

5,000,001-10,000,000 1.65% 1.55%

10,000,001-20,000,000 1.35% 1.25%

> 20,000,000 0.77% 0.75%

Present ETSI Policy

Ex. 346

§ 3.1 It is ETSI’s objective to create STANDARDS and TECHNICAL SPECIFICATIONS

that are based on solutions which best meet the technical objectives of the

European telecommunications sector, as defined by the General Assembly. In

order to further this objective the ETSI IPR POLICY seeks to reduce the risk to

ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL

SPECIFICATIONS, that investment in the preparation, adoption and application

of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a

STANDARD or TECHNICAL SPECIFICATION being unavailable. In achieving

this objective, the ETSI IPR POLICY seeks a balance between the needs of

standardization for public use in the field of telecommunications and the rights

of the owners of IPRs.

§ 3.2 IPR holders whether members of ETSI and their AFFILIATES or third parties,

should be adequately and fairly rewarded for the use of their IPRs in the

implementation of STANDARDS and TECHNICAL SPECIFICATIONS.

From its origins, ETSI has emphasized balance between implementers and innovators:

ETSI Rejected a Mandatory MFL Clause

Ex. 341, App’x A (pp. U3-U4)

1993 Interim Policy:

§ 3.1 Licences granted to a PARTY pursuant to clause 2 above shall: . . .

include a clause requiring the licensor to promptly notify a licensee

of any licence granted by it to a third party for the same IPRs under

comparable circumstances giving rise to terms and conditions that are

clearly more favourable, in their entirety, than those granted to the

licensee and allowing the licensee to require replacement of the terms

and conditions of its licence, in their entirety, either with those of the

third party licence, or with such other terms and conditions as the

parties may agree.