The Japanese court first judgment to grant an injunction based on a FRAND‑committed SEP

3.1 Outline of the Case

Pantech Corporation (“Pantech”), a Korean company, owns Japanese Patent No. 6401224, titled “Method for mapping physical hybrid automatic repeat request indicator channel” (the “’224 Patent”). On February 4, 2013, in accordance with Section 6.1 of the Intellectual Property Rights Policy established by ETSI, the standardization body that defines the LTE standard, Pantech committed that it was prepared to grant an irrevocable license under the Japanese patent family member of the ’224 Patent (Japanese Patent Application No. 2012‑037585) on FRAND terms as an SEP for the LTE standard (the FRAND Commitment).

Google Japan G.K. (“Google Japan”), a Japanese company, transferred, etc., the smartphone “Pixel 7” on its business. Pixel 7 is an LTE‑capable terminal compliant with 3GPP TS 36.211 version 15.14.0 Release 15.

Prior to the filing of the Tokyo District Court lawsuit, Pantech and Google International LLC (“Google International”), a group company of Google Japan, conducted license negotiations for patents including the ’224 Patent. On August 17, 2023, Pantech filed a lawsuit with the Tokyo District Court seeking to enjoin Google Japan from transferring, etc., Pixel 7 based on the ground of Google Japan’s alleged infringement of the ’224 Patent.※5

In the litigation, Google Japan argued that: (i) Pixel 7 does not fall within the technical scope of claim 5 of the ’224 Patent; (ii) the invention of claim 5 of the ’224 Patent does not involve inventive step in light of the alleged material; and (iii) Google Japan and Google International are willing to obtain a license for the ’224 Patent on FRAND terms and thus the injunction claim based on the SEP with the FRAND Commitment constitutes an abuse of rights under Article 1(3) of the Civil Code (so-called the FRAND defense).

3.2 Ruling of the Tokyo District Court Judgment

The Tokyo District Court held that Pixel 7 falls within the technical scope of the ’224 Patent and the invention of claim 5 of the ’224 Patent involves inventive step even in light of the alleged material. As discussed below, the Tokyo District Court rejected the FRAND defense asserted by Google Japan and issued a judgment granting an injunction in favor of Pantech based on the ’224 Patent. This newsletter focuses on the ruling of the Tokyo District Court Judgment on the FRAND defense in this case.

3.2.1 Criteria

Addressing whether an injunction claim based on the SEP committed to be licensed on FRAND terms constitutes an abuse of rights under Article 1(3) of the Civil Code, the Tokyo District Court reasoned as follows:

• Where an SEP holder has made a FRAND commitment regarding its SEPs, implementers who manufacture products in compliance with the standard do so on the premise that they can obtain a license of its SEPs on FRAND terms. Notwithstanding this premise, seeking an injunction against the implementer who trusts that it can obtain such a license significantly undermines that reasonable reliance and contravenes the principles of justice and fairness.
• Since the SEP holder made the FRAND commitment on the premise that it can obtain remuneration equivalent to a reasonable royalty, if the SEP holder can obtain such remuneration, it clearly lacks the necessity and appropriateness to seek an injunction against the implementer.
• Accordingly, a patentee who has made a FRAND commitment for his SEP shall constitute an abuse of rights and thus is not allowed, to seek an injunction against an implementer of the standard, unless there are special circumstances indicating that the implementer lacks willingness to obtain a license on FRAND terms. (Underlining added by the authors.)

3.2.2 Findings of Fact

As a foundation for determining whether such “special circumstances” exist, the Tokyo District Court found the facts regarding the course of license negotiations between Pantech and Google International and the settlement discussions in the litigation, as set forth in the Annex(※) hereto.

(※) The Annex is included in the PDF. To access it, click “Download full text (PDF)”.

3.2.3 Application of the Criteria to the Facts

Based on the findings described in the Annex※6, the Tokyo District Court first noted the followings, pointing out that the parties’ views on the numerical figures and other elements relating to the proposed licensing terms were incompatible, making further negotiations difficult, and that Pantech and Google Japan failed to reach agreement for that reason.

• Pantech consistently adopted a calculation method based on the sales revenue of infringing products multiplied by a royalty rate attributable to the practice of SEPs, further multiplied by Pantech’s share of the SEP portfolio.
• Google International, by contrast, consistently adopted a calculation method based on the number of infringing units sold, multiplied by a fixed cumulative royalty amount per smartphone and then by Pantech’s share of the SEP portfolio.

The Tokyo District Court held:

“Recognizing the divergence in calculation methodology, the court had disclosed its view that the patent infringement was established and recommended a court‑facilitated settlement covering Pantech’s global SEP portfolio. With both parties consenting to conduct such settlement discussions in the Japanese court, since the parties’ views on the numerical figures and other elements relating to the proposed licensing terms were incompatible, the court decided to steer the negotiations by referring to the IP High Court’s Grand Panel Judgment that adopted a calculation approach based on the sales revenue of the end product and asked Google Japan to submit a settlement proposal reflecting the Grand Panel Judgment approach if it was willing to obtain a license.” (Underlining added by the authors.)※7

The Tokyo District Court then found that Google Japan responded it could not submit a proposal under the Grand Panel Judgment approach because of excessive computational complexity and, moreover, refused to disclose even the sales revenue and unit volumes of the infringing products, holding:

“Despite consenting to the settlement recommendation proposed by the court, Google Japan refused to disclose the sales revenue and unit volumes of the infringing products and failed to submit a proposal under the Grand Panel Judgment approach, thereby foreclosing the possibility of settlement by itself. Taking the court’s request at face value, the court cannot acknowledge that Google Japan is considered as willing to obtain a license.” (Underlining added by the authors.)

In conclusion, the Tokyo District Court determined that “under these circumstances, it is appropriate to recognize that there are special circumstances indicating that Google Japan lacked willingness to obtain a license on FRAND terms” and thus concluded that Pantech’s injunction claim based on the ’224 Patent could not be deemed an abuse of rights. Based on such determination and conclusion, the Tokyo District Court rejected the FRAND defense asserted by Google Japan and granting the injunction sought by Pantech.

3.2.4 The Tokyo District Court’s obiter dictum on whether negotiation history between the parties alone can constitute “special circumstances”

Although the determination and conclusion mentioned above sufficed to reject the FRAND defense asserted by Google Japan, since Pantech argued that, even looking solely at the negotiation history prior to the court facilitated settlement discussion, there were special circumstances indicating Google International’s lack of willingness to obtain a license on FRAND terms, the Tokyo District Court briefly addressed this point in an obiter dictum.

First, the Tokyo District Court found the following facts (i) to (vii)※8:

1. Google International expressed its willingness to obtain a license on FRAND terms to Pantech and simultaneously proposed negotiations toward concluding an NDA, continuing negotiations with Pantech until November 19, 2020. (See Items 2-4 of the list in the Annex)
2. Google International and Pantech were unable to conclude an NDA early due to differing views on Article 9 of the Google NDA Draft. However, even while NDA negotiations were suspended, Google International reviewed the claim charts and other materials disclosed by Pantech, completing this review on October 18, 2021. (See Items 4 and 12 of the list in the Annex)
3. Google International received the Pantech First Proposal, pointed out the reasons why it could not be considered reasonable, provided supporting evidence, and presented the Google International Counterproposal. (See Item 16 of the list in the Annex)
4. The content of the points raised by Google International in (iii) above cannot be deemed particularly unreasonable.
5. Pantech, without providing any explanation regarding Google International’s above-mentioned (iii) points, maintained the royalty rate in the Pantech First Proposal and only offered a proposal reflecting Google International’s product sales status. (See Item 18 of the list in the Annex)
6. Pantech notified Google International that it had determined Google International was not willing to obtain a license and proceeded to file an application for a preliminary injunction. However, it is difficult to say that Pantech necessarily exhausted all possible measures to advance negotiations, such as responding sincerely to Google International’s above-mentioned (iii) points. (See Item 21 of the list in the Annex)
7. Google International subsequently continued negotiations with Pantech in parallel with these legal proceedings, responding to Pantech’s proposed license terms and itself presenting multiple sets of license terms. (See Items 24 and 26-31 of the list in the Annex)

The Tokyo District Court then held:

“Google International and Google Japan, after expressing their willingness to promptly and sincerely engage in discussions when requested by Pantech to obtain a license, subsequently required time for the conclusion of an NDA, identifying the patents subject to licensing, checking the infringement and validity of those patents, verifying their relationship to the 5G standard, reviewing or negotiating the license terms, and other matters. Therefore, it can be said that they made every effort to engage in license negotiations with Pantech.”

“Despite these negotiations, Pantech and either Google International or Google Japan failed to reach a license agreement because the numerical values and other terms presented by both parties regarding the license conditions were incompatible, making further negotiations difficult.”

“Under these circumstances, based solely on the negotiation history between the parties (prior to the court facilitated settlement discussion), it cannot be concluded that there were special circumstances indicating Google Japan lacked the willingness to obtain a license on FRAND terms.” (Underlining added by the authors.)

4.1 Outline of the Case

In the Osaka District Court Case, which is the case between these two same parties and involving the same ’224 Patent as those of the Tokyo District Court Case, Pantech filed an application for an injunction in the Osaka District Court to seek to enjoin Google Japan from transferring, etc. of the smartphone “Pixel 7a” based on a claim infringement with respect to the ’224 Patent.

The factual circumstances of the Osaka District Court Case are substantially common to those of the Tokyo District Court Case※9. However, there is a key distinction; Pantech and Google Japan agreed in the proceedings of the Osaka District Court Case that, for purposes of assessing the FRAND defense, the end point of the relevant license negotiation period would be established as the end of November 2023.

Google Japan argued that Pixel 7a does not fall under claim 5 of the ’224 Patent, that there is a ground to invalidate the ’224 Patent, and that Google Japan and Google International are willing to obtain a license for the ’224 Patent on FRAND terms and thus an injunction claim based on the SEP committed to be licensed on FRAND terms constitutes an abuse of rights (the FRAND defense).

4.2 Ruling of the Osaka District Court Judgment

The Osaka District Court focused on the FRAND defense without addressing whether Google Japan’s acts of transfers, etc. of Pixel 7a infringe the ’224 Patent nor whether the said ground to invalidate the ’224 Patent is established and dismissed Pantech’s injunction claim based on its acceptance of the FRAND defense asserted by Google Japan.

4.2.1 Criteria

Even though referring to the decision by the Grand Panel of the IP High Court in Samsung v. Apple, the Osaka District Court applied the same criteria as applied in the Tokyo District Court Judgment and stated that “a patentee’s claim for an injunction based on his SEP shall constitute an abuse of rights and thus is not allowed, unless there are special circumstances indicating the implementer lacks willingness to obtain a license on FRAND terms.”

4.2.2 Findings of Fact and Application of the Criteria

The Osaka District Court identified the relevant facts for assessing the existence of “special circumstances indicating Google Japan lacks willingness to obtain a license on FRAND terms” in this case as facts up to the end of November 2023, mentioning that the court can also consider facts arising after such cutoff date as necessary. On that basis, the Osaka District Court addressed subclauses 4.2.2.1 to 4.2.2.3 below and others and concluded that the injunction relief sought by Pantech based on its claim of infringement in relation to the ’224 Patent was not allowed; in other words, the FRAND defense succeeded.

4.2.2.1 Google International’s attitude in the License Negotiation

The Osaka District Court first noted the following points regarding Pantech’s attitude:

• Pantech agreed to negotiate the terms of the NDA proposed by Google International for the purpose of facilitating smooth license negotiations at the time when Google International expressed its willingness to obtain a license from Pantech on FRAND terms on July 7, 2020;
• Pantech disclosed claim charts for exemplary patents subject to license the month following its January 13, 2021 proposal (Pantech’s first proposal). Pantech further disclosed additional claim charts and created a list of relevant SEPs at Google International’s request, and promptly responded to technical questions raised by Google International regarding the claim charts; and
• Pantech responded promptly on March 2, 2022, to Google International’s counterproposal and subsequent amendments presented in Google International’s first counterproposal.

However, the Osaka District Court observed that Pantech did not provide concrete calculation bases for Pantech’s first proposal until roughly ten months later, and that license agreements which are useful for considering the proposed terms and conditions are reasonable or not were disclosed only on July 30, 2023, pursuant to a Mannheim Regional Court order (i.e., an order issued by the Mannheim Regional Court in Germany in a patent infringement case brought by Pantech against Google).

Subsequently, the Osaka District Court noted the following points regarding the Google International’s attitude in the license negotiation and held that “it can be assessed that Google International endeavored to respond to Pantech’s proposals, etc., as promptly as possible.”

• Google International, after expressing its willingness to obtain a license on FRAND terms to Pantech on July 7, 2020, presented conditions and conducted negotiations toward concluding an NDA it had proposed.
• Google International received Pantech’s first proposal from Pantech on January 13, 2021. After receiving the calculation basis from Pantech on November 2, 2021, Google International reviewed the disclosed claim charts. Then, based on discussions with Pantech, Google International pointed out issues regarding Pantech’s first proposal and presented Google International’s first proposal on March 2, 2022.
• Google International promptly showed Pantech the basis for its counterproposal and also presented a revised proposal.

The court then noted the following two points and concluded that, as of the end of November 2023, Google International’s conduct did not reflect a lack good faith in relation to its negotiations with Pantech towards a license agreement on FRAND terms.

• A certain period elapsed between Pantech’s proposal for license negotiations and Google International’s expression of willingness to obtain a license with respect to the ’224 Patent, and the commencement of substantive license negotiations via the underlying NDA negotiations. However, during this period, they proceeded with negotiations on the terms of the NDA, which cannot necessarily be deemed unnecessary. Upon receiving a proposal for specific license terms, they can be said to have conducted timely reviews based on the disclosed information.
• It should be considered somewhat unavoidable that Pantech and Google International did not immediately and accurately provide all materials necessary for license consideration during the negotiation process, including those related to relevant patents. Both parties endeavored to disclose materials supporting the rationale for their respective calculation methods to the greatest extent possible and, based on this premise, revised and presented feasible concession proposals.

4.2.2.2 Pantech’s Proposal for the License Agreement

Regarding Pantech’s first proposal, the Osaka District Court recognized that Google International’s doubts about the percentage used for calculating the license fee were understandable, given doubts about the freshness and accuracy of underlying data and the reliability of Pantech’s portfolio share.

The court then held:

“Pantech should have provided explanations, such as addressing the doubts raised by Google International, to demonstrate that the percentage used for calculating the license fee in question falls within the scope of FRAND terms.” (Underlining added by the authors.)

Furthermore, the Osaka District Court stated (referencing the omitted portion), “Regarding the basis for the percentage used for calculating the license fee in Pantech’s first proposal and the extent of the percentage reduction, no particular explanation was provided. This failed to address Google International’s aforementioned doubts whatsoever. It must be said that, on its own, it remained impossible for Google International to understand that it fell within the scope of FRAND terms.”

Regarding this point, Pantech argued that it provided Google International with license agreements it entered into with other device manufactures after the agreed end of November 2023 cut‑off. However, the Osaka District Court ruled on this argument, stating:

“For these to be referenced in determining the percentage for calculating the license fee between Pantech and Google International, the terms and conditions in each agreement must be reasonably verified. Therefore, it must be said that even at the conclusion of the hearings in this case, it remains difficult to immediately understand that Pantech’s proposal falls within the scope of FRAND terms based solely on the existence of these agreements.”

4.2.2.3 Google International’s Proposals for the License Agreement

As to Google International’s proposals (Google International’s first through third proposals), the Osaka District Court assessed that “from the perspective of avoiding royalty stacking for implementers, it can be said that at least this method cannot be excluded from consideration when examining FRAND terms.”

The court then pointed out:

“It is common knowledge that the performance of the (LTE) communication portion, which is the essential part of the technology covered by the ’224 Patent, is generally common across the series of smartphones sold by Google Japan (including Pixel 7a) (or, not limited to these, smartphones in general), and that the price of the device largely depends on various non-communication performance factors such as the device manufacturer, SoC chip, screen, camera, and auxiliary storage capacity.”

The court further held:

“That Google International emphasized this point during negotiations cannot be entirely faulted as a judgment made at each point in time when the basis for Pantech’s proposal was unclear. At the very least, the fact that Google International did not change its stance on this point as of the end of November 2023 cannot be interpreted as indicating a lack of willingness to enter into a license agreement on FRAND terms […].” (Underlining added by the authors.)

4.2.2.4 Conclusion

Based on these considerations, the Osaka District Court concluded:

“Google International, and Google Japan who had entrusted license negotiations to Google International, were, at least as of the end of November 2023, willing to obtain a license on FRAND terms. Considering also that whether Pantech’s proposal fell within the scope of FRAND terms remained an open question even at the close of hearing, Pantech’s injunction claim based on a claim of infringement constituted an impermissible abuse of rights.”