HTC v. Telefonaktiebolaget

Case: 19-40566 Document: 00515999668 Page: 1 Date Filed: 08/31/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
August 31, 2021
No. 19-40566
Consolidated with Lyle W. Cayce
Clerk
No. 19-40643
HTC Corporation; HTC America, Incorporated,
Plaintiffs—Appellants,
versus
Telefonaktiebolaget LM Ericsson; Ericsson,
Incorporated,
Defendants—Appellees.
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 6:18-CV-243
Before Jones, Elrod, and Higginson, Circuit Judges.
Jennifer Walker Elrod, Circuit Judge:
After negotiations for a patent licensing agreement soured, the
plaintiffs sued the defendants and alleged that they had breached their
contractual obligation to offer a license on fair, reasonable, and non-
discriminatory terms. The jury found in the defendants’ favor, and the
district court entered a separate declaratory judgment holding that the
defendants had affirmatively complied with their contractual obligations.
Case: 19-40566 Document: 00515999668 Page: 2 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
Now, the plaintiffs appeal, challenging the district court’s declaratory
judgment in the defendants’ favor (which relies on the facts found by the
jury) and certain of the district court’s jury instructions and evidentiary
rulings. Finding no error in any of the district court’s decisions, we
AFFIRM.
I.
With the small cell phones we carry in our pockets, instant access to
communication, information, and entertainment are never more than a few
simple taps away. Devices communicate seamlessly with one another to
bring us the data we need in seconds, regardless of which company developed
those devices or what network they are on.
To make all of this possible, industry standard setting organizations
have settled on technical standards that permit interoperability between
devices. These standards dictate how cell phones and cellular towers
communicate with one another, and they promote fast, reliable, and secure
connections between devices. This is why a person with an iPhone on
AT&T’s network can call or text someone with a Samsung phone on
Verizon’s network without any trouble. Mobile device manufacturers and
network providers all use the same set of standards when designing their
devices and networks to ensure compatibility between various devices and
networks.
Standards may be generally beneficial for both consumers and
industry participants. See generally Mark A. Lemley, Intellectual Property
Rights and Standard-Setting Organizations, 90 Calif. L. Rev. 1889, 1896–98
(2002). However, industry standards also pose a risk of anticompetitive
behavior. See, e.g., Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1209
(Fed. Cir. 2014) (explaining two “potential concerns” with standardization).
2
Case: 19-40566 Document: 00515999668 Page: 3 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
Standards frequently incorporate patented technology, known as standard-
essential patents. See id. When a patent becomes essential to an industry
standard, other companies face a choice if they want to have a standard-
compliant device: They can either attempt to license the patented technology
in order to develop their own product, or they can risk a patent infringement
action against them. This puts the holder of a standard-essential patent in a
powerful position to extract as much money as they want from potential
licensees.
To combat the potential for anticompetitive behavior, standard
setting organizations require standard-essential patent holders to commit to
licensing their patents on fair, reasonable, and non-discriminatory terms
(FRAND terms). See id. Companies seeking to license under these terms
become third-party beneficiaries of the contract between the standard-
essential patent holder and the standard setting organization. They are thus
enabled to enforce the terms of that contract. See Microsoft Corp. v. Motorola,
Inc., 696 F.3d 872, 885 (9th Cir. 2012).
This case involves such an attempt to license a standard-essential
patent. The European Telecommunications Standards Institute (ETSI) is a
preeminent standard setting organization in the mobile telecommunications
field. The France-based organization established many of the global
standards for 3G, 4G, and 5G cellular communications technology. ETSI
asks its members that own standard-essential patents to provide “an
irrevocable undertaking in writing that [they are] prepared to grant
irrevocable licences on fair, reasonable and non-discriminatory” terms. If a
patent owner is not prepared to grant such licenses, ETSI may exclude the
patented technology from the standard.
Telefonaktiebolaget LM Ericsson and Ericsson, Inc. (collectively
Ericsson) hold numerous patents that are considered essential to the
3
Case: 19-40566 Document: 00515999668 Page: 4 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
standards for 2G, 3G, and 4G technology. Ericsson has agreed with ETSI to
grant licenses to other companies to use its standard-essential patents on
FRAND terms. HTC Corp. and HTC America, Inc. (collectively HTC)
produce mobile devices that implement the 2G, 3G, and 4G standards. HTC
also owns several standard-essential patents related to 2G, 3G, and 4G
technology. But to manufacture standard-compliant mobile devices, HTC
has to obtain a license to use Ericsson’s patents.
Ericsson and HTC have previously entered into three cross-license
agreements for their respective patents—one in 2003, one in 2008, and one
in 2014. In the 2014 licensing agreement, HTC agreed to pay Ericsson a lump
sum of $75 million to license Ericsson’s patents regardless of HTC’s phone
sales. Based on HTC’s sales, the company paid Ericsson approximately
$2.50 per mobile device.
In 2016, a short time before the 2014 license was about to expire, HTC
and Ericsson began negotiating to renew the license. Ericsson offered a rate
of $2.50 per 4G device. HTC did not accept this offer. Instead, it
independently examined the value of Ericsson’s patents and reasoned that
the royalty rate should be based on the smallest salable patent-practicing unit
rather than the net sales price of the entire end-user device. HTC concluded
that the relevant unit was the baseband processor, the hardware component
of a cellular device that allows it to connect to cellular networks. Based on
this conclusion, HTC met with Ericsson in late March 2017 and
counteroffered a rate of $0.10 per 4G device.
Ericsson considered HTC’s offer to be “so far off of the norm” that
it “chilled” the negotiations. Ericsson left the meeting intending to justify
its initial $2.50 per 4G device offer. A few days after that meeting, on April
6, 2017, HTC filed the present lawsuit, alleging that Ericsson had breached
its commitment to provide a license on FRAND terms. In June, while the
4
Case: 19-40566 Document: 00515999668 Page: 5 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
lawsuit was pending, Ericsson proposed a new licensing agreement whereby
HTC would pay 1% of each 4G device sold, subject to a $1 floor and a $4 cap.
HTC did not accept this second offer either. Instead, it filed an amended
complaint seeking declaratory relief that Ericsson had breached its
contractual obligations to ETSI by insisting on non-FRAND terms and had
failed to negotiate in good faith. 1 Ericsson counterclaimed for a declaration
that its offers were FRAND and alleged that HTC had failed to negotiate in
good faith.
At trial, the parties debated how to determine the value of Ericsson’s
patents, which would affect whether Ericsson had offered FRAND terms to
HTC. For its part, HTC sought to prove that Ericsson had not offered
FRAND terms. It advocated apportioning the value of Ericsson’s patents
using the profit margin on the baseband processor, rather than the net sales
prices of the finished mobile device, as the royalty base. HTC also pointed
to several larger mobile device manufacturers, like Apple and Huawei, who
had received significantly more favorable licensing agreements than the one
offered to HTC.
Ericsson argued that it had offered FRAND terms to HTC and
negotiated in good faith. It contended that the best way to determine whether
proposed terms were fair and reasonable was to look at licenses that Ericsson
had negotiated with other, similarly situated companies. All of those licenses
were based on the value that Ericsson’s product provided to the end-user
product, not just the smallest salable unit. Ericsson pointed to its licenses
1
HTC also sought back royalties and brought antitrust claims against Ericsson
under the Sherman Act. The district court compelled arbitration on these claims, however,
and they are not at issue in this appeal.
5
Case: 19-40566 Document: 00515999668 Page: 6 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
with several of HTC’s competitors, each of which contained terms similar to
those offered to HTC.
Ericsson and HTC both submitted proposed jury instructions. HTC
proposed highly detailed instructions to help the jury interpret FRAND, but
Ericsson objected to most of these instructions and proposed a more general
FRAND instruction. The district court considered the two proposals, but
ultimately gave the following instruction to the jury: “Whether or not a
license is FRAND will depend upon the totality of the particular facts and
circumstances existing during the negotiations and leading up to the license.
Ladies and gentlemen, there is no fixed or required methodology for setting
or calculating the terms of a FRAND license rate.”
Before issuing this charge to the jury, the district court held a formal
charge conference with both HTC and Ericsson where it invited “any
possible objections” to its proposed language. HTC made no objection to
this instruction. Instead, at the end of the charge conference, HTC requested
that eleven of its proposed jury instructions also be included in the final jury
instructions. The district court overruled “[t]hose offerings and any
objection relating for their non-inclusion in the final jury instructions.”
The jury was tasked with answering three questions: (1) “whether
HTC prove[d] by a preponderance of the evidence that Ericsson breached its
contractual obligation to offer HTC a license, on FRAND terms, to
Ericsson’s cellular standard-essential patents”; (2) whether Ericsson had
breached its duty of good faith negotiations; and (3) whether HTC had
breached its duty to negotiate in good faith.
After deliberation, the jury returned a verdict finding that HTC had
not proven that Ericsson had breached its FRAND duties and that both
parties had breached their obligations to negotiate in good faith. HTC did
6
Case: 19-40566 Document: 00515999668 Page: 7 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
not make a post-verdict Rule 50(b) motion. Ericsson moved for a declaratory
judgment on its counterclaim. The district court granted Ericsson’s request
and declared “that, in its dealings with HTC as presented in this case,
Ericsson complied with its FRAND assurance to HTC, as set forth in” its
licensing declarations with ETSI. HTC now appeals: (1) the district court’s
exclusion of three of HTC’s requested jury instructions; (2) the district
court’s declaratory judgment that Ericsson had complied with its obligation
to provide HTC a license on FRAND terms; and (3) the district court’s
exclusion of certain expert testimonial evidence as hearsay.
II.
We first consider whether the district court erred in not giving HTC’s
proposed jury instructions. Although HTC initially asked the district court
to include eleven instructions at the end of the charge conference, HTC has
appealed the exclusion of only three of those eleven instructions. HTC
challenges the district court’s refusal to give two instructions relating to
apportioning the value of Ericsson’s patents and one instruction regarding
the non-discrimination requirement of FRAND.
We typically review a challenge to the district court’s jury instructions
“under an abuse of discretion standard, affording the trial court substantial
latitude in describing the law to the jurors.” Jimenez v. Wood Cnty., 660 F.3d
841, 845 (5th Cir. 2011) (en banc) (quoting United States v. Santos, 589 F.3d
759, 764 (5th Cir. 2009)). Ericsson contends that HTC failed to properly
object in the district court, and thus our review should be limited to plain
error. See id.; Fed. R. Civ. P. 51(d)(2) (“A court may consider a plain error
in the instructions that has not been preserved as required by Rule 51(d)(1) if
the error affects substantial rights.”). However, we do not decide this issue
because we conclude that, even under the abuse-of-discretion standard, the
district court did not commit reversible error by excluding HTC’s proposed
7
Case: 19-40566 Document: 00515999668 Page: 8 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
instructions. 2 When reviewing for abuse of discretion, we will reverse a
district court’s refusal to give a requested jury instruction “only if the
instruction (1) was a substantially correct statement of law, (2) was not
substantially covered in the charge as a whole, and (3) concerned an
important point in the trial such that the failure to instruct the jury on the
issue seriously impaired the [party’s] ability to present a given [claim].”
Kanida v. Gulf Coast Med. Pers. LP, 363 F.3d 568, 578 (5th Cir. 2004) (quoting
United States v. McClatchy, 249 F.3d 348, 356 (5th Cir. 2001)).
HTC contends that, rather than being instructed that “[w]hether or
not a license is FRAND will depend upon the totality of the particular facts
and circumstances” and that “there is no fixed or required methodology for
setting or calculating the terms of a FRAND license,” the jury should have
been told to apportion the value of the patents from the non-patented
features of HTC’s phones. Moreover, according to HTC, the jury should
have been told that the non-discrimination requirement of FRAND “serves
to level the playing field among competitors” by requiring a patent holder to
provide similar terms to similarly situated licensees.
2
We note, however, that “[t]o preserve a jury instruction error, a party must make
‘a specific, formal, on-the-record objection.’” Eastman Chem. Co. v. Plastipure, Inc., 775
F.3d 230, 241 (5th Cir. 2014) (quoting Jimenez, 660 F.3d at 845). Our precedent requires
parties to meticulously comply with the instructions of Federal Rule of Civil Procedure 51
in order to properly preserve an alleged error for appeal. See id.; Jimenez, 660 F.3d at 845;
Kelly v. Boeing Petroleum Servs., Inc., 61 F.3d 350, 361 (5th Cir. 1995); Russell v. Plano Bank
& Tr., 130 F.3d 715, 719 (5th Cir. 1997) (“We have repeatedly held that a general objection
to the district court’s jury instructions is insufficient to satisfy Rule 51.”); Taita Chem. Co.
v. Westlake Styrene, LP, 351 F.3d 663, 668 (5th Cir. 2003) (holding that an objection was
inadequate where the party only generally objected “to every one of the numbered charges
proposed and offered by [the party], one through 103, to the extent they were not
incorporated in the final charges”).
8
Case: 19-40566 Document: 00515999668 Page: 9 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
HTC has failed to demonstrate that the district court committed
reversible error in refusing to give HTC’s proposed instructions. To begin
with, HTC’s requested instructions were not “substantially correct”
statements of the law. Id. Proposed jury instructions that rely on inapplicable
law cannot be “substantially correct.” See United States v. Spalding, 894 F.3d
173, 188 (5th Cir. 2018) (holding that instructions that relied on a case that
“was inapposite” did not need to be given); United States v. Webster, 162 F.3d
308, 322–23 (5th Cir. 1998) (“Because the factor has nothing to do with
Webster’s conduct or intent, his proffered general instruction would have
incorrectly stated the law.”).
Here, all of HTC’s proposed instructions miss the mark because they
rely on inapplicable law. Ericsson’s FRAND commitment is part of an
agreement that it made with ETSI. Accordingly, the district court held, and
HTC has not challenged on appeal, that Ericsson’s FRAND commitment “is
‘governed by the laws of France,’ and is ‘solely [] contractual [in] nature.’”
Whether Ericsson’s offer complied with the terms of its agreement with
ETSI is thus a matter of French contract law. See, e.g., Microsoft Corp. v.
Motorola, Inc., 795 F.3d 1024, 1040 (9th Cir. 2015) (explaining that a similar
case was “not a patent law action” but a breach-of-contract case); Apple, Inc.
v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061, 1081 (W.D. Wis. 2012)
(applying “French law to Apple’s claims involving ETSI” in a breach-of-
FRAND case); King Fung Tsang & Jyh-An Lee, Unfriendly Choice of Law in
FRAND, 59 Va. J. Int’l L. 220, 263 (2019) (“Generally, U.S. cases have
characterized all three FRAND issues as contractual.”).
In spite of this, HTC’s proposed jury instructions are based on United
States patent law. HTC did not even attempt to justify its proposed
instructions under French contract law or to argue that French contract law
and United States patent law are equivalent. Nor did it try to support its
9
Case: 19-40566 Document: 00515999668 Page: 10 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
position by pointing to the specific, governing provisions of Ericsson’s
agreement with ETSI. Because HTC relied on inapplicable law to support
its proposed instructions, the district court was well within its discretion in
refusing to give those instructions.
Even if United States law were to govern the case, none of HTC’s
instructions would have been required. For the proposed apportionment
instructions, HTC relied on patent-damages cases for support, not other
breach-of-contract cases. In patent-damages cases involving a FRAND
commitment, the Federal Circuit has held that “district courts must make
clear to the jury that any royalty award must be based on the incremental
value of the invention, not the value of the standard as a whole or any
increased value the patented feature gains from its inclusion in the standard.”
D-Link Sys., Inc., 773 F.3d at 1235. In such cases, then, a general
apportionment instruction may be necessary. See id. HTC urges us to adopt
a similar requirement in this case by holding that the district court abused its
discretion in refusing to provide HTC’s requested instructions. The United
States as an amicus supports the use of a general apportionment instruction
where, as here, the agreement at issue does not specifically define what
constitutes FRAND.
However, as other courts have recognized, a breach-of-contract case
involving a breach-of-FRAND claim “is not a patent law action.” Microsoft
Corp., 795 F.3d at 1040. The act of determining the value of a standard-
essential patent for purposes of calculating damages is distinct from assessing
whether a particular offer made during unique licensing negotiations was fair
and reasonable. So, while “the Federal Circuit’s patent law methodology
can serve as guidance in contract cases on questions of patent valuation,” id.,
it does not explicitly govern the interpretation of contractual terms, even
terms that are intertwined with patent law. Cf. Bonzel v. Pfizer, Inc., 439 F.3d
10Case: 19-40566 Document: 00515999668 Page: 11 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
1358, 1363 (Fed. Cir. 2006) (“The nature of this contract action does not
change because the contract is a patent license . . . .”). Thus, although the
district court may have been permitted to use United States patent-law
principles to guide its instructions (assuming that United States law were to
apply), it was not obligated to do so.
As for the non-discrimination instruction that HTC requested, it is
erroneous because it flatly contradicts the agreement between Ericsson and
ETSI. No federal court of appeals has directly considered a FRAND non-
discrimination claim in detail. But as with the other elements of FRAND,
“[t]rial courts should . . . consider the patentee’s actual [F]RAND
commitment in crafting the jury instruction.” D-Link Sys., Inc., 773 F.3d at
1231 (discussing jury instructions in a patent-damages case). HTC’s
proposed non-discrimination instruction would do away with any
“difference in terms” offered to potential licensees if the difference “creates
a competitive disadvantage for a prospective licensee.” The proposed
instruction described the non-discrimination prong of FRAND as something
designed to “level the playing field among competitors . . . by prohibiting
preferential treatment that imposes different costs to different competitors.”
HTC’s proposed instruction would transform the non-discrimination
element of FRAND into a most-favored-licensee approach, which would
require Ericsson to provide identical licensing terms to all prospective
licensees. But ETSI has already rejected a most-favored-licensee approach
and chosen to give patent holders some flexibility in coming to reasonable
agreements with different potential licensees. See J. Gregory Sidak, Fair and
Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered
by a FRAND or RAND Commitment, 2 Criterion J. on Innovation 301, 313–14
(2017). Giving HTC’s proposed instruction to the jury would have caused
confusion regarding the scope of the non-discrimination element of the actual
11
Case: 19-40566 Document: 00515999668 Page: 12 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
FRAND agreement between Ericsson and ETSI. The district court was well
within its discretion to refuse to give such an instruction. 3
Even if HTC’s proposed instructions were substantially correct
statements of the law, we still would not reverse the district court’s decision
to exclude them. Such an exclusion would constitute reversible error only if
the proposed instructions “concerned an important point in the trial such
that the failure to instruct the jury on the issue seriously impaired [HTC’s]
ability to present a given [claim].” Kanida, 363 F.3d at 578 (quoting
McClatchy, 249 F.3d at 356). HTC has not demonstrated that this is the case.
On appeal, HTC contends that the district court should have
instructed the jury to apportion the value of Ericsson’s patents from the end
product and base the reasonable royalty rate “on the incremental value that
the patented invention adds to the end product.” But whether
apportionment was necessary was not an issue at trial. Both parties agreed
that apportionment was required and that the patent’s value needed to be
based on the value that the patent added to the end product and not on any
value derived from being a part of the standard.
Only the methodology for determining the patent’s value was disputed.
HTC fought to convince the jury that the patent’s apportioned value should
3
HTC’s proposed instructions also depart from the leading model instructions
provided by the Federal Circuit Bar Association for patent-damages cases involving
FRAND terms. Those instructions state that the jury “must consider the following two
factors in setting a royalty: (1) Any royalty for the patented technology must be apportioned
from the value of the standard as a whole; and (2) The royalty must be based on the value
of the invention, not any value added by the standardization of that invention. Generally,
the non-discrimination requirement of FRAND means that similarly situated firms should
receive similar terms and conditions (or have access to the same range of terms and
conditions).” Model Pat. Jury Instructions § 5.11 (Federal Circuit Bar Association 2020).
HTC’s proposed instructions go well beyond these straightforward directives.
12
Case: 19-40566 Document: 00515999668 Page: 13 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
be based on the smallest salable patent-practicing unit rather than the net
value of the device. Ericsson agreed that apportionment was necessary; it
simply thought that the best way to determine the value that its patents added
to the end product was by looking to the negotiated-for prices that others had
paid to license those patents. Thus, HTC’s proposed apportionment
instructions did not concern an important point at trial because they
addressed an undisputed issue.
Moreover, the failure to give HTC’s three proposed instructions in
no way impaired HTC’s ability to present its claims. In other cases, we have
declined to correct the erroneous exclusion of jury instructions when the jury
instructions that were given were substantively correct “and trial counsel
was able to present the jury with the inferences they were permitted to make
from the evidence.” Kanida, 363 F.3d at 579; see also United States v. Cain,
440 F.3d 672, 674–75 (5th Cir. 2006) (holding that the exclusion of a
requested instruction was not reversible error because the defendant “was in
no way precluded from producing evidence that” supported his position,
“nor was he precluded from arguing that the Government had failed to
present sufficient evidence” to convict). Under those circumstances, we
reasoned that the party “was free to tailor her argument to fit the court’s
instructions and to argue based upon those instructions that the jury” should
make certain inferences in her favor. Kanida, 363 F.3d at 579. This meant
that her ability to present her claim was unimpaired, which in turn meant that
the error was not reversible. See id.In this case, we likewise conclude that there is no reversible error.
Even assuming arguendo that the district court had incorrectly excluded the
apportionment instructions, its other FRAND instructions were legally
accurate. And, as in Kanida, HTC presented its evidence and argued to the
jury that apportionment was required and that HTC’s apportionment
13
Case: 19-40566 Document: 00515999668 Page: 14 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
method was the superior one. HTC then explicitly covered the substance of
its proposed instructions during its closing arguments. HTC was fully able
to present its case to the jury. The absence of its requested instructions did
not affect its ability to present its case to the jury. HTC has therefore failed
to demonstrate both that the district court was wrong to exclude HTC’s
proposed jury instructions and that any alleged error is reversible by this
court. 4
III.
HTC next challenges the district court’s declaratory judgment—
which ruled that Ericsson’s licensing offers to HTC were FRAND—as
legally erroneous. HTC contends that “[g]iven the acknowledged,
substantial disparities between license terms offered to HTC and several of
its competitors, the district court could not hold those terms
nondiscriminatory as a matter of law.”
HTC’s contention is little more than a sufficiency-of-the-evidence
challenge to the jury verdict masquerading as a challenge to the declaratory
judgment. It is true that the jury verdict and the declaratory judgment vary
slightly—the first finding that Ericsson’s offers were not a breach of FRAND
and the second holding that Ericsson’s offers actually were FRAND.
Therefore, the evidentiary threshold for each is also slightly different. Cf.
United States v. Espinosa-Cerpa, 630 F.2d 328, 330–33 (5th Cir. 1980)
(explaining that “an acquittal is not to be taken as the equivalent of a finding
of the fact of innocence”); Stevenson v. Sears, Roebuck & Co., 713 F.2d 705,
4
We hold that HTC fails on both the first and third prongs of abuse-of-discretion
review. Our analyses of each prong constitute independent bases for rejecting HTC’s
position, and as such they are not dicta. “In this circuit, ‘alternative holdings are binding
precedent and not obiter dicta.’” Ramos-Portillo v. Barr, 919 F.3d 955, 962 n.5 (5th Cir.
2019) (quoting Whitaker v. Collier, 862 F.3d 490, 496 n.14 (5th Cir. 2017)).
14
Case: 19-40566 Document: 00515999668 Page: 15 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
710–11 (Fed. Cir. 1983) (explaining that failure to prove a patent invalid does
not automatically establish validity).
Nevertheless, in this case, the evidence used to establish that
Ericsson’s offers did not breach its FRAND obligations is also the same
evidence used to establish that Ericsson’s offers affirmatively were FRAND.
Although the declaratory judgment was a conclusion of law, it expressly
relied on the facts as found by the jury. Challenging the evidentiary
sufficiency of the declaratory judgment thus also challenges the sufficiency
of the evidence supporting the jury’s verdict.
To properly preserve such a challenge, HTC needed to file a Rule
50(b) motion. See Roberts v. Wal-mart Stores, Inc., 7 F.3d 1256, 1259 (5th Cir.
1993). It failed to do so. “Absent such a motion, . . . an appellate court is
‘powerless’ to review the sufficiency of the evidence after trial.” Ortiz v.
Jordan, 562 U.S. 180, 189 (2011) (quoting Unitherm Food Sys., Inc. v. Swift-
Eckrich, Inc., 564 U.S. 394, 405 (2006)). We are therefore powerless to
review the sufficiency of the evidence supporting the jury’s verdict, and by
extension the sufficiency of the evidence supporting the district court’s
declaratory judgment. 5
Even if had HTC adequately preserved its challenge, we would not
reverse the district court’s declaratory judgment. A court should grant a
Rule 50(b) motion “only if ‘the facts and inferences point so strongly and
overwhelmingly in favor of one party that the Court believes that reasonable
men could not arrive at a contrary verdict.’” Brown v. Bryan Cnty., 219 F.3d
5HTC also argues that if we were to vacate or reverse the jury verdict and
declaratory judgment, then we should also vacate the prevailing-party determination and
costs awarded by the district court. Because we affirm the district court’s judgment in all
respects, we need not address this issue.
15
Case: 19-40566 Document: 00515999668 Page: 16 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
450, 456 (5th Cir. 2000) (quoting Boeing v. Shipman, 411 F.2d 365, 374 (5th
Cir. 1969) (en banc), overruled on other grounds by Gautreaux v. Scurlock
Marine, Inc., 107 F.3d 331 (5th Cir. 1997) (en banc)). Moreover, on appeal we
would “consider all of the evidence, drawing all reasonable inferences and
resolving all credibility determinations in the light most favorable to the non-
moving party”—in this case, Ericsson. Id. The same standards would apply
to HTC’s challenge to the declaratory judgment because the declaratory
judgment relies so heavily on the facts as found by the jury.
Ericsson presented substantial evidence to support its position that it
had offered FRAND terms to HTC. Ericsson pointed to licenses with
similarly situated companies to HTC that had terms that were remarkably
similar to those offered to HTC. This supported both its valuation
arguments (suggesting that the value of Ericsson’s patents was best
determined by looking to comparable licenses) and its non-discrimination
arguments (suggesting that other similarly situated competitors had received
similar licenses).
HTC countered with evidence regarding the value of Ericsson’s
patents using its own valuation method based on the smallest salable patent-
practicing unit. HTC further argued that Ericsson’s licenses with companies
like Apple, Samsung, and Huawei were much more favorable, but Ericsson
presented additional evidence indicating that those companies were not
similarly situated to HTC due to a variety of factors. The jury was not
required to accept HTC’s arguments or evidence regarding valuation or non-
discrimination. Indeed, as the district court concluded, the jury must have
rejected HTC’s evidence and arguments in order to conclude that HTC had
not carried its burden of proving that Ericsson’s offers to HTC were not
FRAND. And the evidence that HTC points to in its briefing before this
court is not so overwhelmingly in HTC’s favor that, even drawing all
16
Case: 19-40566 Document: 00515999668 Page: 17 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
inferences in Ericsson’s favor, no reasonable jury could have found for
Ericsson. Accordingly, even if we had power to review HTC’s challenge to
the district court’s declaratory judgment, we would still reject it.
IV.
Finally, HTC challenges the district court’s exclusion at trial of
testimony and a report proffered by an expert used by Ericsson in prior
litigation but not in this litigation. HTC wanted to demonstrate that
Ericsson’s experts in a previous case had calculated royalty rates in
comparable licensing agreements at a lower rate than the one offered to HTC.
The district court granted Ericsson’s motion in limine to exclude this
evidence, yet HTC tried to present it to the jury via cross-examination of
another expert. The district court excluded the evidence as hearsay and
HTC now appeals the exclusion of the report and testimony of one expert in
particular.
We review evidentiary rulings for abuse of discretion. EEOC v.
Manville Sales Corp., 27 F.3d 1089, 1092–93 (5th Cir. 1994). “A trial court
abuses its discretion when its ruling is based on an erroneous view of the law
or a clearly erroneous assessment of the evidence.” Hinojosa v. Butler, 547
F.3d 285, 292 (5th Cir. 2008) (quoting United States v. Yanez Sosa, 513 F.3d
194, 200 (5th Cir. 2008)). Even where error is present, we will not vacate a
judgment “if the error does ‘not affect any party’s substantial rights.’” Id.(quoting Fed. R. Civ. P. 61).
Here, HTC sought to cross-examine Ericsson’s expert, Mr. Mills,
using testimony from an expert that Ericsson had used in a prior litigation,
Mr. Kennedy. The district court excluded this testimony as hearsay. HTC
insists that Kennedy’s prior testimonial evidence is not hearsay but is instead
a statement of an opposing party. Under Federal Rule of Evidence
17
Case: 19-40566 Document: 00515999668 Page: 18 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
801(d)(2)(C), a statement that “is offered against an opposing party” and
“was made by a person whom the party authorized to make a statement on
the subject” is not hearsay. According to HTC, Ericsson’s previous expert
was a person given authority to speak on Ericsson’s behalf in court on the
topic of patent valuation.
We disagree. Although “[t]here are circumstances where the
testimony of an expert witness can serve as an adverse admission against the
presenting party,” we have explained that “[s]uch circumstances must be
narrowly construed.” Fox v. Taylor Diving & Salvage Co., 694 F.2d 1349, 1355
(5th Cir. 1983). Those cases where we have allowed expert testimony to
serve as a party admission have been limited to circumstances where the
expert was an agent of the opposing party or where the expert’s statements
or reports were prepared for the very case in which admission was sought.
See, e.g., id. at 1354–55 (“The expert testified at a very early stage in the
plaintiff’s case.”); Collins v. Wayne Corp., 621 F.2d 777, 781–82 (5th Cir.
1980), superseded on other grounds by amendment to Fed. R. Evid. 103(a), as
recognized in Mathis v. Exxon Corp., 302 F.3d 448, 459 n.16 (5th Cir. 2002);
Theriot v. J. Ray McDermott & Co., 742 F.2d 877, 882 (5th Cir. 1984)
(explaining that Collins stands for the proposition that “an agent’s statement,
made within the scope of his authority . . . is admissible against the principal
as an admission”).
That is not the case here. Kennedy was not an agent of Ericsson
simply by virtue of acting as an expert witness in a prior case. “In theory,
despite the fact that one party retained and paid for the services of an expert
witness, expert witnesses are supposed to testify impartially in the sphere of
their expertise.” Kirk v. Raymark Indus., Inc., 61 F.3d 147, 164 (3d Cir. 1995).
This is different from an agent who is hired to investigate and prepare a report
on an incident for the company’s own purposes. See id. at 163–64. “Since
18
Case: 19-40566 Document: 00515999668 Page: 19 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
an expert witness is not subject to the control of the party opponent with
respect to consultation and testimony he or she is hired to give, the expert
witness cannot be deemed an agent.” Id. at 164; see also Vicki Franks, An
Expert’s Expertise: Is Expert Deposition Testimony Impermissible Hearsay or an
Admission by a Party-Opponent at Trial?, 36 Am. J. Trial Advoc. 263, 299–300
(2012) (“‘[A]uthority’ includes an underlying premise that a person is
‘authorized’ to speak on behalf of a company or organization; there is a
presumed supervisory role by the party giving the authorization and
underlying commonality in purpose. That does not exist with an expert. An
expert acts as an independent source for objective evidence . . . .” (footnotes
omitted)).
Kennedy’s testimony was prepared and given at a different time for a
different case. Although Kennedy’s testimony may touch on the same
general topic as Mills’s, Kennedy’s valuation was necessarily given for a
different purpose and dealt with a distinct licensing situation. It had nothing
to do with the present dispute over the licensing negotiations between
Ericsson and HTC. The district court was well within its discretion in
excluding Kennedy’s prior opinions.
* * *
Finding no error in the district court’s jury instructions, declaratory
judgment, or evidentiary rulings, we AFFIRM the district court’s judgment.
19
Case: 19-40566 Document: 00515999668 Page: 20 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
Stephen A. Higginson, Circuit Judge, concurring in the judgment:
I write separately because, in my view, the district court erred when it
refused to incorporate a mutually-requested apportionment instruction.
However, because the district court’s error did not seriously impair HTC’s
ability to present its case, I concur in the judgment.
Following the district court’s instruction-by-instruction review of its
proposed final jury instructions, HTC objected to the exclusion of certain
instructions, stating: “we’d like to request that certain instructions relating
to various patent issues, the determination of FRAND and the like, be
included.” 1 HTC then specifically identified each of the requested
instructions, referring to them by the names and numbers used in HTC’s
proposed jury instructions. HTC also directed the district court to
supporting authorities for each of its instructions, explaining that the
instructions were “based upon the authorities” cited in its proposed jury
instructions. HTC’s apportionment instructions, in particular, were
supported by a citation to Ericsson, Inc. v. D-Link Systems, Inc., 773 F.3d 1201,
1232 (Fed. Cir. 2014). As detailed below, I conclude that D-Link presents
significant support for the apportionment instructions.
I. Apportionment
To understand whether HTC’s apportionment instructions were
1
Prior to the formal, on-the-record, charge conference, the district court held an
informal charge conference—in chambers and off-the-record—during which the parties
apparently engaged in a “fulsome discussion” about the proposed jury instructions.
Unfortunately, there is no record of what transpired during this informal charge
conference, even though the parties repeatedly referred back to it during the formal charge
conference. I would have benefitted from the complete record. Fed. R. Civ. P. 51(b)(2);
see also King v. Ford Motor Co., 597 F.2d 436, 440 n.3 (5th Cir. 1979); cf. Johnson v. Helmerich
& Payne, Inc., 892 F.2d 422, 424 n.3 (5th Cir. 1990).
20
Case: 19-40566 Document: 00515999668 Page: 21 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
substantially correct statements of law, I take guidance from the Federal
Circuit, which regularly confronts questions of patent valuation. 2 When a
jury is asked to value an infringed SEP, the Federal Circuit has held that the
“jury must be instructed” to “apportion damages for SEPs that cover only a
small part of a standard.” D-Link, 773 F.3d at 1232–33; see also VirnetX, Inc.
v. Cisco Sys., Inc., 767 F.3d 1308, 1326–27 (Fed. Cir. 2014). In D-Link, a jury
was asked to determine whether D-Link infringed Ericsson’s patents and,
once it found infringement, to approximate damages for that infringement.
D-Link, 773 F.3d at 1214. The judge then fixed an ongoing royalty award for
Ericsson’s infringed patents. Id. The Federal Circuit vacated the jury’s
damages award and the ongoing royalty award because the district court did
not properly “caution the jury about the importance of apportionment” in
2
Ericsson takes the position that American caselaw is inapplicable because the
ETSI FRAND commitment is governed by French law. I am not convinced. First, neither
party has presented evidence that foreign law differs from American law on this issue.
Indeed, Ericsson states in its brief “under French law and American law alike, the
factfinder construes the terms [of an ambiguous contract] based on evidence of ‘the parties’
common intentions’ and the ‘prevailing industry standard or approach.’” As Ericsson has
argued elsewhere, “[w]here neither party presents evidence that foreign law differs from
American law – as here – a U.S. court must ‘apply [its] own law to the case.’” Corrected
Non-Confidential Brief for Appellants Ericsson Inc. and Telefonaktiebolaget LM Ericsson
at 39, TCL Comm. Tech. Holdings Ltd. v. Telefonaktiebolaget LM Ericsson, 943 F.3d 1360 (5th
Cir. 2019), 2018 WL 3440544, at *39–40 (quoting The Scotland, 105 U.S. 24, 29 (1882));
Second, Ericsson itself cited to American caselaw to support its proposed jury instructions.
This means that both parties and the district court relied on American law when assessing
the propriety of the proposed jury instructions. Third, Ericsson does not dispute that the
jury should engage in an apportionment analysis of some type when assessing a FRAND
rate. Indeed, Ericsson emphasizes on appeal that its experts told the jury just that:
“Nobody disputed at trial that the FRAND royalty must reflect patent value, apart from
the value of other features or standardization itself.” Fourth, as Ericsson told the district
court, “no other country today employs juries in adjudicating patent matters.” This leaves
a dearth of caselaw from any jurisdiction beyond American borders about how to instruct a
jury valuing a patent portfolio.
21
Case: 19-40566 Document: 00515999668 Page: 22 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
the jury instructions. Id. at 1228, 1232–33, 1236.
The Federal Circuit held that “a royalty award for a SEP must be
apportioned to the value of the patented invention (or at least to the
approximate value thereof), not the value of the standard as a whole.” Id. at
1233; see also Commonwealth Sci. & Indus. Research Org. v. Cisco Sys., Inc., 809
F.3d 1295, 1305 (Fed. Cir. 2015) (“[R]easonable royalties for SEPs generally
. . . must not include any value flowing to the patent from the standard’s
adoption.”). Instructing a jury on apportionment ensures that SEP holders
are “only . . . compensated for the added benefit of their inventions,” not for
the value of “unpatented features reflected in the standard” or “value added
by the standard’s adoption of the patented technology.” D-Link, 773 F.3d at
1232–33.
The Federal Circuit’s unmistakable command that a jury assessing
patent value must be instructed on apportionment comports with settled
tenets of patent law. Indeed, the Supreme Court recognized long ago that a
patentee “must in every case be given evidence tending to separate or
apportion the defendant’s profits and the patentee’s damages between the
patented feature and the unpatented features, and such evidence must be
reliable and tangible.” Garretson v. Clark, 111 U.S. 120, 121 (1884). These
legal requirements are rooted in practical fairness considerations—not all of
the value of a particular standard can be attributed to its constituent parts.
Instead, “[o]nce incorporated and widely adopted, . . . technology is not
always used because it is the best or the only option; it is used because its use
is necessary to comply with the standard.” D-Link, 773 F.3d at 1233. A
widespread cellular network or patent contributing to that network, even if
of average quality, is extraordinarily valuable merely because of its
universality. Apportionment allocates that value appropriately and avoids
any artificial windfall to the SEP holder. Thus, D-Link directs that the failure
22
Case: 19-40566 Document: 00515999668 Page: 23 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
to instruct a jury on proper apportionment is error when the jury is asked to
assess patent value.
D-Link, though decided in the patent infringement context, applies
instructively to breach-of-FRAND cases. While a breach-of-FRAND case
“is not a patent law action,” the “Federal Circuit’s patent law methodology
can serve as guidance in contract cases on questions of patent valuation.” 3
Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1040 (9th Cir. 2015); Bonzel
v. Pfizer, Inc., 439 F.3d 1358, 1363 (Fed. Cir. 2006) (noting that a federal
circuit court outside of the Federal Circuit may “deem[] it appropriate to
apply the law of patent infringement” to a breach of contract case in which
the contract is a patent license). That is because a jury assessing patent
infringement damages undertakes the same task of assessing whether an
offered rate is FRAND. See id.; Realtek Semiconductor, Corp. v. LSI Corp., No.
C-12-3451-RMW, 2014 WL 2738226, at *6 (N.D. Cal. June 16, 2014)
(“[D]etermining damages for patent infringement is equivalent to declaring
the parties’ rights under the RAND contract.”). After finding patent
infringement, a jury is tasked with “‘award[ing] the claimant damages
adequate to compensate for the infringement, but in no event less than a
reasonable royalty for the use made of the invention by the infringer.’”
VirnetX, 767 F.3d at 1326 (quoting 35 U.S.C. § 284). Similarly, a jury
assessing whether a SEP holder has breached its FRAND obligation must
determine the value of the SEP holder’s portfolio and compare that value to
the offered rates. Valuing the portfolio requires apportionment, just as
valuing a patent requires apportionment. See id.
3
See generally J. Gregory Sidak, Apportionment, FRAND Royalties, and Comparable
Licenses After Ericsson v. D-Link, 2016 U. Ill. L. Rev. 1809, 1864–68 (2016); Richard
H. Stern, Who Should Own the Benefits of Standardization and the Value it Creates?, 19
Minn. J.L. Sci. & Tech. 107, 170–71 & n.271 (2018).
23
Case: 19-40566 Document: 00515999668 Page: 24 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
By refusing to instruct the jury on apportionment, the district court
did not just put aside the Federal Circuit’s D-Link decision, but also
contravened the wishes of the parties. Indeed, HTC and Ericsson both
requested an apportionment instruction. Ericsson’s experts and corporate
representative agreed at trial that the value of Ericsson’s SEP portfolio must
be isolated from the value of standardization. And even the United States, as
amici, agrees that a jury in a breach of FRAND matter should be instructed
on apportionment. 4 The fundamental importance of an apportionment
instruction was evidence to each party at trial, as well as the United States as
an amici participant before us.
II. Whether the District Court Abused its Discretion in Refusing the
Requested Jury Instructions
Given that HTC preserved its challenge to the district court’s
exclusion of its apportionment instructions, I would reach the merits as
follows.
“We review a district court’s jury instructions for abuse of
discretion.” Jowers v. Lincoln Elec. Co., 617 F.3d 346, 352 (5th Cir. 2010).
Although trial judges are afforded “wide latitude in fashioning jury
instructions,” the “trial court must ‘instruct the jurors, fully and correctly,
on the applicable law of the case, and . . . guide, direct, and assist them
toward an intelligent understanding of the legal and factual issues involved in
their search for truth.’” Bender v. Brumley, 1 F.3d 271, 276 (5th Cir. 1993)
(quoting Charles A. Wright & Arthur R. Miller, 9 Federal Practice and
Procedure § 2556 (1971)).
4
The United States was similarly emphatic during oral argument. Oral Argument
Tr. at 28:00-28:05 (“In a case where there is a more general FRAND commitment as there
is here, yes, we think an apportionment instruction must be given.”).
24
Case: 19-40566 Document: 00515999668 Page: 25 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
Similarly, we “review[] a district court’s refusal to provide a requested
jury instruction for abuse of discretion.” Kanida v. Gulf Coast Med. Pers. LP,
363 F.3d 568, 578 (5th Cir. 2004) (emphasis added) (quoting United States v.
McClatchy, 249 F.3d 348, 356 (5th Cir. 2001)). “[T]he district court’s refusal
to give a requested jury instruction constitutes reversible error ‘only if the
instruction 1) was a substantially correct statement of law, 2) was not
substantially covered in the charge as a whole, and 3) concerned an important
point in the trial such that the failure to instruct the jury on the issue seriously
impaired the party’s ability to present a given claim.’” Id. (quoting
McClatchy, 249 F.3d at 356) (alterations omitted); see also Travelers Cas. &
Sur. Co. of Am. v. Ernst & Young LLP, 542 F.3d 475, 489 (5th Cir. 2008);
Russell v. Univ. of Tex. of Permian Basin, 234 F. App’x 195, 207 (5th Cir.
2007). Finally, “a party is entitled to reversal for a district court’s failure to
give a particularly requested instruction only if the jury was misled by the
given instructions.” 5 Baker v. Canadian Nat’l/Ill. Cent. R.R., 536 F.3d 357,
364 (5th Cir. 2008); Folks v. Kirby Forest Indus. Inc., 10 F.3d 1173, 1175 (5th
Cir. 1994); Pierce v. Ramsey Winch Co., 753 F.2d 416, 425 (5th Cir. 1985).
HTC’s apportionment instructions were substantially correct
statements of law and were not covered in any other portion of the jury
charge. Nevertheless, I do not conclude that the district court’s refusal to
include the apportionment instruction “seriously impaired [HTC]’s ability
to present [its] claim.” See Kanida, 363 F.3d at 578. Therefore, while I
5
I note for future clarification that numerous decisions articulating this court’s
standard of review for omitted jury instructions do not include this fourth element. See,
e.g., Kanida, 363 F.3d at 578; Travelers Cas. & Sur. Co. of Am., 542 F.3d at 489. Because I
conclude HTC’s ability to present its case was not “substantially impaired,” I do not
consider whether the instructions as given misled the jury—and therefore do not address
whether this fourth element is necessary to the analysis.
25
Case: 19-40566 Document: 00515999668 Page: 26 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
perceive that the district court erred by refusing to instruct the jury on
apportionment, the error is not reversible.
A. HTC’s Proposed Instructions Were “Substantially” Correct
HTC’s proposed instructions on apportionment consisted of the
following:
Reasonable Royalty – Apportionment Generally
When the product(s) that are the subject to a claim of royalties
by an SEP holder have both patented and unpatented features,
a “reasonable royalty” requires that the value of the patented
features is apportioned from the non-patented features using
reliable and tangible evidence.
Reasonable Royalty – Apportionment of Royalties in FRAND
context
When dealing with SEPs subject to FRAND obligations,
apportionment requires that the patentee’s royalty be
premised on the value of the SEP holder’s patented
invention(s), not any value added by the standard’s adoption
of the patented invention(s). That is, a FRAND royalty must
reflect only the value of the patented invention(s) and not the
additional value that resulted from the patent(s)’ inclusion in
the standard or the value resulting from the standard’s success
in the marketplace.
Additionally, in this context, to ensure that a FRAND royalty
is based on the incremental value that the [SEP holder’s]
patented invention(s) add to the product(s), the SEP holder’s
patented invention(s) must be apportioned from all of the other
technology reflected in the standard that is not patented by the
26
Case: 19-40566 Document: 00515999668 Page: 27 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
SEP holder.
The essential requirement is that the ultimate reasonable
royalty award must be based on the incremental value that the
patented invention adds to the end product.
These are “substantially” correct statements of law. Kanida, 363 F.3d at 578.
The instructions are largely consistent with pattern jury instructions from a
variety of sources. Model Patent Jury Instructions § 6.7 (Fed.
Circuit Bar Ass’n July 2016); Model Patent Jury
Instructions § 5.10 (United States Dist. Court for the N.
Dist. of Cal. Dec. 2018); Model Patent Jury Instructions
§§ 10.2.5.1, 10.2.5.4 (Am. Intellectual Prop. Law Ass’n 2018).
Further, these instructions mimic language from leading cases on
apportionment. See Garretson, 111 U.S. at 121; D-Link, 773 F.3d at 1232–33.
For instance, although Ericsson now contends that requiring “reliable and
tangible evidence” that apportionment has been accounted for is too high of
a bar, Garretson uses that standard verbatim. Garretson, 111 U.S. at 121.
Moreover, HTC’s proposed instructions incorporate the fundamental
requirement of apportionment, asking that factfinders carefully isolate the
value of SEPs from the value of standardization more broadly. See D-Link,
773 F.3d at 1232; Commonwealth Sci., 809 F.3d at 1304–05; Broadcom Corp. v.
Qualcomm Inc., 501 F.3d 297, 314 (3d Cir. 2007).
At the charge conference, Ericsson also appears to have agreed that
the instructions were legally correct. Instead of objecting to the instructions
because they were legally erroneous, Ericsson merely objected that the
instructions were “unnecessary” and “potentially confusing to the jury.”
Ericsson now targets the legal accuracy of HTC’s proposed apportionment
instructions. HTC’s proposed apportionment instructions state that “the
27
Case: 19-40566 Document: 00515999668 Page: 28 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
value of the patented features” should be apportioned “from the non-
patented features.” Ericsson contends that this is the wrong standard.
Instead, Ericsson argues, a reasonable royalty award that accounts for
apportionment should be “based on the incremental value that the patented
invention adds to the end product.” Id. at 1226. But HTC’s broader
instructions contained exactly the language Ericsson agrees should have been
included: “The essential requirement is that the ultimate reasonable royalty
award must be based on the incremental value that the patented invention
adds to the end product.” 6
B. HTC’s Proposed Instructions Were Not Covered Elsewhere
HTC’s proposed instructions “w[ere] not substantially covered in the
charge as a whole.” Kanida, 363 F.3d at 578. The district court gave the jury
no instructions regarding patent valuation or apportionment. The district
court only instructed the jury regarding a breach-of-contract claim and then
told the jury that there is no set methodology for determining a FRAND rate.
C. HTC’s Ability to Present its Case Was Not Substantially Impaired
While the district court erred by refusing to include an apportionment
instruction, I concur in the judgment because the absence of such an
instruction in this particular case did not “seriously impair[]” HTC’s very
6
I note that, contrary to concerns expressed by Ericsson and amici, HTC’s
proposed apportionment instructions do not dictate any particular patent valuation
methodology. HTC’s apportionment instructions do not require use of the SSPPU as the
royalty base. HTC’s apportionment instructions merely seek to alert the jury to the risk of
awarding unearned, inflated, and unapportioned value to a given SEP portfolio. Ericsson’s
point—that SSPPU may not be the appropriate royalty base and should not be mandated
to the jury—is well taken. See Commonwealth Sci., 809 F.3d at 1302–03; D-Link, 773 F.3d
at 1226–28. But HTC’s proposed instructions do not collide with that concern, nor do
HTC’s instructions even preclude the jury from relying on comparable license evidence.
28
Case: 19-40566 Document: 00515999668 Page: 29 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
“ability to present” its position. Id.
The district court did nothing to prevent HTC from presenting the
jury with evidence about the importance of apportionment. And that is
exactly what HTC did: repeatedly clarifying that the jury needed to engage
in apportionment. At times, Ericsson’s witnesses even agreed. And, to the
extent Ericsson presented testimony tying the perceived market value of
standardized cellular connectivity to Ericsson’s SEPs, HTC could have—but
did not—object to this testimony on apportionment grounds. HTC was not
seriously impaired from presenting the evidence necessary to convince the
jurors that apportionment was appropriate.
Moreover, the jury instructions actually administered left the jury
with discretion. Specifically, with respect to FRAND, the district court
instructed the jury as follows:
Whether or not a license is FRAND will depend upon the
totality of the particular facts and circumstances existing
during the negotiations and leading up to the license.
Ladies and gentlemen, there is no fixed or required
methodology for setting or calculating the terms of a FRAND
license rate.
Far from impairing HTC’s case or prohibiting application of any given
theory, the district court gave the jury latitude to apportion value as the
consensus of expert testimony told it to. 7
7
Although the jury expressed some confusion during deliberations, the jury’s
confusion was generalized, asking the district court to “help us frame question #1 in
different terms” and stating that the jury had “great difficulty getting jurors to agree on
what the question is asking.” Question one asked “whether HTC prove[d] by a
preponderance of the evidence that Ericsson breached its contractual obligation to offer
29
Case: 19-40566 Document: 00515999668 Page: 30 Date Filed: 08/31/2021
No. 19-40566
c/w No. 19-40643
III. Conclusion
In my view, the district court erred when it did not instruct the jury to
isolate the value of Ericsson’s SEPs from the value of standardization. The
district court denied proposed apportionment instructions from both parties
and diverged from the fundamental apportionment-instruction requirement
currently required by the Federal Circuit. I recognize that this case presents
what apparently is the first breach-of-FRAND jury trial in this country,
making the district court’s omission understandable. But, although it may be
the first such trial, it is unlikely to be the last. Indeed, recently, the Supreme
Court was asked to consider whether a FRAND-bound SEP holder has a jury
trial right in a proceeding seeking specific performance. TCL Comm. Tech.
Holdings Ltd. v. Telefonaktiebolaget LM Ericsson, 943 F.3d 1360 (Fed. Cir.
2019), cert. denied, 141 S. Ct. 239 (2020). If more FRAND disputes are
submitted to juries, proper instructions about apportionment and the
FRAND obligation generally will be significant.
In short, because I conclude that the absence of apportionment
instructions did not “substantially impair” HTC’s ability to present its case,
I would hold that “the district judge’s failure to give the requested
[apportionment] instruction . . . does not rise to the level of reversible error in
this case.” Kanida, 363 F.3d at 579 (emphasis added).
HTC a license, on FRAND terms, to Ericsson’s cellular standard-essential patents.”
Importantly, when the district court consulted with the parties about how to respond to the
jury’s note, HTC articulated no linkage between the jury’s question and apportionment.
Likewise, HTC did not object during Ericsson’s closing arguments when Ericsson urged
valuation theories that do not align with apportionment.
30