Telefonaktiebolaget LM Ericsson v. Lenovo (United States), Inc.

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TELEFONAKTIEBOLAGET LM ERICSSON Plaintiff, v. LENOVO (UNITED STATES), INC.; LENOVO SHANGHAI ELECTRONICS TECHNOLOGY CO. LTD.; LENOVO BEIJING, LTD.; LENOVO GROUP, LTD.; MOTOROLA WUHAN MOBILITY TECHNOLOGIES COMMUNICATION CO., LTD; and MOTOROLA MOBILITY, LLC, Defendants.

LENOVO UNITED STATES, INC., and MOTOROLA MOBILITY, LLC, Counterclaim-Plaintiffs, v. TELEFONAKTIEBOLAGET LM ERICSSON, ERICSSON AB, and ERICSSON INC. Counterclaim-Defendants.

No. 5:23-CV-00569-BO

United States District Court, E.D. North Carolina, Western Division

February 14, 2024

ORDER

TERRENCE W. BOYLE UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendants and Counterclaim-Plaintiffs Lenovo (United States), Inc (“Lenovo US”) and Motorola Mobility LLC's motion for temporary restraining order and anti-suit injunction. [DE 35]. Lenovo U.S. and Motorola Mobility seek an anti-suit injunction prohibiting Plaintiff and Counterclaim-Defendant Telefonaktiebolaget LM Ericsson from enforcing injunction orders issued in foreign jurisdictions.

The motion for TRO and anti-suit injunction has been fully briefed. The Court held a hearing on 11 January 2024 in Elizabeth City, NC, where Ericsson, Lenovo U.S. and Motorola Mobility were represented by counsel. The motion is ripe for decision. For the following reasons, the Court denies Lenovo's motion for an anti-suit injunction.

BACKGROUND

Lenovo and Ericsson are major players in the mobile telecommunications industry.^[1] Their patent portfolios comprise domestic and international patents implemented into cellphones and other cellular network applications. For over a decade, the parties have negotiated towards a global cross-licensing agreement that would allow Lenovo and Ericsson to implement the other's essential patents into their devices. Recent negotiations have focused on patents essential to the 5G network. They have not proved fruitful and the parties have taken their dispute to the courts. And not only in the Eastern District of North Carolina but also Brazil, Colombia, and the United Kingdom.

Now Lenovo moves for an anti-suit injunction to prevent Ericsson from enforcing injunction orders it obtained against the sale of Lenovo products in foreign jurisdictions, particularly Colombia and Brazil. Because the parties are bound together by a common commitment to industry practices, understanding those commitments and their implications is essential to resolving the instant motion.

The Court ventures to say that most consumers are unaware, perhaps blissfully so, of the inner workings of cellular networks. One of the features that most take for granted is the ability to send and receive text messages, e-mails, and phone calls regardless of who manufactured the device, who designed its operating system, and which carrier facilitates their network connection. This seamless interconnectivity has a technical term: interoperability.

Interoperability is the result of technical standards set by private organizations, organizations known, aptly, as standard development organizations (“SDOs”). The standards govern how cellular devices access the cellular network by setting forth the technical specifications that act like a blueprint for manufacturers and network operators. The European Telecommunications Standards Institute, a foremost SDO in the telecommunications industry, helped promulgate the 3G, 4G, and 5G standards through its participation in the 3rd Generation Partnership Project (“3GPP”). Both Lenovo and Ericsson are members of the ETSI. When the ETSI and other members of the 3GPP set standards, they often incorporate patented technology created by members of the SDO. A patent that is selected to be part of the standard is known as a standard essential patent. What makes the patent essential is the impossibility of complying with the standard without infringing on that patent.

Standards do more than just facilitate interoperability. Standards are good for the consumer because they also lower costs and increase price competition. Microsoft, 696 F.3d 876. Standards are great for patent holder because they contain the seeds of disproportionate market power. Once a standard has been accepted by the market, the patent holder is positioned to extract high royalties from those who wish to implement the SEPs. If the implementer wants to offer products connected the latest and best technology, they have a choice: The implementer can license the essential patent from the patent holder at the terms set by the patent holder, or the implementer can infringe on the essential patent and risk a patent infringement lawsuit. See HTC Corp. v. Telefonaktiebolget LM Ericsson, 12 F.4th 476, 481 (5th Cir. 2021).

To combat such an imbalance, known as “patent holdup,” many SDOs tip the scales towards equipoise by imposing conditions on essential patents. Id. The ETSI's IP rights policy checks anti-competitive behavior by securing voluntary commitments from the owners of would-be essential patents to license their patents on fair, reasonable, and non-discriminatory terms (“FRAND”). Specifically, Clause 6.1 of the IP rights policy requires the patent holder to commit to “an irrevocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable, and non-discriminatory (“FRAND”) terms and conditions . . . [which] may be made subject to the condition that those who seek licenses agree to reciprocate.” Comp. ¶34. [DE 1]; Countercis. ¶24, [DE 29], This commitment undercuts the patent holder's ability to engage in anticompetitive behavior. Companies seeking to license the essential patents become third-party beneficiaries of the contract between the essential patent holder and the ETSI, ensuring that they will be able to license the essential patent at a FRAND rate. HTC, 12 F.4th at 481.

This commitment to offer a FRAND rate, powerful as it may be, binds ETSI members to a goal while leaving how to get there up to the patent holders and implementers. That is, the patent holder is required only to offer license terms that are FRAND. How the parties arrive at those terms and what it takes to hammer out a deal is left for the parties to determine. See Adam Mossoff, Patent Injunctions and the FRAND Commitment: A Case Study in the ETSI Intellectual Property Rights Policy, 38 Berkeley Tech. L.J. 487, 498 (2023).

Ericsson and Lenovo hold essential patents (either directly or through their related entities) incorporated in the 5G cellular standard. Both are members of the ETSI. Both have agreed that they are prepared to grant licenses to implementers on FRAND terms. And both agree that they are beneficiaries of the other's commitment. What they haven't been able to agree on is the terms of a global cross-license, and not for a lack of trying.

Ericsson and Lenovo have negotiated over a global cross-license for various essential patents for over a decade. During these negotiations Lenovo purchased Motorola, which entered into a licensing agreement with Ericsson in 2011. What started as a negotiation for 2G and 3G essential patents has evolved, as technology does, into a dispute over 4G and 5G essential patents. The most recent phase of those negotiations-the phase over 5G essential patents-is what matters for the motion currently before the Court.

In 2017 Ericsson publicly announced its 5G royalty rates in advance of the 3GPP's announcement of the 5G standard. Ericsson states that it was prepared to grant licenses at a rate of $5 per 5G device with a floor of $2.5 per device. Around that same time, Lenovo and Ericsson's negotiations began to include discussion over the 5G patents. In 2018, Lenovo and Ericsson mediated with both exchanging offers the other considered not FRAND. Since then, the parties seem to have spent much of their time negotiating non-disclosure agreements that would facilitate the sharing of confidential information about the essential patents. Compl. 80-81, [DE 1]; Countercis. ¶¶32-40, [DE 29], On 11 October 2023, Ericsson made an offer to cross-license its portfolio of 5G standard essential patents at a rate of 1% per 5G device with a $4 cap. Mem. in Opp'n, Ex. 5, [DE 47-7]. An offer, Ericsson highlights that is below its publicly announced FRAND rate of $5 per device. Additionally, Ericsson maintains that rate for its 5G patent portfolio is FRAND because the Fifth Circuit recently affirmed a jury verdict declaring that same rate to be FRAND for Ericsson's 4G patents. HTC Corp. Telefonaktiebolaget LM Ericsson, 407 F.Supp.3d 631, 633-641 aff'd, 12 F.4th 476 (5th Cir. 2021).

The day Ericsson offered a global cross-license at a rate of 1% per 5G device capped at $4 per device, it filed its complaint before the Court:

• Count 1 through Count 4 allege that Lenovo infringes on four of Ericsson's domestic 5G essential patents.

• In Count 5, Ericsson alleges that Lenovo breach obligations created by the ETSI IP rights policy. Specifically, that once Lenovo began negotiations for FRAND terms it was obligated under French law to negotiate in good faith;

• In Count 6, Ericsson alleges that Lenovo breached its contractual commitments under the ETSI IP rights policy which Lenovo is entitled to rely on as a third-party beneficiary of Ericsson's commitments to the ETSI;

• Count 7 asks for a declaration that Ericsson's 11 October 2023, offer complied with its FRAND commitment. And, if the Court declares that offer was not FRAND, Ericsson requests the Court declare a FRAND rate for a global-cross license.

Compl. ¶¶ 146-222, [DE 1], In December, Lenovo U.S. and Motorola Mobility asserted counterclaims that largely mirror Ericsson's complaint:

• Count 1 alleges that Ericsson breached its obligations under the ETSI IP rights policy;

• Count 2 claims that Ericsson breached its

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