Judge Richard G. Andrews recently dismissed declaratory judgment FRAND counterclaims in two related actions against ZTE and Nokia for lack of subject matter jurisdiction. Interdigital Communications, Inc., et al. v. ZTE Corp., et al., C.A. No. 13-009-RGA; Interdigital Communications, Inc., et al. v. Nokia Corp., et al., C.A. No. 13-0010-RGA (D. Del. May 28, 2014).
Both defendants had previously participated in licensing negotiations with plaintiff, but the negotiations had broken down or were delayed. The FRAND (fair, reasonable, and non-discretionary terms) declaratory judgment counterclaims in both cases requested a finding that plaintiff did not offer a FRAND rate to the defendants during these negotiations, and also asked the Court to determine a FRAND rate. Nokia’s counterclaims also requested a determination of FRAND license terms. Id. at 3.
Plaintiff moved to dismiss both sets of counterclaims, arguing that their adjudication would be of no practical help or utility, and for that reason, the Court lacked subject matter jurisdiction. Specifically, “if the Court were to determine a FRAND rate for the hundreds of patents brought before it as part of the declaratory judgment action, there would remain disputes about whether particular patents are or are not essential. Furthermore, [plaintiff] argues that neither Nokia nor ZTE have made firm commitments to sign a license based on what the Court determines would be a FRAND rate, but instead have only ‘averred in their counterclaims that their willingness to pay under a license is contingent on findings of validity, essentiality, and infringement of [plaintiff’s] patents.’” Id. at 4-5 (citations omitted). Defendants countered that determination of a FRAND rate would, in fact, be useful, noting that Third Circuit precedent does not require a declaratory judgment to resolve all issues for there to be subject matter jurisdiction. They also argued that the Court’s determination would “alleviat[ e] the uncertainty, insecurity, and controversy between the parties with respect to [plaintiff’s] right to a FRAND royalty.” Id. at 5. ZTE also argued that it was “committed” to accepting a license at a determined FRAND rate, regardless of finding on infringement or validity. Id. at 5-6.
However, the Court was “far from convinced that the trial that would be necessitated by the declaratory judgment would serve any useful purpose.” Id. at 6. First, it was unclear how the Court could enforce its determined FRAND rate; instead, the rate would only “give a data point from which the parties could continue negotiations.” Id. at 6. Second, determining this rate would not necessarily lead to a patent license because there were other license issues to negotiate between the parties, any of which could hold up resolution. Id. at 6. The Court also found that it was “highly dubious” that it could determine a FRAND rate efficiently, “considering that there are 500 or so possibly relevant patents.” Id. Therefore, finding a FRAND rate would have little utility and serve little to no useful purpose.” Id.
As to the additional request for the Court to determine whether plaintiff had offered a FRAND rate, the Court also concluded this exercise had “little to no useful purpose.” Id. at 6-7. Once a FRAND rate was determined, “the Court would need to determine whether such offer was actually made. Similar to the determination of the FRAND rate itself, the only purpose of this would be to alter the current negotiating power between the parties.” Id. at 7. Furthermore, “any impact that this determination would have on the patents-in-suit is encompassed within the multitude of affirmative defenses that both Nokia and ZTE assert.” Id. The asserted defenses that addressed FRAND issues included patent misuse, breach of contract, unclean hands, and the existence of an express or implied license. Id. at 7 n.2.
As a result, the Court granted plaintiff’s motion to dismiss the FRAND counterclaims for lack of subject matter jurisdiction.