Date

May 16, 2014

Case number

2013 (Ne) 10043

CourtIntellectual Property High Court,
Special Division– A case in which the court found that the appellee's products fall within the technicalscope of the appellant's patent right.
– A case in which the court rejected all grounds for patent invalidation as alleged by
the appellee.
– A case in which the court rejected the appellee's allegation of the exhaustion of thepatent right as a result of the assignment of the component parts, holding that noreason could be found to restrict the exercise of the patent right.
– A case in which the court found that no license agreement was formed as a result of
the appellant's FRAND declaration, because such declaration cannot be regarded as anoffer for a license agreement.
– A case in which the court found that the appellant's exercise of the right to seek
damages based on the patent right constituted the abuse of right to the extent
exceeding the amount of the FRAND royalty, but not to the extent of the amount of the
FRAND royalty.
– A case in which the court determined the amount of the FRAND royalty.
References: Article 1, paragraph (3) and Article 709 of the Civil Code, and Article 101,
Article 104-3 and Article 29, paragraph (2) of the Patent Act
1. Background
This is a court case wherein the appellee (the plaintiff in the first instance) allegesthat its production, assignment, import or other acts in relation to the products
specified in the List of Products attached hereto does not constitute an act of
infringement of the patent right of the appellant (the defendant in the first instance)
under Patent No. 4642898 for the invention titled "method and apparatus fortransmitting/receiving packet data using a pre-defined length indicator in a mobile
communication system" (hereinafter referred to as the "Patent"), and seeks adeclaratory judgment to confirm that the appellant is not entitled to seek damages
due to the appellee's tort of infringing the Patent Right in relation to the appellee's
acts as mentioned above.
In the judgment in prior instance, the court of first instance upheld all of theappellee's claims, holding that Products 1 and 3 do not fall within the technicalscope of the inventions for the Patent , and that the appellant's exercise of the rightto seek damages based on the Patent Right for Products 2 and 4 constituted the1abuse of right in spite of these products falling within the technical scope of the
Patent. The appellant filed this appeal against said judgment.
2. Outline of the facts on which the court decision is premised(1) The Products conform to the UMTS (Universal Mobile Telecommunications
System) standard, which is the telecommunications standard developed by 3GPP
(Third Generation Partnership Project). 3GPP is a private organization established
for the purposes of the dissemination of the third-generation mobile
telecommunication system or mobile telephone system (3G), as well as theinternational standardization of the related specifications.
(2) ETSI (European Telecommunications Standards Institute), one of the standard
organizations which established 3GPP, provides the "Intellectual Property Rights
Policy" as the guidelines for the treatment of intellectual property rights (IPRs).
(3) On August 7, 2007, the appellant, in accordance with the ETSI IPR Policy, notified
ETSI that the IPRs including the Patent were or were highly likely to be essential
IPRs for the UMTS standard, with an undertaking that it was prepared to grant an
irrevocable license on fair, reasonable and non-discriminatory terms and conditions(such terms shall be hereinafter referred to as the "FRAND Terms," and thisdeclaration as the "FRAND Declaration").
3. Issues disputed in this court case
The issues disputed in this action are as follows: [i] whether the Products fallwithin the technical scope of Invention 1 (Issue 1); [ii] whether the Patent Right forInvention 2 has been indirectly infringed upon (Article 101, items (iv) and (v) of
the Patent Act) (Issue 2); [iii] whether restrictions pursuant to Article 104-3,
paragraph (1) of the Patent Act may be imposed on the exercise of the Patent Rightfor the Inventions (Issue 3); [iv] whether the Patent Right for the Products has been
exhausted (Issue 4); [v] whether a license agreement in relation to the Patent Right
has been formed between Apple Inc. and the appellant based on the appellant's
FRAND Declaration (Issue 5); [vi] whether the appellant's exercise of the right toseek damages based on the Patent Right constitutes an abuse of right (Issue 6); and[vii] the amount of damages (Issue 7).
4. Summary of the court decision(1) Issue of whether the Products fall within the technical scope of Invention 1
In this judgment, the court determined that Products 1 and 3 do not fall within the2technical scope of Invention 1; whereas Products 2 and 4 fall within said scope.
(2) Issue of whether the Patent contains any ground for invalidation
In this judgment, the court rejected all five grounds for invalidation of the Patent
Right alleged by the appellee.
(3) Issue of exhaustion of the Patent Right for the Products
In this judgment, the court held the appellee's allegation of exhaustion of the Patent
Right to be groundless since it contains an error in the conditions precedent. The
court then held as follows and rejected the appellee's allegation.
" (A) When a patentee or an exclusive licensee (hereinafter simply referred to as a"patentee" in this paragraph) assigns a product to be used exclusively for the
production of a patented product (which means a product falling under
Article 101, item (i) of the Patent Act if produced, assigned or otherwise
handled by a third party; hereinafter referred to as "Item (i) Product") inJapan, the patent right is considered to have been exhausted for said Item (i)Product as it has attained the purposes of the patent right. In this case, it isunderstood that the effect of the patent right no longer extends to the use,
assignment, etc. (meaning the use, assignment, export or import, or offer forassignment, etc. as provided in Article 2, paragraph (3), item (i) of the Patent
Act; the same shall apply hereinafter) of said Item (i) Product and therefore
the patentee is prohibited from exercising the patent right for said Item (i)Product, as long as said Item (i) Product maintains the status quo. However,
it is appropriate to understand that, when a third party later produces apatented product by the use of said Item (i) Product, the patentee is not
restricted from exercising the patent right in relation to such acts ofproduction of the patented product or use, assignment, etc. thereof, becausesuch third party has created a new product which falls within the technicalscope of a patented invention by the use of a product which is out of thetechnical scope of such patented invention (BBS Case Supreme Court
Judgment of July 1, 1997, Minshu Vol. 51, No. 6, at 2299; the Supreme
Court judgment of November 8, 2007, Minshu Vol. 61, No. 8, at 2989).
Meanwhile, even in such cases, it is appropriate to understand that, if thepatentee can be considered to have impliedly consented to the production ofa patented product by the use of said Item (i) Product, the effect of the patentright does not extend to the production of the patented product by the use of
said Item (i) Product or the use, assignment, etc. of such patented product.
This rationale is understood to also apply to the case where a Japanese3patentee (including parties deemed equivalent to a patentee, such as its
affiliated companies) assigned Item (i) Product outside Japan (BBS Case
Supreme Court judgment of July 1, 1997, Minshu Vol. 51, No. 6, at 2299).
(B) Next, discussion is made as to the case where the assignor of Item (i)Product is a non-exclusive licensee who had received a license from thepatentee (including a party who only has a license for the assignment of Item(i) Product).
In the case where the assignor of Item (i) Product is a non-exclusive licensee,
it is understood that, as is the case with that mentioned in (A) above, theeffect of a patent right still does not extend to the use, assignment, etc. of
said Item (i) Product; whereas the patentee is not restricted from exercising
the patent right in relation to the production of a patented product by the useof said Item (i) Product or use, assignment, etc. of such product. Further,even in the case where the assignor of Item (i) Product is a non-exclusive
licensee, if the patentee can be considered to have impliedly consented to the
production of the patented product by the use of said Item (i) Product, theeffect of the patent right still does not extend to the production of thepatented product by the use of said Item (i) Product or the use, assignment,
etc. of such patented product, as is the case with that mentioned in (A)above.
The issue of existence of such implied consent should be determined inrelation to a patentee; however, it would be necessary to separately
determine this issue in relation to an exclusive licensee as well, if a
non-exclusive licensee who assigned Item (i) Product had been authorized by
the patentee to permit a third party to produce a patented product by using
said Item (i) Product.
This rationale is understood to also apply to the case where a non-exclusive
licensee who had received a license from a Japanese patentee (including
parties deemed equivalent to a patentee, such as its affiliated companies)
assigned an Item (i) Product outside Japan.
(C) Next, the abovementioned rationales are applied to this court case.
….Based on the above, in this court case, it is not sufficiently proved that theappellant had impliedly consented to the production of the patented product,
nor had [ the manufacturer ] been authorized to do so. Therefore, the court
finds that the exercise of the Patent Right should not be restricted in relation
to the acts of import or sale of the patented products produced by the use of4the Baseband Chip (Products 2 and 4). ""The appellee's allegation concerning the exhaustion of patent right ispremised on the alleged fact that the Baseband Chip had been manufactured
and sold under the license agreement. As such fact is not proved, the court
cannot accept such allegation as it lacks the condition precedent. Even theevent that this is not the case, the appellant is not restricted from exercising
the Patent Right in relation to Products 2 and 4, which are the patented
products. Therefore, the court cannot accept the appellee's allegation in thisrespect in any case. "(4) Issue of whether a license agreement was formed as a result of the FRAND
Declaration
As explained below, the court rejected the appellee's allegation, holding that the
FRAND Declaration could not be considered as an offer for a contract and nolicense agreement for the Patent Right was formed as a result of the FRAND
Declaration.
"Under the laws of France, in order for a license agreement to be formed, atleast the offer for the license agreement and the acceptance thereof is required.
Nevertheless, the FRAND Declaration cannot be considered as an offer for alicense agreement under the laws of France due to the following reasons. [i]The FRAND Declaration only uses the expression "prepared to grantirrevocable licenses." When compared with other possible wordings such as"hereby do license" or "commit to license," this expression is not definitiveand contemplates further actions by the declarant. Therefore, the FRAND
Declaration is not literally deemed a firm license grant. [ii] Even supposingthat the laws of France do not require the specifically agreed compensation forformation of a license agreement, the FRAND Declaration provides noguidance for the scope of the binding effect of the contract to be formed upon
the acceptance, as it has no specific terms and conditions such as a royalty rate
as the consideration of the license agreement, territory or period of the license.
Thus, the FRAND Declaration does not contain any terms and conditions thatshould be normally included in a license agreement. If the FRAND
Declaration is regarded as an offer for a license agreement, it is impossible toprovide the terms and conditions of the license agreement to be formed. [iii]In making the FRAND Declaration, the appellee opted for a reciprocity clausein accordance with the ETSI IPR Policy and the FRAND Declaration contains
a provision setting forth that the license shall be subject to the condition that5the parties agree to reciprocate in relation to the standards. If this FRAND
Declaration is understood as an offer for a license agreement, this may resultin a situation where a license agreement can be formed only in relation to thepatent subject to a FRAND declaration without satisfying such reciprocity
condition, if there is any party who owns an essential patent for which no
FRAND declaration has been made. [iv] The FRAND Declaration was madein accordance with the ETSI IPR Policy. The "ETSI Guide on Intellectual
Property Rights (IPRs)", which supplements this IPR Policy, contains some
expressions contemplating that the license is left to the negotiation between
the parties, such as "potential licensor" or "potential licensee," and theprovision that "ETSI expects its Members (as well as non-ETSI Members) toengage in an impartial and honest Essential IPR licensing negotiation process
for FRAND terms and conditions" (Clause 4.4). In addition, the ETSI Guide
on IPRs also contains the provisions clarifying that ETSI is not involved in thelicensing negotiation, such as the provision that "Specific licensing terms andnegotiations are commercial issues between the companies and shall not be
addressed within ETSI" (Clause 4.1). Further, "ETSI IPR Policy FAQs" also
states that "It is necessary to obtain permission to use patents declared as
essential to ETSI's standards. To this end, each standard user should seek
directly a license from a patent holder" (Answer 6). Thus, ETSI is also
considered to contemplate that any FRAND declaration made in accordancewith the ETSI IPR Policy, including the FRAND Declaration, does not
immediately give rise to a license agreement. [v] In the background history forthe adoption of the present ETSI IPR Policy, some participants attempted to
introduce a provision enabling the "automatic license" for users; however, thisattempt failed because of strong opposition. Understanding the FRAND
Declaration as an offer for a license has virtually the same effect as the"automatic license," which was abandoned in the process of adoption of the
ETSI IPR Policy. Such consequence is not deemed appropriate as it
contradicts with the background history of adoption of the present ETSI IPR
Policy.
Based on the above, the FRAND Declaration cannot be interpreted as an offer
for a license agreement. "(5) Issue of whether the exercise of the Patent Right constitutes the abuse of right
In this judgment, the court held as follows, determining that the appellant's claim
for damages constitutes the abuse of right to the extent exceeding the amount of the6

FRAND royalty, but not to the extent of the amount of the FRAND royalty.
"a. Claim for damages exceeding the FRAND royalty
A party intending to engage in the manufacturing, sale, etc. of a UMTS
standard-compliant product would recognize that, among the patentrights essential for the manufacturing, sale, etc. of such product, atleast those owned by ETSI members require the timely disclosure inaccordance with ETSI IPR Policy Clause 4.1 and the FRAND
licensing declaration under ETSI IPR Policy Clause 6.1. Such party
would rely on the availability of a FRAND license through anappropriate negotiation with the patentee. Such reliance is worth
protecting. Accordingly, in connection with the Patent subject to the
FRAND Declaration, allowing the exercise of the right to seek
damages exceeding the amount of the FRAND royalty would be
detrimental to the reliance of parties who manufacture or sell the
UMTS standard-compliant product on the availability of such license.
Owing to such reliance of the UMTS standard users, the patent rights(including the Patent Right) incorporated into the UMTS standard canbe widely disseminated among a large number of business enterprises
in all parts of the world. As a result, an owner of a Standard Essential
Patent can benefit from royalty income, which would be unavailable if
the patent was not adopted as part of the UMTS standard. In addition,a party which makes a FRAND declaration as required by the ETSIIPR Policy, including the FRAND Declaration, declares on a voluntarybasis that it is prepared to grant an irrevocable license under the
FRAND Terms. Considering these circumstances, it is not so necessary
to allow such owner the right to seek damages exceeding the FRAND
royalty.
Hence, if a patentee who made a FRAND declaration claims damages
exceeding the FRAND royalty based on such patent right, thecounterparty to such claim should be entitled to refuse the payment to
the extent exceeding the amount of royalty, as long as suchcounterparty successfully alleges and proves the fact of the patentee's
FRAND declaration.
Meanwhile, if a patentee successfully alleges and proves the fact of theexistence of special circumstances, such as that the prospective
licensee has no intention of receiving a FRAND license, the patentee

7

should be allowed to claim damages exceeding the amount of the
FRAND royalty. As such prospective licensee has no intention of
benefiting from the FRAND declaration from the outset, no reason canbe found to restrict the patentee's right to seek damages up to theamount of the FRAND royalty. Nevertheless, considering the potential
detrimental consequences as mentioned above, before allowing thepatentee to claim damages exceeding the amount of the FRAND
royalty, scrutiny shall be made to determine the existence of special
circumstances in which the prospective licensee has no intention ofreceiving a FRAND license.
b.

Claim for damages not exceeding the amount of the FRAND royalty
As for the claim for damages not exceeding the amount of the FRAND
royalty, the patentee should not be restricted from exercising suchclaim even where the patent is a Standard Essential Patent.
A party intending to engage in the manufacturing, sale, etc. of a UMTS
standard-compliant product is presumed to have started its businessunderstanding the necessity of paying the amount of the FRAND
royalty in the future. In addition, as one of the purposes of the ETSIIPR Policy, Clause 3.2 thereof provides "IPR holders … should be
adequately and fairly rewarded for the use of their IPRs." So, in thiscontext as well, it is necessary to ensure that the patentee is adequately
rewarded.
However, if the prospective licensee successfully alleges and proves
the existence of special circumstances, such as that, after discussing
various circumstances in the process of the FRAND declaration andlicensing negotiation, it is considered extremely unfair to permit thepatentee to claim for damages not exceeding the amount of royalty,
even considering the significance of the right to seek damages as acompensation for the public disclosure of an invention, the possibility
cannot be precluded that such patentee's claim is restricted as an abusec.

of right.
Summary
Considering the totality of the above circumstances, the following
shall be applied to a claim for damages by a party that made a FRAND
declaration, including the appellant who made the FRAND
Declaration. [i] A claim for damages exceeding the amount of the8

FRAND royalty should not be allowed, unless special circumstances
as explained in a. above exist. [ii] The claim for damages notexceeding the amount of the FRAND royalty shall not be restrictedeven in the case of a Standard Essential Patent, unless special
circumstances as explained in b. above exist. ""Even considering the totality of all circumstances of this court case,no circumstances can be found which renders the appellant's claim fordamages not exceeding the amount of the FRAND royalty extremely
unfair. Moreover, no evidence has been submitted which sufficiently
proves the existence of special circumstances as mentioned above. ""In this court case, the court finds no such special circumstance, suchas the lack of the appellee's intention to receive a FRAND license. ""Therefore, the appellee's allegation that the appellant's claim fordamages constitutes an abuse of right is acceptable to the extent thatthe amount of damages alleged by the appellant exceeds the amount of
the FRAND royalty as mentioned in 7. below; however, this allegationis unacceptable in respect of the amount of damages not exceeding the
FRAND royalty. "(6) Amount of damages
In this judgment, the court held as follows, determining that the amount of the
FRAND royalty should be calculated in the following way: [i] multiplying thesales turnover of Products 2 and 4 by the contribution ratio of the compliance with
the UMTS standard by Products 2 and 4, [ii] multiplying the amount obtained in [i]by the royalty rate cap, which is applied from the standpoint of preventing theaggregate amount of royalty from being unreasonably high; and [iii] dividing theamount obtained in [ii] by the number of essential patents for the UMTS standard.
"The ETSI IPR Policy and the ETSI Guide on IPRs do not provide
any guidance on the calculation of the royalty for FRAND license, andsuch calculation is left to the negotiation of the parties. Considering
the totality of various circumstances, including the purpose of
adoption of the ETSI IPR Policy and the nature of Products 2 and 4,
the court finds it reasonable to calculate the amount of the FRAND
royalty in accordance with the following calculation method.
First, among the total sales turnover of Products 2 and 4, thepercentage of the contribution of the compliance with the UMTS
standard should be calculated. Next, among the contribution ratio of

9the compliance with the UMTS standard, the contribution ratio of the
Patent should be calculated. For the purpose of the calculation of thecontribution of the Patent among the contribution of the compliancewith the UMTS standard, in order to prevent an excessively highroyalty in aggregate, the calculation method should be such that theamount of royalty for the entire essential patent pool does not exceed acertain ratio . In this court case, as the specific details of otheressential patents are unknown, the amount of FRAND royalty should
be based on the division by the number of UMTS standard essential
patents . "(7) Conclusion
Based on the aforementioned considerations, the court held that the appellee's
claim has a ground, to the extent of confirmation that the appellant is not entitled toseek damages from the appellee on the ground of the infringement of the Patent inrelation to the assignment, etc. of Products 1 and 3, and that the appellant's right toseek damages from the appellee on the ground of the infringement of the Patent inrelation to the assignment, etc. of Products 2 and 4 may not be exercised exceeding
the amount determined in (6) above. The court determined that the appellee's claim
should be upheld to such extent, but that the other claims of the appellee should bedismissed due to the lack of grounds. In conclusion, the court held that the
judgment in prior instance should be modified since it contradicts with these
determinations.
(8) Results of public consultation
In this court case, the court held a public consultation. The court made a brief
explanation on the opinions submitted in response to this public consultation andmade a remark as follows: "These opinions are valuable and useful references that
helped the court make an appropriate judgment from a broad perspective, and wehereby express our profound gratitude to all the parties who kindly made great
efforts to submit their opinions."

10