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Ericsson Inc. v. TCL Communication Technology Holdings, Ltd.

United States District Court, E.D. Texas, Marshall Division

November 4, 2017

ERICSSON INC., TELEFONAKTIEBOLAGET LM ERICSSON, Plaintiffs,
v.
TCL COMMUNICATION TECHNOLOGY HOLDINGS, LTD., TCT MOBILE LIMITED, TCT MOBILE U.S. INC., Defendants

          MEMORANDUM OPINION AND ORDER

          ROY S. PAVNE UNITED STATES MAGISTRATE JUDGE

         Trial in this case is scheduled to begin December 4, 2017. The following opinion and order resolves the parties' pending motions, with the exception of motions in limine, which will be addressed at the pretrial conference.

         BACKGROUND

         The parties to the lawsuit are global networking and telecommunications equipment and services companies. The two plaintiffs are companies based in the United States and Sweden. Ericsson is a Delaware corporation based in Plano, Texas. Compl. ¶ 1, Dkt. No. 1. Telefonaktiebolaget LM Ericsson is based in Stockholm, Sweden. Id. ¶ 2. The plaintiffs are collectively referred to as “Ericsson.” Ericsson owns two relevant patent portfolios. The first is a portfolio that Ericsson alleges includes patents that are essential to global 2G, 3G, and 4G telecommunications standards established by the European Telecommunications Standards Institute (ETSI). See TCL Commc'n Tech. Holdings, Ltd. v. Telefonaktienbolaget LM Ericsson et al., Case No. 8:14-cv-00341-JVS- DFM, Dkt. No. 279-1 at 2 (C.D. Cal. June 29, 2015). The second is a portfolio that includes patents claiming inventions used to implement telecommunications standards in cellular handsets, smartphones, tablet computers, televisions, and other electronic devices. Compl. ¶ 3, Dkt. No. 1. Ericsson has not declared the patents in the second portfolio essential to ETSI telecommunications standards. See TCL Commc'n Tech. Holdings, Case No. 8:14-cv-00341-JVS-DFM, Dkt. No. 279-1 at 3. The patent-in-suit is a member of the second portfolio. See Compl. ¶¶ 3, 14, Dkt. No. 1.

         The defendants are companies based in China, Hong Kong, and the United States, and are all owned by TCL Corporation, a company based in Shenzhen, China. TCL Communication Technology Holdings, Ltd. is one of the three defendants also based on Shenzhen. Compl. ¶ 4, Dkt. No. 1, Am. Ans. ¶ 4, Dkt. No. 45. TCT Mobile Limited is based in Hong Kong. Compl. ¶ 5, Dkt. No. 1; Am. Ans. ¶ 5, Dkt. No. 45. The third defendant, TCT Mobile (US), Inc., is a Delaware corporation based in Irvine, California. Compl. ¶ 6, Dkt. No. 1; Am. Ans. ¶ 6, Dkt. No. 45. The three defendants are collectively referred to as “TCL.” TCL's answer alleges that it is the fifth largest mobile telecommunications vendor in the world, with products available for sale in more than 100 countries. Am. Ans. ¶ 78, Dkt. No. 45. TCL sells products under the “Alcatel Onetouch” brand in the United States. Id.; Ericsson Ans. ¶ 78, Dkt. No. 51. Products sold under this brand, including the Alcatel OneTouch Fierce, include the Android operating system, which includes functionality that Ericsson claims is covered by the patent-in-suit. See Compl. ¶¶ 47-48, Dkt. No. 1.

         I. The Parties' Dispute

         This lawsuit is a relatively small element of a larger global dispute. The larger dispute arises from failed license negotiations related to the patent portfolio Ericsson claims is essential to telecommunications standards set by ETSI. See TCL Commc'n Tech. Holdings, Case No. 8:14-cv- 00341-JVS-DFM, Dkt. No. 279-1 at 2. The parties attempted to negotiate a license to Ericsson's alleged standard essential patent (SEP) portfolio, but the parties were unable to reach agreement. Id. When a company such as Ericsson declares patents essential to a standard set by ETSI, the company must agree to license the patents on fair, reasonable, and nondiscriminatory (FRAND) terms. See Id. TCL claims that Ericsson's license offers did not meet ETSI obligations. See id.

         The parties' impasse prompted litigation around the world. From the fall of 2012 through 2014, Ericsson sued TCL for patent infringement in Brazil, France, Argentina, Germany, and Russia. See Id. at 6-9. In 2013, TCL petitioned a court in the United Kingdom to revoke certain patents, and Ericsson counterclaimed for infringement. Id. at 6-7. The domestic litigation began in the Central District of California in May 2014, with a lawsuit filed by TCL. See Id. at 2. TCL, an alleged third-party beneficiary to Ericsson's ETSI agreement, claimed that Ericsson breached its FRAND obligation. Id. TCL also sought a declaratory judgment that certain alleged SEPs were invalid and not infringed, and TCL asked the court to determine a FRAND rate for a license to Ericsson's SEP portfolio. Id.

         Several months later, Ericsson filed a lawsuit against TCL in this district, seeking a declaratory judgment that Ericsson had complied with ETSI obligations, and alleging infringement of two alleged SEPs. Id. at 6. That lawsuit was transferred to the Central District of California in March 2015. Id. In early January 2015, Ericsson filed the present lawsuit, alleging infringement of five patents-United States Patent Nos. 7, 149, 510, 6, 029, 052, 6, 418, 310, RE 43, 931, and 6, 535, 815. Compl. ¶¶ 11-17.

         The California court channeled the global dispute at the parties' request. Because the parties indicated that the breach of contract action in California “should result in a ‘global resolution' of the SEP patent licensing and damages claims, ” the court enjoined both parties from continuing to pursue or initiating lawsuits regarding the SEPs at issue in the California lawsuit. See TCL Commc'n Tech. Holdings, Case No. 8:14-cv-00341-JVS-DFM, Dkt. No. 279-1 at 11 (citation omitted). The court also stayed the alleged SEP infringement claims in the lawsuit originally filed in this district, in addition to all “non-FRAND matters.” Id. at 16. The lawsuit concerning Ericsson's FRAND obligation proceeded to bench trial earlier this year before the California court, and a final decision from the court is pending. The California court otherwise declined to enjoin or otherwise disturb the present lawsuit because it involves intellectual property Ericsson has not declared essential to telecommunications standards set by ETSI. Id. at 9.

         II. This Lawsuit and the Remaining Patent-in-Suit

         This lawsuit originally involved allegations that TCL infringed claims of five patents that Ericsson had not declared essential to ETSI standards. Id.; Compl. ¶¶ 11-17. These patents are generally related to systems and methods for controlling software and hardware functionality of mobile devices. See Dkt. No. 174 at 3. In response to Ericsson's infringement claims, TCL petitioned the Patent Trial and Appeal Board (PTAB) for inter parties review (IPR) of the asserted claims. See Dkt. No. 276. After the PTAB instituted IPR of all asserted claims, the lawsuit was stayed. Dkt. 270. Earlier this year, the PTAB found that TCL had proven by a preponderance of the evidence that the asserted claims of the '052, '931, '310, and '815 patents are unpatentable. See Id. at 3; IPR2015-01650, Paper No. 32. Ericsson has appealed those decisions to the Federal Circuit. The only claims that survived IPR were the claims of the '510 patent, which is the only remaining patent-in-suit. See Dkt. No. 276 at 3. Because the '510 patent claims emerged from IPR, the stay was lifted in May of this year. See Dkt. No. 280.

         The '510 patent describes advancements in mobile device technology resulting in demands that have been difficult to meet because of the limited size, memory, and power of mobile devices.'510 patent at 1:55-61. Mobile devices were at one time used only to make and receive phone calls. Id. at 1:33-35. As technology developed, mobile devices became capable of sending email and accessing the Internet, among other functions similar to those performed on a computer. See Id. at 1:35-40. These advanced functions prompted third parties to develop non-native application software, often referred to as an “application” or “app, ” which could be downloaded by a user. See Id. at 2:18-24. The problem is that such applications often need to access the mobile device's native software or hardware functionality, and if left unrestricted, the applications may jeopardize the integrity of the mobile device, for example by triggering cost-incurring events without the user's approval. See Id. at 2:18-32. Consequently, the '510 patent describes a need for controlling or limiting an application's access to the mobile device's native functionality. See Id. at 2:40-44.

         Consistent with its title, “Security Access Manager in Middleware, ” the '510 patent describes a system for controlling an application's access to native software and hardware on a mobile device. See Id. at 4:14-16. An exemplary embodiment of the invention claimed by the '510 patent is shown in Figure 1 (color added):

         (Image omitted)

         Non-native application software (blue) is installed, loaded, and run on the mobile platform. Id. at 4:14-16. The software services component (green) provides services such as control, structured storage, and access to hardware driver software. Id. at 5:33-40. The hardware component (red) includes units associated with and controlled by the respective units of the software services component. Id. at 4:27-32. During operation, the non-native application requests access to the software services component, and an interception module intercepts these requests. Id. at 7:11-13.Once intercepted, a decision entity determines whether the request should be granted based on the security policies of the mobile platform and determines whether the user should be prompted to grant access to certain native functionality. Id. at 8:1-15, 8:26-41.

         Ericsson is currently asserting claim 1 of the '510 patent and claims that depend from claim 1 (claims 3-5, and 9). See Dkt. No. 276 at 3. Claim 1 recites:

A system for controlling access to a platform, the system comprising:
a platform having a software services component and an interface component, the interface component having at least one interface for providing access to the software services component for enabling application domain software to be installed, loaded, and run in the platform;
an access controller for controlling access to the software services component by a requesting application domain software via the at least one interface, the access controller comprising:
an interception module for receiving a request from the requesting application domain software to access the software services component;
and a decision entity for determining if the request should be granted wherein the decision entity is a security access manager, the security access manager holding access and permission policies;and
wherein the requesting application domain software is granted access to the software services component via the at one least interface if the request is granted.

         Although the PTAB initially found that TCL had established a reasonable likelihood that the asserted claims of the '510 patent are invalid, see, e.g., IPR2015-01605, Paper No. 10, the PTAB issued final written decisions after trials on the merits concluding that TCL failed to meet its preponderance of the evidence burden, see id., Paper No. 44. In the first IPR proceeding, for example, TCL argued that the asserted claims are invalid as obvious under 35 U.S.C. § 103 in view of two combinations of references-Usui and Gong, and Usui, Gong, and Spencer. See Id. at 11. The PTAB concluded that TCL had failed to establish that a person of ordinary skill in the art would have been motivated to combine Usui, which describes a Java application environment and software platform for mobile phones, with Gong, which describes Java security mechanisms for computers. See Id. at 29-37.

         The PTAB reasoned that TCL had not come forward with sufficient evidence establishing that it would have been obvious to combine the relatively elaborate computer security software described by Gong with the mobile platform of Usui “given the design constraints of less memory and resources of a mobile phone.” See Id. at 29-30. The PTAB reached essentially the same conclusion in two related IPR proceedings, concluding that TCL had failed to establish that a person of ordinary skill in the art would have been motivated to combine a mobile phone software platform with computer security software. See IPR2015-01622, Paper No. 44 at 24-33; IPR2015-01628, Paper No. 43 at 27-36. As a result of the PTAB's decisions, the parties stipulated that TCL would not raise certain invalidity defenses at trial. See Dkt. No. 296.

         Ericsson contends that certain phones manufactured or sold by TCL include functionality that falls within the scope of the '510 patent claims. The accused products all include some version of the Android operating system, and Ericsson's infringement theory is based in large part on features of this operating system. See, e.g., Dkt. No. 340-3 ¶ 37.

         DISCUSSION

         I. Motions for Summary Judgment and Related Motions

         TCL moves for summary judgment of no willful infringement and summary judgment of invalidity under § 101. Summary judgment must be granted when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). “A genuine issue of material fact exists ‘if the evidence is such that a reasonable jury could return a verdict for the non-moving party.'” Crawford v. Formosa Plastics Corp., La., 234 F.3d 899, 902 (5th Cir. 2000) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The court must consider evidence in the record in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Thorson v. Epps, 701 F.3d 444, 445 (5th Cir. 2012). The moving party must identify the portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once a party has made that showing, the non-moving party bears the burden of establishing otherwise. Geiserman v. MacDonald, 893 F.2d 787, 793 (5th Cir. 1990) (citing Celotex, 477 U.S. at 323). The non-moving party cannot “rest upon mere allegations or denials” in the pleadings, but “must set forth specific facts showing there is a genuine issue for trial.” Liberty Lobby, 477 U.S. at 248. Thus, summary judgment “is appropriate if the non-movant ‘fails to make a showing sufficient to establish the existence of an element essential to that party's case.'” Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014) (quoting Celotex, 477 U.S. at 322).

         A. TCL's Willfulness Motions

         1. Summary Judgment of No Willfulness, Dkt. No. 217 (see also Dkt. No. 300)

         TCL's original motion for summary judgment of no willfulness was filed before the Supreme Court's decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923 (2016), see Dkt. No. 217, and the parties have since updated their briefs to reflect the change in law. See Dkt. Nos. 300, 302, 305, 306. Although a close call, TCL's willfulness motion is denied because a reasonable jury could possibly conclude that TCL's conduct has been egregious. This conclusion, however, is far from certain, and the Court will carefully monitor the evidence presented at trial.

         TCL's arguments in support of summary judgment are based in large part on the applicable willfulness standard, and for that reason it is helpful to explain the standard as it stands today. The Supreme Court's Halo decision clarified the narrow circumstances in which enhanced damages should be awarded. They are not to be awarded in a “typical infringement case, but are instead designed as a ‘punitive' or ‘vindictive' sanction for egregious infringement behavior.” Halo, 136 S.Ct. at 1932 (citation omitted). In surveying the relevant cases, the Supreme Court characterized the conduct supporting enhanced damages as “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or-indeed-characteristic of a pirate.” Id.

         The word in the Supreme Court's list of culpable conduct that has created the most uncertainty is “willful” because that word implies nothing more than intentional infringement. As foreshadowed by Justice Breyer, parties have interpreted “willful” to mean knowledge of the patent “and nothing more.” See Halo, 136 S.Ct. at 1936 (Breyer, J., concurring). As this Court has recognized, however, knowledge of an asserted patent, without more, cannot justify enhanced damages under the Halo standard. See Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., No. 2:15-CV-1202-WCB, 2017 WL 2190055, at *3 (E.D. Tex. May 18, 2017) (Bryson, J., sitting by designation). This conclusion is consistent with-and in fact compelled by-the majority opinion in Halo, which repeatedly emphasizes that enhanced damages are “reserved for egregious cases of culpable behavior.” Halo, 136 S.Ct. at 1932 (emphasis added). In other words, culpable conduct is required, but the culpable conduct must be egregious, i.e., outrageous or shocking.

         In addition to uncertainty regarding what is required for enhanced damages, it is also not clear from Halo whether willfulness is a jury question. The Supreme Court did not have a reason to address the issue. A plausible reading of Halo nevertheless suggests that a jury may be asked whether infringing conduct was indeed egregious, particularly since a prerequisite to such an egregiousness finding is an accused infringer's subjective belief that he is infringing a valid patent. See Erfindergemeinschaft UroPep GbR v. Eli Lilly & Co., 240 F.Supp.3d 605, 618 (E.D. Tex. 2017) (Bryson, J., sitting by designation). Intent is a classic factual issue.

         If the jury finds the requisite intent and that the intentional conduct was egregious, or in effect worthy of punitive damages, the Court may in its discretion determine whether damages should be enhanced. See Halo, 136 S.Ct. at 1931-32 (explaining that the Court's discretion “is not whim”). Even if this characterization of Halo is incorrect, however, and willfulness is not a jury question, there is no disadvantage in submitting the question to the jury. See Kinetic Concepts, Inc. v. Smith & Nephew, Inc., 688 F.3d 1342, 1356-60 (Fed. Cir. 2012) (explaining the basis for why ultimate legal questions such as obviousness are routinely submitted to the jury). It may be prejudicial to a defendant if the plaintiff repeatedly refers to the defendant's conduct as “wanton” or “egregious” in front the jury, but the plaintiff may also prejudice itself by making such extreme characterizations without reasonable support. In sum, there is no error in submitting a willfulness question to a jury, assuming of course that the summary judgment record could support a willfulness finding.

         There is also uncertainty regarding pre-suit and post-suit conduct, namely whether post-suit conduct alone can justify enhanced damages. Indeed, part of the basis for TCL's motion is that there is no evidence of egregious pre-suit conduct that would support enhanced damages. Id. at 6. The Federal Circuit, however, has at least suggested that there is no per se rule precluding a finding of willful infringement based solely on conduct occurring after the lawsuit is filed. See Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275, 1295-96 (Fed. Cir. 2017) (district court “erred in concluding that Synopsys could not present evidence of post-filing willful infringement because Synopsys did not seek a preliminary injunction.”). It appears that the Federal Circuit was simply saying that pre-suit willful infringement could continue after the suit was filed, and that a motion for a preliminary injunction is not required to recover enhanced damages for continued post-filing willful infringement. See Id. But it would seem contrary to Halo to suggest that an accused infringer could intentionally infringe an asserted patent and engage in other egregious behavior, such as deliberately driving a less-resourceful patentee out of business, as long as the egregious behavior begins after the patentee filed the complaint. A fair reading of Halo suggests that truly egregious behavior may warrant a punitive response regardless of when the behavior occurs.

         The more pertinent question is whether there is any evidence to support a finding of egregious culpable behavior at any time in this case. TCL argues that Ericsson has not produced evidence of “egregious infringement behavior” or behavior of a “wanton and malicious pirate.” Dkt. No. 300 at 2. TCL also argues that its good faith belief of noninfringement and invalidity of the '510 patent is “demonstrated by its summary judgment motion on invalidity as well as the IPRs that were instituted by the PTAB.” Id. While nothing in the record clearly stands out as egregious, Ericsson has come forward with evidence suggesting that TCL's infringement has accelerated since the lawsuit was filed. This may be because TCL believed it was not infringing a valid patent. See WesternGeco L.L.C. v. Ion Geophysical Corp., 837 F.3d 1358, 1363 (Fed. Cir. 2016) (even after Halo, the objective reasonableness of the accused infringer's positions can still be relevant to the § 284 issue).

         Yet TCL has offered little other evidence relevant to the subjective belief of its decision makers at the relevant time. TCL's IPR petitions came after its knowledge of the '510 patent, as did TCL's motion for summary judgment invalidity under § 101. As TCL acknowledges, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.” Halo, 136 S.Ct. at 1933. There is no evidence, for example, going to TCL's subjective beliefs when its infringement allegedly accelerated after Ericsson filed the lawsuit. Consequently, the Court cannot conclude with confidence at this point that no reasonable jury could find that TCL subjectively believed it was infringing a valid patent, and that this intentional conduct was egregious. The motion for summary judgment is therefore denied.

         2. TCL's Motion to Bifurcate ...


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