Opinion ID: 3178457
Heading Depth: 2
Heading Rank: 4

Heading: Sales by Ericsson U.S.

Text: High Point also contends that the sales of Node Bs, RNCs, and MGWs to T-Mobile by Ericsson U.S. were unauthorized. It does not dispute that section 1.03(c) of the cross-licensing agreement between Lucent and LM Ericsson granted both parties the right to convey sublicenses to their subsidiaries. See J.A. 1781, 1793–94. Nor does it dispute that such sublicenses could be granted retroactively. See J.A. 1781. High Point contends, however, that the sublicense that LM Ericsson granted to its subsidiary, Ericsson U.S., was invalid because it was conveyed in January 2013, see J.A. 1797–99, and the terms of the asserted patents expired in July 2011. We do not find this argument persuasive. The 1996 cross-licensing agreement between Lucent and LM Ericsson did not have a termination date. Furthermore, no provision in that agreement imposed any timing constraint on when LM Ericsson could convey sublicenses to its subsidiaries. To the contrary, section 1.03(c) of the agreement specifically provides that any sublicense LM Ericsson conveyed to a subsidiary could “be made effective retroactively.” J.A. 1781. In arguing that LM Ericsson had no right to grant retroactive sublicenses to its subsidiaries after the asserted patents expired in 2011, High Point relies primarily on section 1.02 of the cross-license, which provides that “[a]ll HIGH POINT SARL v. T-MOBILE USA, INC. 19 licenses granted herein under any patent shall . . . continue for the entire unexpired term of such patent.” J.A. 1781. Section 1.02, however, was plainly designed to shield a licensee, offering it immunity from infringement claims throughout the life of the licensed patents. High Point’s proposed approach would twist section 1.02 like a pretzel, turning a provision intended to protect a licensee from infringement liability throughout the full terms of the licensed patents into a restriction on the licensee’s explicit right, granted by section 1.03(c), to grant retroactive sublicenses to its subsidiaries. Contrary to High Point’s assertions, there is nothing in section 1.02 to suggest that its timing provisions have any applicability to the sublicensing provisions of section 1.03(c). Indeed, section 1.02 does not mention retroactive sublicensing rights or refer in any way to section 1.03(c). See J.A. 1781. Accepting High Point’s contention that LM Ericsson’s ability to grant sublicenses to its subsidiaries expired in July 2011 would lead to anomalous and inequitable results. In High Point’s view, LM Ericsson had the right to sublicense the asserted patents to Ericsson U.S. until July 8, 2011, when the asserted patents expired, but forfeited that right the very next day. Such an approach would leave Ericsson U.S. vulnerable to infringement liability for up to six years after the patents’ expiration date for sales occurring prior to that date. See 35 U.S.C. § 286 (“[N]o recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.”). We do not think that LM Ericsson would have bargained for and obtained a cross-license which broadly granted it the right to convey retroactive sublicenses to its subsidiaries while at the same time agreeing to an implicit timing restriction which would have the effect of leaving those subsidiaries vulnerable to infringement liability for six years after the licensed patents expired. As T- 20 HIGH POINT SARL v. T-MOBILE USA, INC. Mobile correctly notes, High Point’s interpretation of section 1.03(c) “would have the perverse effect of encouraging delay in filing suit and providing more compensation [to the patent holder] after patent expiration than before.” Br. of Defendants-Appellees at 47. In Kimble v. Marvel Entertainment, LLC, the Su- preme Court confirmed that a patent holder has no right to exact royalties for sales occurring after a patent’s expiration date. 6 135 S. Ct. 2401, 2407 (2015) (“[W]hen the patent expires, the patentee’s prerogatives expire too, and the right to make or use the article, free from all restriction, passes to the public.”). Significantly, however, the Court also made clear that although a patent holder is barred from obtaining royalties for post-expiration sales, this does not mean that all negotiated provisions in a licensing agreement necessarily cease to be effective after a licensed patent expires. Id. at 2408. As the Court explained, a licensing agreement could, for example, be structured in such a way that the licensor could continue to receive “payments for pre-expiration use of a patent into the post-expiration period.” Id. Likewise, “[a] licensee could agree . . . to pay the licensor a sum equal to 10% of sales during the 20-year patent term, but to amortize that amount over 40 years.” Id. We reject, therefore, High Point’s argument that LM Ericsson’s contractual right to grant retroactive sublicenses to its subsidiaries was extinguished when the licensed patents expired in July 2011. We also reject High Point’s assertion that the equipment sales by Ericsson U.S. were unauthorized because it had not yet been granted a formal written sublicense from 6Here, although LM Ericsson did not provide Ericsson U.S. with a written sublicense until 2013, the accused equipment sales occurred prior to the July 2011 expiration date of the asserted patents. HIGH POINT SARL v. T-MOBILE USA, INC. 21 LM Ericsson at the time those sales occurred. 7 “[T]he grant of a patent does not provide the patentee with an affirmative right to practice the patent but merely the right to exclude.” TransCore, LP v. Elec. Transaction Consultants Corp., 563 F.3d 1271, 1275 (Fed. Cir. 2009). Accordingly, “a patentee, by license or otherwise, cannot convey an affirmative right to practice a patented invention,” but “can only convey a freedom from suit.” Id.; see also U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1189 (Fed. Cir. 2005) (explaining that a license “simply provides the licensee with a guarantee that it will not be sued for engaging in conduct that would infringe the patent in question”). A product sale is therefore “authorized” when a patent holder surrenders his right to exclude—via a license agreement or covenant not to sue— and thereby immunizes the seller of that product from infringement liability. See TransCore, 563 F.3d at 1275 (emphasizing that for exhaustion purposes, “authorization” turns not on how an agreement characterizes the rights afforded to a seller, but on whether that agreement ultimately shields the seller from an infringement claim); see also Quanta, 553 U.S. at 636 (concluding that exhaustion applied where the license agreement provided the licensee with the right to make and sell products “free of [the licensor’s] patent claims”). Here, Ericsson U.S. was at all times authorized to sell the accused equipment to T- Mobile because when the sales took place neither Lucent nor any of its successor entities could have sustained an infringement claim based on those sales. To the contrary, if they had attempted to bring suit, LM Ericsson had the unrestricted right, pursuant to section 1.03(c) of its cross- 7 Before the district court, Ericsson U.S. argued that although LM Ericsson did not provide it with a formal written sublicense until 2013, it was at all relevant times operating under a valid oral sublicense from its parent company. See J.A. 7530. 22 HIGH POINT SARL v. T-MOBILE USA, INC. licensing agreement with Lucent, to immediately grant Ericsson U.S. a sublicense, thereby immunizing Ericsson U.S. from any potential infringement liability.