throbber
No. 19-1269
`
`IN THE
`Supreme Court of the United States
`
`
`TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED;
`TCT MOBILE LIMITED; TCT MOBILE (US) INC.,
`Petitioners,
`
`v.
`
`ERICSSON, INC.; TELEFONAKTIEBOLAGET LM
`ERICSSON,
`
`Respondents.
`
`
`ON PETITION FOR A WRIT OF CERTIORARI TO THE
`UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`
`REPLY BRIEF FOR PETITIONERS
`
`
`STEPHEN S. KORNICZKY
`MARTIN R. BADER
`MATTHEW W. HOLDER
`SHEPPARD MULLIN RICHTER
` & HAMPTON LLP
`12275 El Camino Real
`Suite 200
`San Diego, CA 92130
`(858) 720-8900
`
`
`
`SETH P. WAXMAN
` Counsel of Record
`THOMAS G. SAUNDERS
`SAMUEL M. STRONGIN
`WILMER CUTLER PICKERING
` HALE AND DORR LLP
`1875 Pennsylvania Ave. NW
`Washington, DC 20006
`(202) 663-6000
`seth.waxman@wilmerhale.com
`
`
`
`ADDITIONAL COUNSEL LISTED ON INSIDE COVER
`
`
`
`
`

`

`KARIN DOUGAN VOGEL
`SHEPPARD MULLIN RICHTER
` & HAMPTON LLP
`501 West Broadway
`19th Floor
`San Diego, CA 92101
`(619) 338-6500
`
`
`
`
`

`

`
`
`TABLE OF CONTENTS
`
`Page
`TABLE OF AUTHORITIES ........................................... ii
`INTRODUCTION .............................................................. 1
`ARGUMENT ....................................................................... 1
`I. THIS CASE IS AN IDEAL VEHICLE TO
`ADDRESS THE QUESTION PRESENTED ...................... 1
`A. TCL Did Not Forfeit Its Argument ................... 1
`B. There Is No Jurisdictional Barrier To
`Review .................................................................... 3
`II. THE
`QUESTION
`PRESENTED
`IS
`EXTREMELY IMPORTANT ............................................. 4
`III. THE DECISION BELOW IS INCORRECT ....................... 8
`CONCLUSION ................................................................. 12
`
`
`
`
`
`(i)
`
`

`

`ii
`
`TABLE OF AUTHORITIES
`
`CASES
`
`Page(s)
`
`Great-West Life & Annuity Insurance Co. v.
`Knudson, 534 U.S. 204 (2002) ..................................... 9
`Montanile v. Board of Trustees of National
`Elevator Industry Health Benefit Plan,
`136 S. Ct. 651 (2016) ..................................................... 9
`Willard v. Tayloe, 75 U.S. (8 Wall.) 557 (1870) ............. 11
`Yee v. City of Escondido, 503 U.S. 519 (1992) ................. 2
`
`DOCKETED CASES
`TCL Communication Technology Holdings,
`Ltd. v. Telefonaktiebolaget LM Ericsson, et
`al., No. 8:14-cv-00341 (C.D. Cal.) .............................. 10
`
`CONSTITUTIONAL AND STATUTORY
`PROVISIONS
`U.S. Const. amend. VII ...................................................... 4
`28 U.S.C. § 1295 ................................................................... 7
`29 U.S.C. § 1132 (1994 ed.) ................................................. 9
`
`
`
`
`
`

`

`
`
`INTRODUCTION
`Ericsson’s brief is an exercise in distraction. Erics-
`son understandably would prefer not to discuss the
`merits of the Federal Circuit’s deeply flawed Seventh
`Amendment decision. That ruling broke with long-
`standing precedent to create a jury-trial right in a case
`seeking the equitable relief of specific performance.
`The Federal Circuit applied this erroneous rule, more-
`over, to a critical part of the modern economy—the ob-
`ligation to license standard-essential patents (SEPs) on
`fair, reasonable, and nondiscriminatory (FRAND)
`terms. As underscored by the outpouring of amicus
`support from leading companies, organizations, and
`scholars, it is extremely important that this Court re-
`view and reverse the Federal Circuit’s erroneous con-
`stitutional ruling and restore the traditional division of
`responsibility between judge and jury. None of Erics-
`son’s arguments offers a sound reason to decline re-
`view.
`
`ARGUMENT
`
`I. THIS CASE IS AN IDEAL VEHICLE TO ADDRESS THE
`QUESTION PRESENTED
`
`A. TCL Did Not Forfeit Its Argument
`In its first attempt to manufacture a vehicle prob-
`lem, Ericsson argues (at 15) that TCL never referred to
`the release payment as “equitable consideration” in the
`Federal Circuit. But the notion that TCL forfeited re-
`view of the question presented is absurd.
`TCL explained even before trial that “a release
`payment is one of the contract terms Ericsson wants
`the Court to impose as part of its [proposed licenses].
`
`
`
`

`

`2
`
`In other words, the making of the release payment is
`part of the performance which Ericsson wants the
`Court to require as part of its mandatory injunction.”
`C.A.J.A. 38849 (internal citations omitted). On appeal,
`TCL continued to argue that the release payment was
`simply “a term of the injunction which completed the
`parties’ new license.” C.A. Resp. Br. 27. TCL ex-
`plained that the relief it sought for its FRAND claims
`was “the remedy of specific performance,” which “is
`equitable in nature.” Id. at 19. “Such specific perfor-
`mance,” TCL continued, would involve “a setting of the
`FRAND terms and conditions in order to complete the
`parties’ license.” Id. at 21. The release payment did
`not change the equitable nature of the relief because it
`was just “a term in Ericsson’s … proposals,” id. at 25,
`and thus an obligation established by the court when
`“creating a new contractual relationship (a license),” id.
`at 26. The release payment thus “retroactively re-
`store[d] to Ericsson that which it would have already
`received if the FRAND terms and conditions have pre-
`viously been set, and a license not delayed.” Id. at 27.
`This is the same argument TCL made in its peti-
`tion. The release payment for worldwide sales without
`any adjudication of infringement or invalidity arose—
`and only could have arisen—as a term of the proposed
`FRAND license being newly created in equity to rem-
`edy Ericsson’s failure to offer a proper license from the
`outset. It was thus part of the specific performance or-
`dered by the court and quintessentially equitable.
`Slight variations in the articulation of this basic posi-
`tion, if any, are irrelevant, because “[o]nce a federal
`claim is properly presented, a party can make any ar-
`gument in support of that claim.” Yee v. City of Escon-
`dido, 503 U.S. 519, 534 (1992).
`
`
`
`
`

`

`3
`
`Moreover, contrary to Ericsson’s position (at 18),
`the Federal Circuit’s failure squarely to address TCL’s
`argument is a reason to grant review, not deny it. The
`Federal Circuit dismissed TCL’s argument as elevating
`form over substance. App. 20a-21a. It thus passed on
`the argument, which was pressed below, without grap-
`pling with the fact that the release payment was, in
`substance, uniquely equitable. This does not counsel
`against review, but rather reinforces that the Federal
`Circuit engaged in a flawed analysis while setting a na-
`tionwide rule for all cases within its exclusive jurisdic-
`tion.
`
`B. There Is No Jurisdictional Barrier To Review
`Ericsson’s jurisdictional argument is equally merit-
`less. Ericsson confuses the original basis for federal
`question jurisdiction with the issues that were tried af-
`ter Ericsson chose to stay all patent claims in the case.
`The district court held that it had jurisdiction over all
`claims in the original complaint, including TCL’s re-
`quest to impose a FRAND license, because TCL’s de-
`claratory judgment claim anticipated an infringement
`suit by Ericsson. C.A.J.A. 742-743. In fact, shortly af-
`ter TCL’s complaint was filed, Ericsson sued TCL for
`infringement in Texas. C.A.J.A. 60779-60797. The
`Texas case was later transferred and consolidated with
`TCL’s action in California. App. 6a; C.A.J.A. 6640,
`6650.
`Before trial, however, the parties agreed to stay all
`of the patent claims in the consolidated cases. The dis-
`trict court explained that “the only claims tried were
`the parties’ respective claims for breach of contract and
`declaratory relief regarding Ericsson’s compliance with
`its FRAND obligation and declaratory relief for deter-
`mination of FRAND rates. The parties’ respective
`
`
`
`

`

`4
`
`claims regarding infringement, invalidity, and other
`substantive patent defenses were previously stayed.”
`C.A.J.A. 29 n.3.1
`Contrary to Ericsson’s argument (at 26-27), there is
`no contradiction between the district court having fed-
`eral question and supplemental jurisdiction over the
`original California complaint because a portion of that
`complaint anticipated a patent infringement suit, and
`the district court later concluding that, after all patent
`claims were stayed, the remaining claims actually tried
`were equitable issues on which Ericsson was not enti-
`tled to a jury trial.
`The only question regarding the district court’s au-
`thority arises from the Federal Circuit’s ruling. Nei-
`ther Ericsson nor the Federal Circuit ever explains
`how, if the district court was not acting in equity, it had
`authority to order a worldwide payment that included
`backward-looking royalties for sales outside of the
`United States without any determination of infringe-
`ment or patent validity. That relief never could have
`been awarded in a U.S. infringement action. It was a
`creation of equity, not an action “at common law.” U.S.
`Const. amend. VII.
`
`II. THE QUESTION PRESENTED IS EXTREMELY IMPORTANT
`Ericsson’s attempt to downplay the importance of
`the question presented fails. As TCL explained (Pet.
`27-30), and five amicus briefs have reinforced, a right to
`have juries set the terms of worldwide FRAND licens-
`
`
`1 The claims that were tried (breach of contract and declara-
`tory judgment) were asserted in both the original California action
`and as counterclaims in the transferred Texas action, for which
`Ericsson has never disputed federal jurisdiction.
`
`
`
`

`

`5
`
`es would profoundly upset the division of responsibility
`between judge and jury, to the detriment of numerous
`industries and the public.
`The Federal Circuit was not interpreting an ob-
`scure provision of law that Congress or an agency could
`change. It rendered a constitutional decision that now
`binds all courts within its exclusive jurisdiction. Short
`of a constitutional amendment, only this Court can
`remedy the Federal Circuit’s erroneous interpretation
`of the Seventh Amendment.
`The outpouring of amicus support from major com-
`panies, organizations across multiple industries, and 20
`leading scholars underscores the stakes here. Stand-
`ards allow products created by different companies to
`function together and are ubiquitous in the modern
`economy. From payment systems, to communications
`networks, to automobiles, substantial portions of the
`economy depend on standards. Incorporation of a pa-
`tented technology into a standard gives patent owners
`significant leverage to “hold up” implementers’ use of a
`standard until the implementer agrees to pay excessive
`royalties. Pet. 28. These excessive royalties increase
`the price of end products, reduce the incentive to use
`standards, and cause firms to allocate resources to-
`wards getting their patents deemed essential to a
`standard, even if those particular patents are not the
`most technically optimal. Pet. 28-29. FRAND com-
`mitments blunt this risk of excessive royalties. Pet. 29-
`30; App. Ass’n Amicus Br. 19-20.
`The right to seek specific performance in equity
`provides an important tool to enforce FRAND com-
`mitments. Improperly injecting the jury into that pro-
`cess threatens to increase the cost and uncertainty of
`resolving FRAND disputes. The “tremendous unpre-
`
`
`
`

`

`6
`
`dictability of allowing juries to set complex contractual
`terms[] will grant SEP holders more leverage than
`they already hold to extract excessive royalties.” FSA
`Amicus Br. 20-21; see also Pet. 29-30 (larger awards at
`jury trials than bench trials). Indeed, Ericsson’s own
`internal IP strategy document notes “[t]he possibility
`of large awards, and the unpredictability of jury trials”
`in the United States. C.A.J.A. 62735.
`Black box jury verdicts also stunt the development
`of the law. HTIA Amicus Br. 15; FSA Amicus Br. 20-
`21; u-blox Amicus Br. 7-8. “The vast majority of pay-
`ments for SEPs result from negotiated licenses, not lit-
`igation, but the judicial system provides the backdrop
`against which those negotiations are conducted.”
`HTIA Amicus Br. 18-19. “[E]liminating judicial guid-
`ance as to acceptable FRAND methodologies will make
`it more difficult for parties to engage in good-faith ne-
`gotiations.” u-blox Amicus Br. 7.
`Ericsson misses the point when it argues (at 14)
`that the Framers decided to “trust[]” juries. TCL is
`not arguing that there is no Seventh Amendment right
`because juries produce larger verdicts. There is no
`Seventh Amendment right because the right to a jury
`trial in actions “at law” does not extend to an award of
`specific performance in equity. Indeed, the idea of a
`jury creating a worldwide license imposed on the par-
`ties by injunction would have seemed bizarre to the
`Framers. The relative differences between judge and
`jury merely underscore the practical importance of
`correctly interpreting the Seventh Amendment, and
`thus the acute need for this Court’s review.
`Ericsson’s suggestion (at 17) to wait for a circuit
`split should be rejected. The Federal Circuit is not like
`other courts of appeals. While FRAND disputes some-
`
`
`
`

`

`7
`
`times arise in the regional circuits, the Federal Circuit
`has nationwide jurisdiction over any suit in which the
`action or a compulsory counterclaim arises under the
`Patent Act. 28 U.S.C. § 1295(a)(1). Any patent owner
`can therefore put itself under the Federal Circuit’s ju-
`risdiction merely by asserting an infringement claim—
`even where, as here, it stays that claim. For the same
`reason, Ericsson’s contention (at 17-18) that “the issue
`is [not] recurring” because no other circuit has “ad-
`dress[ed] the question” misses the key point. The Fed-
`eral Circuit’s decision has immediate, nationwide con-
`sequences by virtue of the court’s broad jurisdiction.
`Even without a split, this Court should grant review
`and reverse the Federal Circuit, as it regularly does.
`Moreover, far from diminishing the importance of the
`question presented, the fact that courts resolving
`FRAND disputes through bench trials “have not gen-
`erally confronted a Seventh Amendment challenge to
`their conduct” is “evidence of just how far the Federal
`Circuit’s decision here departs from the norm.” Legal
`Scholars Amicus Br. 13; see also App. Ass’n Amicus Br.
`22-23.
`Finally, Ericsson argues (at 22 n.7) that the ques-
`tion presented does not matter because a party can
`simply get a jury trial by asserting a patent claim. But
`the litigation of a patent claim in an action at law cannot
`produce the type of worldwide resolution achieved in
`this case. Equitable relief provides an important tool
`that allows FRAND disputes to be resolved much more
`efficiently and comprehensively. The Federal Circuit’s
`decision threatens the viability of that tool because
`prospective licensees will be reluctant to file lawsuits to
`enforce the FRAND commitment if the patent owner
`can have a jury set the license terms, without even hav-
`ing to litigate infringement or invalidity. If Ericsson’s
`
`
`
`

`

`8
`
`prediction that the constitutional issue will not arise
`with any frequency comes to pass, it will be precisely
`because the Federal Circuit’s decision has vitiated an
`important mechanism for achieving resolution of
`FRAND disputes.
`
`III. THE DECISION BELOW IS INCORRECT
`Ericsson’s argument on the merits merely repeats
`the Federal Circuit’s errors. Ericsson contends (at 30-
`31) the release payment was compensation for past pa-
`tent infringement. But as noted, a U.S. court in an ac-
`tion at law never could have awarded such relief. As
`Ericsson acknowledged in the district court, “[a] jury
`does not determine damages for patent infringement
`unless it has already determined that the plaintiff has
`proven its claim for infringement of a valid and en-
`forceable patent.” C.A.J.A. 36678; see also Legal
`Scholars Amicus Br. 5. Here, those prerequisites to an
`award of patent damages were never adjudicated.2 Nor
`were other defenses such as the statute of limitations
`or marking requirements. Pet. 20.
`Moreover, an action at law in the United States
`never could have awarded damages for worldwide sales
`and infringement of foreign patents. Ericsson argues
`(at 32) that “re-labelling” the “same relief” as “specific
`performance” would not cure that problem. But the
`
`
`2 Like the Federal Circuit, Ericsson erroneously assumes (at
`30-31) that TCL’s use of the 2G, 3G, and 4G standards would dis-
`pense with the necessary inquiries in a traditional patent case. But
`TCL would have been entitled to challenge the validity of Erics-
`son’s patents if the case had proceeded as a patent suit. Also, the
`extent to which Ericsson’s patents were actually essential was
`contested, C.A.J.A. 45049, 56950, and the court made no finding
`that any specific patents were infringed, C.A.J.A. 56433.
`
`
`
`

`

`9
`
`point is that it was not the “same relief.” The district
`court was able to achieve a worldwide resolution of the
`dispute between Ericsson and TCL involving the li-
`censing of hundreds of U.S. and foreign patents pre-
`cisely because it was not awarding patent damages, but
`rather creating a new license as a matter of equity to
`put TCL in the position it would have been if Ericsson
`had honored its FRAND commitments from the outset.
`That equitable agreement, like a contract, reached
`worldwide in a way that a patent infringement action
`never could. Indeed, the release payment originated as
`a contractual term Ericsson proposed to TCL in the
`parties’ license negotiations. App 7a.
`Ericsson’s reliance on Great-West Life & Annuity
`Insurance Co. v. Knudson, 534 U.S. 204 (2002), is mis-
`placed. There, an insurance company that had paid an
`accident victim’s medical expenses was seeking to en-
`force its right under an ERISA plan to receive a por-
`tion of the settlement paid by a third party. Id. at 207-
`208. The party alleging breach was thus seeking to be
`paid money owed under an existing agreement. This
`Court held that such a request for payment of funds for
`breach of an existing agreement was not “equitable re-
`lief” within the meaning of ERISA, 29 U.S.C.
`§ 1132(a)(3) (1994 ed.). See 534 U.S. at 210-218.3
`This case is the opposite of Great-West. TCL’s re-
`quest for damages dropped out before trial, and with it
`went the last remaining basis for a jury trial. At trial,
`TCL was not asking that Ericsson pay TCL money for
`
`3 Montanile v. Board of Trustees of National Elevator Indus-
`try Health Benefit Plan, 136 S. Ct. 651 (2016), on which Ericsson
`also relies (at 29), merely applied Great-West to another insurance
`company seeking to recover from an accident victim, 136 S. Ct. at
`655.
`
`
`
`

`

`10
`
`Ericsson’s breach of its obligations; it was asking the
`court to impose in equity the license that Ericsson was
`obligated to have offered from the outset. The only
`payments to be made were thus payments from TCL to
`Ericsson as equitable consideration for the creation of
`that new license in equity. And the only claims that
`would have enabled Ericsson to get legal relief from
`TCL—the two patent infringement claims—had previ-
`ously been stayed at Ericsson’s election, and thus were
`not tried.
`Ericsson tries to muddy the waters by arguing (at
`31) that TCL referred to the release payment as “dam-
`ages” for past unlicensed sales. But that imprecise
`statement was made more than a year before the dis-
`missal of TCL’s own damages claims gave rise to the
`Seventh Amendment question now presented. It does
`not detract from the district court’s own explanation,
`upon entering the amended judgment, that (1) it “never
`decided the infringement claims”; (2) “there was never
`a predicate for payment … under … Ericsson’s claims
`for infringement”; (3) Ericsson “inaccurately suggests
`that the payment constitutes damages”; and (4) “the
`Court did not intend to characterize the release pay-
`ment as damages.” C.A.J.A. 56433 (internal quotation
`marks omitted). Indeed, even after the Federal Cir-
`cuit’s decision, Ericsson told the district court that “a
`release payment is not the same as patent infringement
`damages but, rather, is an estimation of the benefit con-
`ferred to TCL that would be paid to Ericsson under a
`FRAND license.” Dkt. 1983-1 at 9, TCL Commc’n
`Tech. Holdings, Ltd. v. Telefonaktiebolaget LM Erics-
`son, et al., No. 8:14-cv-00341 (C.D. Cal. Jan. 31, 2020).
`Ericsson’s attempt (at 33-34) to draw a sharp dis-
`tinction between future and past benefits is also una-
`
`
`
`
`

`

`11
`
`vailing. The license created in equity was fully inte-
`grated, and reflected Ericsson’s decision to condition
`the conferral of future benefits under a FRAND license
`on the payment of a backward-looking royalty. Just as
`the purchaser in Willard v. Tayloe, 75 U.S. (8 Wall.)
`557 (1870), was required in equity to tender all pay-
`ments “past due” to receive the benefit it sought, id. at
`574, the district court was merely requiring TCL to
`tender all royalty payments, past and future, that it
`would have owed under the license to receive the ongo-
`ing benefit of Ericsson’s specific performance.
`Finally, unable to defend the Federal Circuit’s de-
`cision on its own terms, Ericsson argues (at 20-21, 32)
`that even if the relief awarded was equitable, it was
`still entitled to a jury trial due to overlap with its in-
`fringement claims. The Federal Circuit did “not ad-
`dress” this alternative argument, App. 17a n.6, but it is
`easily rebutted. Ericsson chose to stay its infringement
`claims and instead proceed to trial on the FRAND
`claims that sought equitable relief. Having agreed to
`litigate in that order, Ericsson cannot now complain
`about the order in which the claims were adjudicated.
`Ericsson’s argument (at 25) that the Federal Circuit
`“rejected TCL’s implication of waiver” is puzzling. The
`Federal Circuit merely said Ericsson continued asking
`for a jury trial, and thus an earlier statement did not
`waive its right. App. 25a-26a. But since the Federal
`Circuit did not address Ericsson’s alternative argu-
`ment, it necessarily did not say that Ericsson could in-
`sist it has a Seventh Amendment right to litigate its
`legal claims first while simultaneously deciding that on-
`ly the equitable issues would proceed to trial.
`
`
`
`
`

`

`12
`
`Ericsson’s merits arguments should be addressed
`at the merits stage and do not detract from the urgent
`need for review.
`
`CONCLUSION
`The petition for a writ of certiorari should be
`granted.
`
`Respectfully submitted.
`
`SETH P. WAXMAN
` Counsel of Record
`THOMAS G. SAUNDERS
`SAMUEL M. STRONGIN
`WILMER CUTLER PICKERING
` HALE AND DORR LLP
`1875 Pennsylvania Ave. NW
`Washington, DC 20006
`(202) 663-6000
`seth.waxman@wilmerhale.com
`
`STEPHEN S. KORNICZKY
`MARTIN R. BADER
`MATTHEW W. HOLDER
`SHEPPARD MULLIN RICHTER
` & HAMPTON LLP
`12275 El Camino Real
`Suite 200
`San Diego, CA 92130
`(858) 720-8900
`
`KARIN DOUGAN VOGEL
`SHEPPARD MULLIN RICHTER
` & HAMPTON LLP
`501 West Broadway
`19th Floor
`San Diego, CA 92101
`(619) 338-6500
`
`AUGUST 2020
`
`
`
`
`

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