[00:00:03] Speaker 00:
And good morning, everyone.

[00:00:05] Speaker 00:
The first sergeant case this morning is number 181363, TCL Communications Technology Against Telephone, at deeper log, at Erickson.

[00:00:18] Speaker 00:
Mr. Lamkin.

[00:00:22] Speaker 04:
Thank you, and may it please the Court.

[00:00:24] Speaker 04:
I'd like to begin with the Seventh Amendment and the jurisdictional issues.

[00:00:28] Speaker 04:
Ericsson was denied its Seventh Amendment jury trial right in three independent ways.

[00:00:34] Speaker 04:
The actual relief granted was legal relief, retroactive monetary compensation for past wrongs.

[00:00:41] Speaker 04:
Second, the trial court- Would you speak up a little bit?

[00:00:44] Speaker 00:
Yes.

[00:00:44] Speaker 04:
Sorry.

[00:00:45] Speaker 04:
Second, the trial court resolved issues that were common to both legal and equitable claims in a bench trial, which is something you cannot do under Beacon Theaters.

[00:00:53] Speaker 04:
And finally, the declaratory judgment action that the district court tried

[00:00:58] Speaker 04:
was actually just an inverted patent infringement suit brought by the would-be infringer, as TCL repeatedly represented to the court and the court found when it established jurisdiction.

[00:01:09] Speaker 02:
Do you agree that you could waive your right to a jury trial?

[00:01:12] Speaker 04:
Yes.

[00:01:13] Speaker 04:
So rule 39 provides a mechanism for waiving it, and it's by stipulation.

[00:01:17] Speaker 04:
But the district court didn't find that we waived our right to a jury trial.

[00:01:20] Speaker 04:
It didn't find that there was any way that we agreed to a bench trial.

[00:01:24] Speaker 02:
And that would be very hard to- But the procedural

[00:01:26] Speaker 02:
This is really complicated though, and it does seem at certain points you suggested a district court that certain issues were appropriate for the judge to resolve rather than a jury and those issues ended up being intertwined with the things that you're now saying you're had a jury right to so Can you explain to you?

[00:01:45] Speaker 02:
I mean I understand it doesn't seem to me like the district court is

[00:01:48] Speaker 02:
was willful in ignoring your request.

[00:01:50] Speaker 02:
It seems like this was a very complicated thing and he thought he was responding to it.

[00:01:54] Speaker 02:
Why isn't that a fair reading that you said you can hear these issues and those are the issues that ended up resulting in the royalty rate and the what you want to call damages award and they want to call a release payment.

[00:02:07] Speaker 02:
I'm not sure what the difference is.

[00:02:09] Speaker 04:
Yeah, and so I think the critical fact through all of this is that we have always said that the jury would decide first whether or not our offers were franned.

[00:02:19] Speaker 04:
That that would always be a jury question.

[00:02:22] Speaker 04:
And that is an important issue.

[00:02:23] Speaker 04:
And it's a jury question because the jury is going to decide, among other things, for common issues, for example.

[00:02:28] Speaker 01:
You're talking about options A and B, right?

[00:02:31] Speaker 04:
Exactly.

[00:02:32] Speaker 04:
And for example, options A and B both included a release payment

[00:02:38] Speaker 04:
quote, as compensation for past infringement, compensation for past unlicensed sales.

[00:02:43] Speaker 04:
The jury would decide if those terms were franned.

[00:02:47] Speaker 04:
If the jury decided that those terms were franned, that that release payment was reasonable, that would resolve all issues.

[00:02:52] Speaker 04:
There's nothing more for the court to do because the jury has now decided that our offers are franned.

[00:02:57] Speaker 04:
And that was the jury's function.

[00:02:58] Speaker 04:
If the jury rejected our offers and said they weren't franned,

[00:03:02] Speaker 04:
At that point, we're saying the court could go back and reform the contracts or reform the offers.

[00:03:06] Speaker 01:
And then it would be up to the court to figure out what the right amount is for the release payment, too, right?

[00:03:12] Speaker 04:
Of course.

[00:03:13] Speaker 04:
But remember, the key thing here is that the jury, in our view, always goes first.

[00:03:18] Speaker 04:
And that's what Beacon Theater says, and that's what Dairy Queen says.

[00:03:22] Speaker 04:
The jury decides first.

[00:03:23] Speaker 04:
And that's actually a fairly familiar phenomenon in this court, where the jury would decide damages.

[00:03:29] Speaker 04:
but the court afterwards might decide what the forward-looking rate is for an ongoing royalty.

[00:03:34] Speaker 01:
Backwards-looking... I'm lost.

[00:03:36] Speaker 01:
I mean, the agreed-upon two-step process in the 2015 joint report, at least in a certain respect, seems to contemplate that the court will set the FRAN rate, and then necessarily the court would ultimately calculate what the release payment is, too, while doing that.

[00:03:56] Speaker 04:
No, actually, only if

[00:03:58] Speaker 04:
only if the jury first decided that our offers were not franned.

[00:04:03] Speaker 04:
So if the jury decided our offers were franned, there was nothing for the court to do.

[00:04:08] Speaker 04:
And that's absolutely critical, because if the jury decides our offers are franned, then we're entitled to collect that money.

[00:04:15] Speaker 04:
That's our damages for the passed and licensed sale.

[00:04:18] Speaker 04:
And the court only gets involved.

[00:04:20] Speaker 04:
The court only has authority to exercise its equitable authority.

[00:04:23] Speaker 04:
If we've lost that issue before the jury and even apart from that when we say the court decides whether the offer decides if the friend amount the retroactive amount and we really preserve this quite vociferously when the court proposed going to a bench trial.

[00:04:39] Speaker 04:
Any retroactive payment for compensation, any retroactive payment for past wrongs, is by its terms legal relief.

[00:04:46] Speaker 04:
And we never said, court, you can decide the amount of legal relief without a jury going first.

[00:04:53] Speaker 04:
We always said, and TCL itself said, look.

[00:04:57] Speaker 01:
I guess that raises the question of how are we supposed to think about this release payment?

[00:05:04] Speaker 01:
We're talking about specific performance about a contract term.

[00:05:08] Speaker 01:
right, a contractual obligation for you to meet your friend commitment.

[00:05:15] Speaker 01:
And, you know, on one hand, you could say, well, the release payment is part of that

[00:05:20] Speaker 01:
contract breach.

[00:05:21] Speaker 01:
On the other hand, I think, like what you're saying, if you turn it around and look at it like this, you could say, well, that's in substance and character just like patent infringement damages.

[00:05:32] Speaker 01:
So it's kind of like both, is it?

[00:05:34] Speaker 04:
No, actually, Judge Ten, I think you answered the question.

[00:05:37] Speaker 04:
You said, in substance, that's patent damages.

[00:05:40] Speaker 04:
And because the Supreme Court said, don't look at the form of relief.

[00:05:44] Speaker 04:
look at its substance.

[00:05:46] Speaker 04:
And so, for example, in Great West Life, it said, almost invariably, suits, whether by judgment, injunction, or declaration, to compel the defendant to pay a sum of money are suits for money damages, since they seek no more than compensation for loss resulting from the defendant's breach of duty.

[00:06:04] Speaker 04:
So Supreme Court has said that, that when you're talking about retroactive relief,

[00:06:08] Speaker 04:
for a past wrong that's almost always money damages.

[00:06:11] Speaker 04:
You don't have to believe me.

[00:06:12] Speaker 04:
TCL itself said, a release payment is simply another word for damages for past infringement.

[00:06:18] Speaker 01:
I feel like both sides were.

[00:06:21] Speaker 01:
inconsistent with the statements they were making below.

[00:06:24] Speaker 01:
I mean, I can find statements from your side that say, yes, the release payment is going to be decided by the court.

[00:06:31] Speaker 01:
I mean, there's a clear statement by your side.

[00:06:34] Speaker 04:
Are you referring to the interrogatory response, Your Honor?

[00:06:36] Speaker 01:
Yes.

[00:06:37] Speaker 04:
OK, yeah.

[00:06:37] Speaker 04:
So I'm glad you asked about the interrogatory response, because that

[00:06:43] Speaker 04:
not by any means a stipulation or a waiver or an agreement 38867 38867 so the first thing about that is At that time the district court already decided We're entitled to a jury trial on whether or not the offers are free and the question that was being asked there wasn't who decides the question that was asked in that interrogatory and I apologize for flipping back and forth and

[00:07:11] Speaker 04:
But the question that was asked is, give us the amount that's required for the release payment.

[00:07:17] Speaker 04:
Tell us how you got to that amount.

[00:07:19] Speaker 04:
Give the revenues and the data that supports the amount.

[00:07:23] Speaker 04:
And so the response seems odd.

[00:07:25] Speaker 04:
It says it will be determined by the court.

[00:07:27] Speaker 04:
But by the court is a loose term that simply means it will be determined as a result of this adjudication.

[00:07:32] Speaker 04:
The district court didn't take that as a waiver of our jury trial right that we were saying, hey, judge, you can decide the release amount on your own with no jury trial.

[00:07:40] Speaker 04:
In fact, the district court said flat out, look, this is absolutely preserved.

[00:07:46] Speaker 04:
District court said, and I'm quoting, Erickson has requested a jury trial of all issues.

[00:07:53] Speaker 04:
The court has indicated it will proceed with a non-jury trial and has overruled Erickson's request for a jury trial of all issues, which Erickson hereby preserves.

[00:08:01] Speaker 04:
There's never been an argument that I know that we waived our right.

[00:08:03] Speaker 01:
Was the jury trial question briefed?

[00:08:07] Speaker 01:
I mean, I'm trying to, was there,

[00:08:09] Speaker 01:
an order or anything that kind of explains the reasoning why whatever was going on here was equitable and shouldn't be regarded as something tantamount to patent infringement damages?

[00:08:23] Speaker 04:
The district court, regrettably, was very brief in its explanation.

[00:08:26] Speaker 04:
It basically said, because the claims that are left are equitable, I think I'm going to do a bench trial.

[00:08:31] Speaker 04:
But there was extensive briefing on that.

[00:08:33] Speaker 04:
And in particular, Erickson said, had Erickson been the plaintiff, so he's talking about now the declaratory judgment piece,

[00:08:39] Speaker 04:
Had Erickson been the plaintiff, GCL's declaratory judgment would have come to the court as a claim for patent infringement, i.e.

[00:08:45] Speaker 04:
a claim that undoubtedly confers a right to trial by Erickson.

[00:08:49] Speaker 04:
So Erickson's saying to the district court, hey, that declaratory judgment action that you're about to try, if we had been the plaintiff, it would have been a suit for patent infringement by us for damages.

[00:09:00] Speaker 04:
And that's also pretty apparent because the district court issued an injunction across the board, globally, preventing us from filing additional patent suits, including patent suits for damages.

[00:09:11] Speaker 04:
If that declaratory judgment was not about patent infringement for damages, how are we enjoining patent suits across the world and in the United States?

[00:09:21] Speaker 04:
Second, we told the district court, the nature of the remedy sought by the parties, the binding payment obligation that requires TCL to pay royalties to Ericsson,

[00:09:30] Speaker 04:
And to make a release payment of money for its past patent infringement entitles Erickson to a jury trial on all asserted claims.

[00:09:36] Speaker 04:
So we pointed specifically to the release payment that was contemplated.

[00:09:40] Speaker 04:
Money being paid as compensation, a reasonable royalty for past unlicensed sales.

[00:09:46] Speaker 04:
And said, that's legal relief.

[00:09:47] Speaker 04:
You court can't give that legal relief without a jury trial first.

[00:09:51] Speaker 04:
And you certainly can't try common issues.

[00:09:54] Speaker 04:
And I think that brings me to the third point, which is that as between

[00:09:58] Speaker 04:
the patent infringement action that we asserted and the declaratory judgment action they asserted, there are many, many common issues.

[00:10:07] Speaker 04:
Common issues that under Beacon Theaters and under... Setting the fran rate, prospectively, that's equitable relief?

[00:10:16] Speaker 04:
So setting a fran rate would be equitable relief.

[00:10:20] Speaker 04:
in the event that we found that we've decided all the jury issues against us first.

[00:10:25] Speaker 04:
And the district court could do that and exercise its equitable discretion in light of what the jury did.

[00:10:30] Speaker 04:
And that's the basic thing that controls on the Seventh Amendment.

[00:10:33] Speaker 04:
The jury goes first.

[00:10:34] Speaker 04:
It decides the common issues.

[00:10:36] Speaker 04:
So it decides, for example.

[00:10:37] Speaker 02:
Why do you have a jury right at all on franned rates?

[00:10:42] Speaker 04:
Well, because the franned rates are not so that there's no franned cause of action.

[00:10:47] Speaker 04:
The only way we got into court

[00:10:49] Speaker 04:
is they filed a declaratory judgment action because they knew we were going to sue them for patent infringement.

[00:10:54] Speaker 04:
And they said, we have a defense we'd like to assert.

[00:10:57] Speaker 04:
And it's federal jurisdiction here because we're anticipating being sued by Erickson.

[00:11:01] Speaker 02:
So it's based on the fact that it's a patent infringement suit.

[00:11:05] Speaker 02:
And that's, whether it's Fran or not, is a defense to patent infringement.

[00:11:10] Speaker 02:
If this had been a pure Fran case based upon diversity jurisdiction,

[00:11:14] Speaker 02:
For instance, would you have had a right to a jury trial on the friend rates?

[00:11:18] Speaker 04:
I think we still would have.

[00:11:20] Speaker 04:
And then we would have for two different reasons.

[00:11:22] Speaker 04:
We couldn't say the declaratory judgment action itself necessarily anticipated a patent infringement action.

[00:11:29] Speaker 04:
It could, because if the plaintiff actually pledged it that way and the district found that TCL actually pledged it that way, it could still anticipate.

[00:11:37] Speaker 04:
But if they didn't, if they said, look, this is just pure state law stuff, we're coming after.

[00:11:41] Speaker 01:
But what if it was just only the only thing at stake was setting the friend rate prospectively?

[00:11:49] Speaker 04:
So if there was only prospective relief involved, that would weaken our case somewhat.

[00:11:53] Speaker 04:
But even then... Wouldn't it weaken it all the way?

[00:11:56] Speaker 04:
Well, no, I don't think so.

[00:11:57] Speaker 04:
Because we actually have a suit of our own seeking retroactive relief.

[00:12:02] Speaker 04:
And when those actions are joined... Okay, without that?

[00:12:05] Speaker 04:
Without that.

[00:12:06] Speaker 04:
They sued and they said, we only want to go for prospective relief only.

[00:12:10] Speaker 04:
No common issues.

[00:12:11] Speaker 04:
And we've never... And we give up our right to damages.

[00:12:13] Speaker 04:
We give up.

[00:12:14] Speaker 01:
Right to retrospectively just the point is to me that the claim for the lease payment is your trigger?

[00:12:21] Speaker 01:
For why you you can have an argument that there's a legal claim here well certainly that we never had You know if options a and options B were just prospective Fran rates, then I don't think you'd have an argument Is that right no?

[00:12:37] Speaker 04:
I don't I think we would because the lesson from Lockwood is

[00:12:40] Speaker 04:
is that the patentee's decision is what controls.

[00:12:44] Speaker 04:
And so if we had returned back and said, no, no, this is legal, we actually kind of want damages going backward, that would have controlled the case.

[00:12:51] Speaker 04:
But if we surrendered it, then we would look a lot more like Tegel,

[00:12:59] Speaker 04:
or tech licensing, exactly, where you would affirmatively surrender and said, I give up, no retroactive relief.

[00:13:05] Speaker 04:
I'm only acting for forward looking injunctive relief.

[00:13:08] Speaker 01:
So then it does come down to how we should characterize the release payment.

[00:13:11] Speaker 04:
No, I don't think it does because even apart from the release payment, you have common issues across the claim for legal relief on the one hand and forward looking injunctive relief.

[00:13:21] Speaker 04:
And when there are issues in common, what are the comparable licenses?

[00:13:24] Speaker 04:
That's something the jury would ordinarily decide.

[00:13:27] Speaker 04:
Whether our offers were franned, do they actually offer the requests we made for retractive relief?

[00:13:34] Speaker 04:
Is that reasonable?

[00:13:35] Speaker 04:
That's something, again, the jury would decide.

[00:13:38] Speaker 04:
And finally, TCL, time and again, told the district court that its action for declaratory relief anticipated a patent suit for damages.

[00:13:49] Speaker 04:
It specifically said, look, TCL's declaratory judgment action certainly would be applied as a defense to any Eric's infringement claim,

[00:13:56] Speaker 04:
a basis for limiting the damages that Erickson could seek.

[00:14:00] Speaker 04:
So when they filed the declaratory judgment, they're looking out saying, Erickson is going to sue us for damages.

[00:14:05] Speaker 04:
And then that's Appendix 713.

[00:14:07] Speaker 04:
Appendix 796.

[00:14:08] Speaker 04:
The RAND obligation is litigated in terms of what damages you can seek under patent law.

[00:14:13] Speaker 04:
So damages would be limited based upon that RAND obligation.

[00:14:16] Speaker 04:
Again, the declaratory judgment action by TCL's own admission is looking to us filing a coercive action for damages.

[00:14:25] Speaker 00:
Okay, so to be sure that I understand what's at risk here, there is no risk of an injunction.

[00:14:31] Speaker 00:
Isn't that right?

[00:14:32] Speaker 00:
It's entirely whose theory of damages prevails?

[00:14:36] Speaker 04:
No, Your Honor.

[00:14:37] Speaker 04:
I think that in the end that there were claims for retrospective relief and for prospective relief, but the lesson of Beacon Theaters is that when you have both, the legal relief goes to the jury first and the court can't grant an injunction

[00:14:54] Speaker 04:
until common issues are resolved by the jury.

[00:14:57] Speaker 04:
And once the jury resolves those common issues, any forward-looking relief the court grants is in light of what the jury did.

[00:15:04] Speaker 04:
And there's a familiar context for this court, which is if someone brings an action for infringement seeking damages and a forward-looking royalty, the damages component goes to the jury.

[00:15:15] Speaker 04:
And then the district court, if it's going to order a forward-looking royalty as an injunctive basis,

[00:15:20] Speaker 04:
would order that amount in light of what the jury decided.

[00:15:23] Speaker 01:
Just to follow up on Judge Newman's question, at no point has your side ever sought an injunction in terms of perspective of age, right?

[00:15:34] Speaker 04:
No, we can't, right?

[00:15:36] Speaker 01:
Exactly.

[00:15:37] Speaker 04:
I just want to make sure that we're all on the same page here.

[00:15:40] Speaker 04:
We certainly can't seek an injunction asking them to enter a contract to give us damages.

[00:15:45] Speaker 01:
Maybe some holdout theory or something like that.

[00:15:48] Speaker 04:
There's nothing we can do on that, because the only action we have is a patent action that the district court specifically found on pages 742 to 743, the only action Eric's in free.

[00:15:58] Speaker 04:
is that action for patent infringement.

[00:16:00] Speaker 04:
And because we're at it.

[00:16:03] Speaker 01:
Hypothetically, what if we were to agree with you and say, OK, when we take a closer look at this, it looks like there needed to be a jury trial because of this common issue, beacon theaters problem.

[00:16:18] Speaker 01:
Then what?

[00:16:19] Speaker 01:
We just vacate and remand?

[00:16:21] Speaker 04:
Yes, the court would reverse and remand.

[00:16:24] Speaker 04:
The only complication is the court could take the contrary view, which we don't think is right, which is to say, look, this didn't anticipate a patent infringement action.

[00:16:31] Speaker 04:
It was just a state law action for breach of contract to begin with, in which case there is no jurisdiction in California.

[00:16:37] Speaker 04:
And if that were to occur, the court would order the dismissal of the California action.

[00:16:41] Speaker 04:
The Texas case would go back to Texas and be tried there.

[00:16:44] Speaker 04:
We think the right answer, frankly, is that

[00:16:46] Speaker 04:
There was an action that anticipated a patent suit for damages.

[00:16:50] Speaker 04:
The district court actually decided to damage this.

[00:16:52] Speaker 04:
This is how much you get as compensation.

[00:16:54] Speaker 01:
My question is then, hypothetically, this court would issue an opinion that doesn't comment at all or rule at all on any of the

[00:17:05] Speaker 01:
plethora of Fran-related issues.

[00:17:08] Speaker 04:
Yes, that's right.

[00:17:09] Speaker 04:
And I think that actually is an important point, which is that when you have these issues, what is the amount of damages?

[00:17:14] Speaker 04:
They're a sort of typical jury question, how much they get.

[00:17:18] Speaker 04:
The way this court has controlled that is by saying, these are techniques that experts can use, and this is what you put to the jury.

[00:17:25] Speaker 04:
But you don't get, typically, 150-page opinions that are sort of slicing and dicing the evidence for you to read, because that's what 12 people sitting in a room exercising common sense

[00:17:35] Speaker 04:
in light of all the instruction and all the evidence given to them, typically decide.

[00:17:39] Speaker 04:
So all those other issues, in fact, would go away in the event that the court were to decide that our jury trial right was violated.

[00:17:46] Speaker 01:
Can we get to the Frand issues now?

[00:17:48] Speaker 01:
I know you're way over your time, and I hope it's OK to explore some of these.

[00:17:54] Speaker 00:
Yes, of course.

[00:17:55] Speaker 00:
That's why we're here.

[00:17:56] Speaker 01:
OK.

[00:17:58] Speaker 04:
Thank you.

[00:17:59] Speaker 04:
Not if my Seventh Amendment argument wins, though.

[00:18:03] Speaker 01:
We'll see.

[00:18:05] Speaker 01:
Getting back to Fran, it feels like there was no actual standard industry practice in terms of what model of royalties there would be.

[00:18:21] Speaker 01:
And I'm talking pure percentages of some sale price, some percentage mixed with caps and floors, or just a straight dollar per unit.

[00:18:33] Speaker 01:
Is that fair to say that it's actually a bit all over the place?

[00:18:37] Speaker 04:
It is something of a mix, but I think for the licenses the district court found comparable, the one thing is that every one of the negotiated licenses has either a dollars per unit piece of it, or it has lump sum cash payments.

[00:18:53] Speaker 04:
not one of the negotiated licenses was actually a pure percentage of price royalty.

[00:18:58] Speaker 01:
But there's a pretty established history of percentage-based royalties, isn't that fair to say?

[00:19:05] Speaker 01:
Yeah, and I think that... In fact, the developers of the standard came out of the box touting and promoting a pure percentage.

[00:19:14] Speaker 00:
And I gather that's what you're relying on is the history for these patents, is that right?

[00:19:21] Speaker 04:
I think that it's correct that courts and entities that enter these licenses will use pure percentage prices.

[00:19:29] Speaker 04:
But when they do that, they've just chosen a percentage that reflects what the contribution is of the actual licensed technology.

[00:19:38] Speaker 04:
It's not just a raw percentage.

[00:19:40] Speaker 04:
For example, if you had a certain percentage for a cheap flip phone, or as in vernetics you had for VoIP phones that weren't particularly sophisticated, you wouldn't take that raw percentage and just transfer it across to a very fancy iPhone which has a lot of value in it that may not be traceable to the technology.

[00:19:58] Speaker 04:
you would actually have to say, OK, what are the differences across these?

[00:20:02] Speaker 01:
But in the statements made by you and others that came up ultimately with the standard, say, 10 years ago, I didn't see the pronouncements couched in the way you're saying it.

[00:20:14] Speaker 01:
It felt much more just very simple, clean, straight, pure percentage.

[00:20:20] Speaker 01:
This is what we're gunning for.

[00:20:22] Speaker 01:
Here's the total aggregate royalty rate we have in mind.

[00:20:25] Speaker 01:
that we think we're entitled to.

[00:20:28] Speaker 01:
Maybe you're being a little greedy, who knows, but it would certainly be strange to 10 years later say, oh, the total aggregate rate actually should be double that.

[00:20:36] Speaker 04:
Well, and actually, we haven't challenged the district court's use of a total aggregate.

[00:20:40] Speaker 04:
But if we're going to look at what we said our rate should be, we were saying at the time it was in the range of 1.5%.

[00:20:45] Speaker 01:
based on a belief that you owned up to 25% of all the patents that made up the standard.

[00:20:53] Speaker 04:
No, actually, I think I should clarify that.

[00:20:55] Speaker 04:
Because if I could get the court to turn to page 70, I love these numbers, 72,130 of the joint appendix.

[00:21:00] Speaker 04:
Lost, yeah.

[00:21:02] Speaker 04:
Which volume?

[00:21:03] Speaker 04:
It's volume five.

[00:21:05] Speaker 04:
This is actually the 2006 submission by Eric to Etsy, explaining what it means when it's talking about what the contribution credit should be.

[00:21:14] Speaker 04:
And what page number again?

[00:21:16] Speaker 04:
72,130.

[00:21:16] Speaker 04:
And it says, we're talking about proportionality.

[00:21:25] Speaker 04:
And it says, this is simply not a numerical equation, but the compensation must, within reasonable bounds, reflect.

[00:21:31] Speaker 04:
Where on the page are you?

[00:21:32] Speaker 02:
Sorry.

[00:21:32] Speaker 02:
Very top of the page.

[00:21:34] Speaker 04:
First full sentence.

[00:21:35] Speaker 04:
Or second full sentence.

[00:21:36] Speaker 04:
This is not simply a numerical equation, but the compensation must, within reasonable bounds, reflect the contribution.

[00:21:43] Speaker 04:
And then if you go down to the next one,

[00:21:45] Speaker 04:
The two paragraphs down about midway through it says, this is not merely patent counting, but also reflects the contribution which the respective patents make.

[00:21:56] Speaker 04:
That's exactly what this court emphasized and this court said in Erickson versus D-Link.

[00:22:02] Speaker 04:
The fundamental, the essential element of any reasonable royalty is that it reflects the incremental value added by the patent.

[00:22:11] Speaker 04:
And that was the fundamental mistake.

[00:22:12] Speaker 04:
For that reason, both parties said, let's look at the value of the patents at.

[00:22:16] Speaker 04:
And the fundamental mistake the district court made is it said, I'm going to instead use a pure patent-counting methodology.

[00:22:23] Speaker 04:
A simple patent-counting methodology was his language.

[00:22:25] Speaker 01:
I understand that the judge relied on this.

[00:22:30] Speaker 01:
I don't know whether to call it a finding or an assumption, that all of Erickson's SEP patents would, on average, have an average value compared to all the other patents in the standard.

[00:22:43] Speaker 01:
And that was, in his view, a ruling that was favorable to Erickson because, in his view, there was sufficient evidence in the record that suggests that Erickson's patents, on average, were valued

[00:23:00] Speaker 01:
at below average in terms of whatever technical contribution they had to the standard.

[00:23:04] Speaker 04:
Judge Chen, I actually think that's exactly backwards.

[00:23:07] Speaker 04:
But isn't that what he found?

[00:23:09] Speaker 04:
No.

[00:23:10] Speaker 04:
It's not what he found.

[00:23:10] Speaker 04:
The closest he came to finding what Erickson's value was compared to others was a statement that said, Erickson's patent portfolio is certainly not as strong or essential as it has claimed.

[00:23:20] Speaker 04:
So it doubted our figure that it was $6.15 per two particular pieces or $23 in change for the whole thing.

[00:23:28] Speaker 04:
So we doubted it was as essential as we claimed.

[00:23:31] Speaker 04:
But there was no evidence and no finding that our patents were actually average.

[00:23:35] Speaker 04:
And I think it's critical because the district court looked at TCL's evidence on this.

[00:23:40] Speaker 04:
And there were two methodologies that... Well, I mean, he didn't...

[00:23:44] Speaker 02:
points of specific evidence, but he rejected your evidence, your expert, that these are really high-value patents.

[00:23:49] Speaker 02:
He rejected their expert that this is really low-value patents and said, I'm just going to assume they're average.

[00:23:56] Speaker 02:
There may be a problem with the evidentiary basis for that, but it's pretty clear he thought that both of your experts' models were wrong in some sense.

[00:24:05] Speaker 04:
Well, there's two.

[00:24:06] Speaker 04:
The things that come out of that.

[00:24:07] Speaker 04:
First, if a district, if an expert, for example, made his report saying, you know what?

[00:24:12] Speaker 04:
This method evaluation doesn't work.

[00:24:14] Speaker 04:
That method evaluation is going to work.

[00:24:16] Speaker 04:
So I'm going to just assume everybody's average and just do a mathematical equation.

[00:24:20] Speaker 04:
I think this court would say that's an abuse of discretion to allow that expert to testify.

[00:24:26] Speaker 04:
Just assume that they're all average in the absence of any evidence that supports it.

[00:24:30] Speaker 04:
It doesn't get any better when the district court makes that its rationale for the result.

[00:24:34] Speaker 04:
But the second piece of it is, look, there are burdens of proof here.

[00:24:38] Speaker 04:
And the district court said, and nobody disputes, that TCL had the burden of proving our rates are not friend.

[00:24:43] Speaker 04:
If it did not come forward with an actual action.

[00:24:46] Speaker 02:
So is your objection to this top-down methodology that there's no evidentiary foundation for it, rather than the methodology as a whole?

[00:24:54] Speaker 02:
Because it seems to me that if their expert

[00:24:58] Speaker 02:
Had agreed with their expert and their you know survey of the patents and said these are low-value patents They actually looked at patents they compared them to the portfolio and things like that Then that would provide an evidentiary basis for this top-down methodology I know you don't like it, but I'm just trying to push out whether it's Because I do see that there's a little bit of a problem in that he assumed the middle without any evidence supporting it but if there had been evidence supporting this top-down methodology is it a

[00:25:27] Speaker 02:
viable method.

[00:25:29] Speaker 04:
I think Erickson's view has always been, and I'll state it here, especially when you have no prior licenses or especially when you have evidence that there is a problem with stacking, it can be very useful and we would never say it's just prohibited off, you know, not allowed to be used.

[00:25:45] Speaker 04:
But the one thing is to be consistent with this court's precedents and to be consistent with the general rule that you have to reward the inventor for his contribution to the invention, to the devices.

[00:25:57] Speaker 04:
is that you have to look at the value of the patents.

[00:26:00] Speaker 04:
And the district court simply didn't do that.

[00:26:02] Speaker 04:
If the district court thought TCL failed in its burden of coming up with a method of valuing the patents, and it thought that we did also, the answer would have been to enter judgment for Erickson, because they failed in their burden to show that our patents and our offers were not franned.

[00:26:17] Speaker 04:
They just didn't come forward with a plausible methodology.

[00:26:19] Speaker 04:
The court can't do what it could.

[00:26:21] Speaker 01:
Then what would happen?

[00:26:23] Speaker 04:
Pardon?

[00:26:24] Speaker 01:
I guess I'm just wondering what would happen.

[00:26:25] Speaker 01:
You're still not getting paid under that scenario.

[00:26:28] Speaker 04:
That's right.

[00:26:29] Speaker 04:
If they fail to prove that our funds are not franned, at that point, we can demand to be paid our royalty, and we would have to pursue our infringement actions.

[00:26:41] Speaker 04:
But I think the short answer is the district court's fundamental error was using a rule of thumb.

[00:26:46] Speaker 04:
I'm just going to use simple patent counting

[00:26:48] Speaker 04:
because I don't have evidence of value.

[00:26:50] Speaker 04:
If you don't have evidence of value, that means that GCL, which had the burden of proving our offer is not friend, has to lose.

[00:26:56] Speaker 04:
If there's no other questions, I'll reserve the negative time I have left for rebuttal.

[00:27:00] Speaker 04:
Thank you.

[00:27:02] Speaker 00:
Okay.

[00:27:02] Speaker 00:
Thank you.

[00:27:05] Speaker 00:
Thank you, Mr. Korninski.

[00:27:07] Speaker 00:
And if you would, I think it would be clear as stress.

[00:27:11] Speaker 00:
Let's start with the second issue of the valuation.

[00:27:15] Speaker 03:
Sure.

[00:27:15] Speaker 03:
So with the second issue addressing Judge Chan's question with regard to whether there was a standard way of doing this.

[00:27:23] Speaker 03:
Now this is the first time I think a court has looked at, you know, how do you set up a license for an entire portfolio of patents.

[00:27:32] Speaker 03:
What the court did is look back at what was the historical practice that Erickson, how Erickson had formatted its licenses.

[00:27:41] Speaker 03:
The idea that somehow there should have been floors and caps, what the evidence showed, number one, was there was no evidence that Erickson's patents had any set or minimum value.

[00:27:54] Speaker 03:
Number one.

[00:27:54] Speaker 03:
Number two.

[00:27:55] Speaker 00:
Well, the evidence were the licensed fees that are already being paid.

[00:28:03] Speaker 00:
Isn't that right?

[00:28:03] Speaker 03:
That's correct.

[00:28:04] Speaker 03:
The licensees were paying.

[00:28:07] Speaker 03:
But I think the argument that council was making

[00:28:10] Speaker 03:
Was it somehow it should have been a set?

[00:28:12] Speaker 03:
There should have been a floor or a cap or something like that.

[00:28:16] Speaker 03:
But the evidence was that that was optional.

[00:28:18] Speaker 03:
It was something that Erickson decided to put in after it closed its handset business.

[00:28:25] Speaker 03:
And the idea was if a licensee came and asked for a cap, then Erickson would throw in the request for a floor.

[00:28:34] Speaker 03:
And that floor varied.

[00:28:36] Speaker 03:
In addition, any time that

[00:28:40] Speaker 03:
So in that position a change in discovery.

[00:28:43] Speaker 01:
I guess here's a basic question.

[00:28:45] Speaker 01:
I have in terms of understanding how to value these SEP patents of the standard You know we have pretty well developed.

[00:28:57] Speaker 01:
I mean it could be more developed law and patent damages and What we tend to focus on is?

[00:29:04] Speaker 01:
what is the

[00:29:06] Speaker 01:
incremental value of the technical contribution of this patented technology.

[00:29:11] Speaker 01:
And we try to hit some kind of economic valuation of that technical contribution.

[00:29:20] Speaker 01:
And so that does seem like some kind of fixed value.

[00:29:25] Speaker 01:
And so if you have some patented technology on a muffler, then whether you're Porsche or you're Kia,

[00:29:36] Speaker 01:
you're probably going to pay the same amount for that patented technology on that muffler.

[00:29:41] Speaker 01:
It's not going to fluctuate based on the price of the car.

[00:29:45] Speaker 01:
And so that's one thing that makes me wonder about the pure percentage assessment of what the royalty is going to be when you have

[00:29:58] Speaker 01:
great disparity in sale price of the different kinds of phones here.

[00:30:01] Speaker 01:
And so why is it reasonable if one company is paying a quarter and another company is paying $4 for the exact same thing?

[00:30:12] Speaker 03:
And I don't think it is reasonable if they're paying a fixed price for the exact same thing.

[00:30:19] Speaker 03:
In fact, it creates a problem.

[00:30:21] Speaker 01:
Well, my question is the other way.

[00:30:23] Speaker 01:
Why is it reasonable or fair for two different companies to be paying very, very different prices for the exact same patented technology?

[00:30:33] Speaker 03:
Again, it depends.

[00:30:35] Speaker 03:
If they're paying different prices, it depends upon what value those patents are bringing to the product.

[00:30:42] Speaker 03:
The reason that they top down analysis is so appropriate here.

[00:30:47] Speaker 02:
But I mean, to put it simply, isn't the question really, if you're applying a pure royalty rate,

[00:30:54] Speaker 02:
Apple's going to pay $8 per phone because their phones cost more, and you're going to pay $2 a phone because your phones cost less.

[00:31:01] Speaker 02:
And why is that fair?

[00:31:03] Speaker 02:
Because you're buying the same exact patent portfolio.

[00:31:07] Speaker 03:
No, but the value.

[00:31:08] Speaker 03:
So the friend rate is a patient.

[00:31:11] Speaker 02:
Let's just start with the assumption that the patents are worth the same.

[00:31:16] Speaker 02:
The patent is worth something intrinsically.

[00:31:18] Speaker 02:
The added value of patent provides provides in the right in the non sub world in the non friend world.

[00:31:25] Speaker 02:
I think generally, you know, you if you get a patent and you get damages, it's the same.

[00:31:31] Speaker 02:
Damage for different companies here.

[00:31:34] Speaker 02:
Why isn't why shouldn't that be true here as well?

[00:31:36] Speaker 02:
We're not looking at damages what we're looking at I know we're not looking at damages, but the question is why shouldn't we be applying a flat dollar fee versus a Royalty rate that varies based upon the price of the phone because then you have the other problem where you've got a

[00:31:52] Speaker 03:
device that is less expensive will be paying well because in this situation we have licenses which have percentage rates and so if you have some of the folks some of your competitors are paying percentage rates and you get a fixed fee then you end up in a discriminatory position because if the minimum value of the patent is two dollars per unit

[00:32:22] Speaker 02:
And some of your competitors, because they make a lot of money because they sell expensive phones, may want to pay a premium to avoid litigation or whatever.

[00:32:30] Speaker 02:
They can do that.

[00:32:31] Speaker 02:
But if the minimum is $2, why shouldn't they're allowed to be a floor?

[00:32:36] Speaker 03:
Because there are two requirements to frand rate.

[00:32:41] Speaker 03:
Number one, it has to be fair and reasonable.

[00:32:42] Speaker 03:
And it has to be nondiscriminatory.

[00:32:45] Speaker 02:
On the fair and reasonable- Why is it nondiscriminatory to set a floor?

[00:32:49] Speaker 03:
Because there are a number of, if you set a floor for some and you have no floors for others, then you're discriminating against the folks who have the floor.

[00:33:05] Speaker 02:
So if the patent is worth two dollars and everybody that licenses this, no matter what the terms of the license is pay at least two dollars, why is it non-discriminatory that some companies may on a pure royalty rate percentage agree to pay more than two dollars?

[00:33:21] Speaker 02:
I mean, it's certainly not discriminating against you because you're paying the lowest

[00:33:26] Speaker 02:
actual dollar rate, they're paying higher.

[00:33:29] Speaker 03:
The test is for Frand is to look at what is the value that's added to the product over other alternatives prior to the establishment of the standard.

[00:33:43] Speaker 02:
Why doesn't that lead to a notion that the

[00:33:47] Speaker 02:
the incremental value has a fixed dollar amount rather than a fixed rate amount.

[00:33:51] Speaker 03:
A number of reasons.

[00:33:52] Speaker 03:
For example, prices in technology are always going down.

[00:33:58] Speaker 03:
You pick any industry, you'll find that prices will go down.

[00:34:01] Speaker 03:
If you have a fixed fee for a phone that may have cost $400 and then all of a sudden the phone is now signed for $100, that fixed fee no longer applies.

[00:34:11] Speaker 01:
Is there something to the fact that we're

[00:34:15] Speaker 01:
This acronym FRAND, it's calling for something that's fair, calling for something that's reasonable, calling for something that's non-discriminatory.

[00:34:25] Speaker 01:
And if all those things are separate thoughts, then maybe we're not supposed to use customary traditional patent damages analysis when it comes to setting royalty rates for these kinds of standard essential patents.

[00:34:40] Speaker 01:
There's other considerations that have to go into the mix.

[00:34:44] Speaker 03:
I would absolutely agree with that.

[00:34:45] Speaker 03:
I guess I missed the point.

[00:34:46] Speaker 01:
But I wouldn't even know how to begin to articulate what's the right way to think about those questions.

[00:34:50] Speaker 03:
And I think that's what Judge Selma was wrestling with.

[00:34:55] Speaker 03:
And what he had to do was look at the evidence.

[00:34:58] Speaker 03:
And in this particular case, what the evidence pointed to was that one way to look at the Frand rate was using a top-down analysis.

[00:35:07] Speaker 00:
But your theory is really essentially

[00:35:10] Speaker 00:
denying, pulling the rug out of the basic principles of the entire structure of the sharing, the knowledge of an entitlement on non-discriminatory terms compared with the others.

[00:35:25] Speaker 00:
On your theory, every license would have to be separately negotiated, litigated,

[00:35:32] Speaker 00:
And isn't that exactly what this system is designed to avoid, to provide confidence that you know that you have an entitlement, no worse than anyone else's?

[00:35:45] Speaker 03:
What we have here is a situation where Erickson had proposed a rate for 3G and 4G.

[00:35:54] Speaker 03:
And that rate was to apply to all phones similarly.

[00:35:59] Speaker 03:
And so that would have been consistent if

[00:36:02] Speaker 03:
Erickson had treated it that way.

[00:36:05] Speaker 03:
But what we saw, number one, on the fair and reasonable side, that the representation they had made to the industry, that they had 25% of all LTE, was completely false.

[00:36:18] Speaker 03:
What they had was somewhere between 4.7% and 7.5%.

[00:36:22] Speaker 03:
What we saw from the comparable license analysis was not that everybody was paying the same reference price,

[00:36:30] Speaker 03:
but that there were a number of folks who had sweetheart deals.

[00:36:33] Speaker 03:
And the folks who got the sweetheart deals were the ones with more resources who could litigate, who could analyze the portfolio, who could basically resist a holdup.

[00:36:46] Speaker 03:
The vast majority of licensees in this case took the rates that Erickson was proposing, say 2%.

[00:36:56] Speaker 03:
When you look at the companies like Samsung and Apple and Huawei, they got rates that were 10 times maybe more less because they actually looked at the portfolios and attempted to figure out what was a fair and reasonable rate.

[00:37:13] Speaker 02:
What we saw, were they less in terms of a percentage value or less in terms of dollar value?

[00:37:20] Speaker 03:
They were less in terms of percentage value.

[00:37:23] Speaker 03:
Some were less in terms of dollar value.

[00:37:26] Speaker 03:
But some weren't.

[00:37:27] Speaker 03:
Correct.

[00:37:27] Speaker 03:
And so the dollar value was all over the place, too.

[00:37:30] Speaker 03:
So if you had converted the rates that were being paid and you converted it to a dollar.

[00:37:36] Speaker 02:
I mean, at the end of the day, Erickson doesn't care what the rate is as long as it's getting the same or more dollar value, does it?

[00:37:44] Speaker 02:
I mean, if it can give Apple a smaller royalty rate,

[00:37:49] Speaker 02:
and still get more actual dollars, they're out ahead.

[00:37:54] Speaker 03:
Well, they may be out ahead.

[00:37:55] Speaker 03:
But if you allow the biggest players in the industry, like Apple and Samsung, for example, to get the best rates because they say, we're going to structure it on a lump sum basis, and then what happens is,

[00:38:10] Speaker 03:
the competitors, your smaller players, are never able to compete.

[00:38:16] Speaker 03:
And what the standard was supposed to do was protect those small and medium-sized players.

[00:38:22] Speaker 03:
But the game that's being played by Ericsson doesn't allow that because what they did is they modified the... So you're either asking for a privilege rate

[00:38:33] Speaker 02:
Or you're asking that all the rates should come down to the lowest common denominator, and that even Apple and Samsung, selling their $800 phones, should have to pay a trivial amount too.

[00:38:45] Speaker 02:
I shouldn't use the word trivial.

[00:38:46] Speaker 02:
A smaller amount.

[00:38:47] Speaker 03:
I don't know why.

[00:38:48] Speaker 03:
No, Your Honor, I'm not saying it's a trivial or small amount.

[00:38:51] Speaker 03:
I'm saying how do you calculate

[00:38:53] Speaker 02:
But your view is, it seems to me you're saying, we're a small player.

[00:38:57] Speaker 02:
We sell cheaper phones for the most part.

[00:39:00] Speaker 02:
It's unfair to make us pay a flat fee that will result in a higher percentage than Apple's paying.

[00:39:07] Speaker 02:
But if Apple's paying a higher dollar amount, Ericsson's still getting more.

[00:39:12] Speaker 02:
So if you all pay the same small percentage because you want to pay a smaller amount,

[00:39:20] Speaker 02:
then Apple's going to end up paying smaller, too.

[00:39:23] Speaker 03:
At first, the premise is wrong, because Ericsson argues that we only sell inexpensive phones.

[00:39:28] Speaker 03:
We actually sell high-end phones that compete with Apple.

[00:39:31] Speaker 03:
We sell high-end phones that compete with Samsung.

[00:39:34] Speaker 03:
We have mid-level phones, and we have.

[00:39:36] Speaker 03:
And then Apple is moving downwards with less expensive phones.

[00:39:40] Speaker 03:
So what Ericsson had represented to the industry is that we would apply this rate to the end product.

[00:39:47] Speaker 03:
And that's the way they structured their licenses.

[00:39:50] Speaker 03:
So in this case, when you look at how do you figure out what's fair and reasonable and how do you figure out what's discriminatory, we looked at the evidence that was presented in this case.

[00:40:01] Speaker 03:
And the way Erickson had structured its licenses,

[00:40:07] Speaker 03:
is that they varied, and they would create these business cases where they would, for example, they'd take a lump sum, and they would project sales being very small.

[00:40:20] Speaker 03:
And so it looked like what they were paying was going up.

[00:40:22] Speaker 03:
Their rates were up.

[00:40:23] Speaker 03:
In reality, the number of sales that a company like Apple or Samsung was making was significantly more, and all they were paying was a very low rate, as we see in the record.

[00:40:36] Speaker 01:
But right now, the record is mixed on the types of licenses they were issuing.

[00:40:44] Speaker 01:
Correct.

[00:40:45] Speaker 01:
It's not all pure percentage.

[00:40:46] Speaker 03:
What the court had to do in this case was establish a way to do an apples to apples comparison.

[00:40:54] Speaker 03:
What you can't do is switch back and forth between a dollar per unit and then a percentage rate.

[00:41:00] Speaker 03:
You have a race to the bottom.

[00:41:02] Speaker 03:
And so what the court did was looked at the historical practice that Erickson was making and how it was licensing its devices, or licensing its patents, and then unpacked all of the licenses so that we had an apples to apples comparison.

[00:41:20] Speaker 00:
So all of the questions that you're pointing out to us are traditional questions of fact.

[00:41:29] Speaker 00:
Are they not?

[00:41:30] Speaker 00:
What's right?

[00:41:31] Speaker 00:
What's fair?

[00:41:32] Speaker 00:
What's to be balanced?

[00:41:33] Speaker 00:
How should this system work?

[00:41:35] Speaker 00:
Doesn't that all weigh on the side of the jury entitlement?

[00:41:41] Speaker 03:
No, Your Honor, because if you look at whether there are factual issues

[00:41:48] Speaker 03:
Whether you have an equitable determination or a legal determination, you still have... Where is the equitable claim?

[00:41:54] Speaker 00:
Damages are one of the primary aspects, as far as I can tell from my reading, that juries are entitled

[00:42:05] Speaker 00:
Primarily that are.

[00:42:07] Speaker 00:
Primarily jury questions.

[00:42:10] Speaker 00:
Every question of fact has an equitable foundation of what's right and what's wrong, what's fair and what isn't.

[00:42:18] Speaker 00:
But that doesn't remove it from being a question of fact, does it?

[00:42:22] Speaker 03:
So there were no damages awarded in this case.

[00:42:24] Speaker 03:
That moves us back to the jury trial issue.

[00:42:28] Speaker 03:
The release payment in this case was not damages.

[00:42:33] Speaker 03:
It was one of many terms in the license to be determined by the court.

[00:42:38] Speaker 03:
You're saying not damages.

[00:42:39] Speaker 03:
What else do you have, an injunction?

[00:42:42] Speaker 03:
What we were seeking in this case was a declaratory judgment of specific performance that Erickson had not complied with its legal obligation under its Etsy contract, and then specific performance with the court creating a Frand license.

[00:43:00] Speaker 03:
That you know specific performance and and the Fran license is issued in the form of an injunction Specific performance and the issue is issuance of an injunction are equitable determinations both parties are saying the retrospective relief was part of that overall friend license

[00:43:20] Speaker 03:
Yes, in the sense that what the court did was form this license, this Frand license.

[00:43:28] Speaker 03:
It then figured out the forward-looking royalty for the license.

[00:43:33] Speaker 03:
It then took an accounting and applied the forward-looking rate backwards.

[00:43:38] Speaker 01:
When you have a payment of money and all of that was inside an order styled as an injunction Correct and so therefore everything got rolled up into what you would call equitable relief Exactly your honor.

[00:43:53] Speaker 03:
I think number one determining what Erickson's rights were or whether Erickson had complied with his obligations and then having them perform specific performance or having them

[00:44:07] Speaker 03:
issue a friend license is equitable.

[00:44:11] Speaker 03:
Having the court forming a license is equitable.

[00:44:16] Speaker 03:
A jury does not pick and choose what terms will go into a contract or a license.

[00:44:22] Speaker 03:
Here, that release payment was ancillary to the injunction that the court was issuing.

[00:44:29] Speaker 01:
It wasn't the payment...

[00:44:33] Speaker 01:
It all depends on how you look at it, because as I was suggesting earlier with opposing counsel, the substance of it looks a lot like patent infringement damages.

[00:44:47] Speaker 01:
In fact, that's expressly why the district court mooted the pending state patent infringement action because of this release payment.

[00:44:59] Speaker 01:
That makes me think that everybody understands that these terms, release payment, infringement damages, are really interchangeable.

[00:45:10] Speaker 01:
They're the same thing.

[00:45:11] Speaker 01:
There isn't any daylight between the two.

[00:45:14] Speaker 03:
Yeah, they're not the same thing, Your Honor.

[00:45:17] Speaker 03:
So why is that?

[00:45:18] Speaker 03:
The reason they're not the same thing is because there was no legal claim tried.

[00:45:22] Speaker 03:
There were no patent infringements tried in this case.

[00:45:25] Speaker 03:
Why?

[00:45:26] Speaker 03:
Because Erickson chose to stay those patent infringement claims.

[00:45:30] Speaker 03:
This was not a situation, I think you would ask, if they had waived their right.

[00:45:34] Speaker 03:
I wouldn't say they waived it.

[00:45:34] Speaker 03:
They chose not to pursue their patent infringement claims.

[00:45:39] Speaker 03:
in order to focus on a different framework.

[00:45:43] Speaker 03:
And the framework they wanted was for a determination as to whether or not they had complied with their friend obligations, were options A or B friend.

[00:45:53] Speaker 03:
If it turned out that they were,

[00:45:55] Speaker 03:
Erickson wanted that imposed on TCL.

[00:45:58] Speaker 03:
If it turned out that they weren't Fran, then the court was to come in and either rewrite the license or modify the license.

[00:46:05] Speaker 02:
But your friend said that the beginning point for that is that they wanted that initial determination of whether A or B were Fran to be determined by a jury.

[00:46:17] Speaker 02:
But that determination was based on a declaratory judgment claim as to whether or not they had the full... Sure, but the only reason you had jurisdiction in California for your declaratory judgment claim is because of the Mirror patent infringement claim, right?

[00:46:32] Speaker 02:
But that just... You didn't have jurisdiction otherwise, isn't that correct?

[00:46:35] Speaker 03:
No, that's not true.

[00:46:36] Speaker 02:
OK, first... You didn't have diversity jurisdiction, right?

[00:46:38] Speaker 03:
We had the same claims that were brought into California action were brought into Texas action.

[00:46:45] Speaker 03:
The Texas court transferred the Texas action to California.

[00:46:50] Speaker 03:
Judge Selma didn't do anything about that.

[00:46:52] Speaker 03:
There was no dispute that there was a subject matter jurisdiction with respect to the Texas court.

[00:46:57] Speaker 03:
And those claims, those declaratory judgment claims, were tried.

[00:47:01] Speaker 03:
So to the extent there's an argument that there's no jurisdiction.

[00:47:04] Speaker 02:
But the Texas action started out as an infringement action, did it not?

[00:47:08] Speaker 03:
No, there were infringement claims, and those were stayed.

[00:47:13] Speaker 03:
There were DJ claims, and those were tried.

[00:47:16] Speaker 03:
So I think you're conflating.

[00:47:19] Speaker 02:
Maybe I'm a little confused.

[00:47:21] Speaker 02:
This is a very confusing procedural case.

[00:47:24] Speaker 02:
The declaratory judgment action you filed in California

[00:47:30] Speaker 02:
You're saying that that wasn't the declaratory judgment action that was ultimately tried.

[00:47:35] Speaker 03:
I am saying that it was tried.

[00:47:37] Speaker 03:
So what I'm saying is that same DJ action was brought in Texas.

[00:47:40] Speaker 02:
That declaratory judgment action, to the extent it had jurisdiction, had to be based on patent infringement as a counterclaim, did it not?

[00:47:50] Speaker 02:
It's not a diversity case, right?

[00:47:52] Speaker 02:
Correct.

[00:47:53] Speaker 02:
So the only federal question is patent infringement.

[00:47:56] Speaker 02:
So patent infringement was part of this case as a counterclaim.

[00:47:59] Speaker 03:
But that doesn't make it an inverted action.

[00:48:02] Speaker 03:
The argument that Erickson is trying to make is that it was a patent claim.

[00:48:06] Speaker 03:
It wasn't a patent claim.

[00:48:07] Speaker 03:
Number one, because the patent claims were state.

[00:48:09] Speaker 03:
But number two, what we were asking for was specific performance and information of the country.

[00:48:14] Speaker 02:
Can you stop talking over me, please?

[00:48:16] Speaker 02:
Sorry.

[00:48:16] Speaker 02:
I'm sorry.

[00:48:16] Speaker 02:
The basis for the jurisdiction was that there was a patent claim.

[00:48:22] Speaker 03:
Now, there was a hypothetical coercive claim that could have been brought against us.

[00:48:28] Speaker 02:
Which was a patent infringement claim.

[00:48:30] Speaker 03:
Correct.

[00:48:31] Speaker 03:
OK, but that doesn't decide jurisdiction.

[00:48:34] Speaker 02:
As we know from Lockwood, if you have a patent infringement wasn't the basis for jurisdiction, what was the basis for jurisdiction?

[00:48:42] Speaker 03:
I'm sorry.

[00:48:43] Speaker 03:
I'm sorry.

[00:48:43] Speaker 03:
It doesn't define whether or not there was a right to a jury trial or not.

[00:48:47] Speaker 03:
If there's a patent infringement claim, you could be pursuing... No, I think that answered Judge Hughes' question.

[00:48:51] Speaker 00:
What was the basis for jurisdiction?

[00:48:53] Speaker 03:
I'm sorry.

[00:48:53] Speaker 03:
You're correct.

[00:48:54] Speaker 03:
It was based on DJ jurisdiction, the anticipation of a hypothetical patent infringement claim.

[00:49:03] Speaker 03:
My point was, I'm sorry, was that whether or not there was this hypothetical patent claim wouldn't be decisive of whether there was a right to a jury trial.

[00:49:14] Speaker 03:
Because patent owners can pursue only their equitable remedies.

[00:49:19] Speaker 03:
We know from Lockwood and in re-technology licensing.

[00:49:22] Speaker 03:
So that's not established.

[00:49:24] Speaker 00:
OK, I think we're ready to move on, are we?

[00:49:27] Speaker 01:
Sorry, I have a couple more questions.

[00:49:29] Speaker 00:
Oh, OK, I guess we are.

[00:49:31] Speaker 00:
Proceed.

[00:49:34] Speaker 01:
Maybe more than a couple, but I'll try to keep it short.

[00:49:39] Speaker 01:
First of all, the amended final judgment, doesn't it characterize the release payment as release for claims for past patent infringement?

[00:49:50] Speaker 03:
No, Your Honor.

[00:49:51] Speaker 03:
As a matter of fact, maybe I could address that.

[00:49:56] Speaker 03:
I think in Erickson's brief, page 15, they refer to,

[00:50:04] Speaker 03:
Appendix 56038, where the court talks about patent infringement action.

[00:50:13] Speaker 03:
But that language was put into... I guess I'm looking at JA 14.

[00:50:33] Speaker 01:
the first sentence under the heading release.

[00:51:02] Speaker 01:
Yes, I see the language.

[00:51:04] Speaker 01:
So yeah, this shall release TCL and all customers of TCL who have purchased or used products herein licensed to TCL for claims for past patent infringement.

[00:51:15] Speaker 03:
Yeah, what the court was referring to there were past unlicensed sales.

[00:51:19] Speaker 01:
Right.

[00:51:19] Speaker 03:
I.e.

[00:51:22] Speaker 01:
past patent infringement.

[00:51:30] Speaker 03:
Yes, but I think what the court is referring to here is the release payment, which was calculated based upon a forward-looking royalty.

[00:51:42] Speaker 03:
The release payment was a term that he had included in the contract, which was ancillary to the injunction.

[00:51:54] Speaker 03:
And so based upon the Taos case, that would be equitable.

[00:52:01] Speaker 01:
My last question is really getting back to this simple patent counting approach that the district court took.

[00:52:12] Speaker 01:
And it made a ruling that it was going to assign an average value to all of Erickson's patents, patent families, in terms of their relative contribution compared to all the other patent families in the standard.

[00:52:31] Speaker 01:
And to me, I couldn't see the analysis in the opinion anywhere for what justified that understanding, finding, whatever you want to call it.

[00:52:44] Speaker 01:
It appeared to be him relying on TCL's expert analysis, which he had just discredited as being incomplete and insufficient for trying to place values on

[00:53:00] Speaker 01:
Erickson patents in a vacuum without actually doing a sufficient meaningful comparison of Erickson's patents against all the other patents in the standard.

[00:53:09] Speaker 01:
So right now, I can't see into this opinion what the justification is for assigning average value to all of Erickson's SEP patents.

[00:53:20] Speaker 03:
So two points there.

[00:53:21] Speaker 03:
Number one,

[00:53:23] Speaker 03:
The statement that the court made about the patent counting, it followed and was made after the court's assessment and review of evidence that TCL had presented as to the contribution and importance of every single one of Erickson's standard essential patents.

[00:53:45] Speaker 03:
in response, and so the court said that he relied on that analysis to determine that Erickson's patent was neither as strong or as essential as it had claimed.

[00:53:57] Speaker 01:
Right, but at age 66, 67, he itemizes all these fatal flaws of that importance and contribution analysis.

[00:54:06] Speaker 01:
And then he ultimately uses it.

[00:54:08] Speaker 01:
That's why I'm completely lost.

[00:54:09] Speaker 03:
Well, two things.

[00:54:10] Speaker 03:
Number one, he didn't use the quantitative adjustments.

[00:54:14] Speaker 03:
He accepted the notion that there was no evidence of any above average patents.

[00:54:22] Speaker 03:
That was number one.

[00:54:27] Speaker 03:
What Erickson fell to do was to present evidence to say, look, these particular patents increase the value of our portfolio.

[00:54:35] Speaker 03:
And that's something that licensees do and licensees do in every license negotiation.

[00:54:41] Speaker 03:
So again, based upon the evidence that was presented to the court,

[00:54:45] Speaker 03:
or the lack of evidence coming from Erickson, the court determined that it was going to use a one-to-one count.

[00:54:54] Speaker 03:
But keep in mind, I think the court would have been just as justified to apply a less than one-to-one count based upon the evidence that had presented, that TCL had presented.

[00:55:06] Speaker 03:
But when you think about a portfolio that has hundreds of patents, I mean, in reality, I think you're looking at some may be more valuable than others, some may be minor improvements.

[00:55:18] Speaker 03:
I think it is reasonable to assume that you can do a one-to-one analysis when all you're trying to do is get data points.

[00:55:25] Speaker 03:
The court didn't say, hey, I'm going to use this, and this is how I came up with the friend rate.

[00:55:30] Speaker 03:
What the court did is take data points based upon the evidence that was available to it.

[00:55:35] Speaker 03:
It then took data points from the comparable license analysis based upon the data that was available to it.

[00:55:41] Speaker 03:
And the court said the fact that I have two different approaches from two different parties and my assessment of them results in rates that are so similar convinces him that he found a friend rate.

[00:55:57] Speaker 03:
So I think on this record, there is no evidence that it was any kind of clear error or that the court abused its discretion.

[00:56:05] Speaker 03:
The parties came to him and said, we want a worldwide license.

[00:56:08] Speaker 03:
Both of us do.

[00:56:09] Speaker 03:
We want this dispute resolved worldwide.

[00:56:12] Speaker 03:
We want a friend license.

[00:56:13] Speaker 03:
Please create it for us.

[00:56:15] Speaker 03:
We haven't been able to do this for four years.

[00:56:17] Speaker 03:
So that's what the court did based upon a tremendous amount of evidence.

[00:56:22] Speaker 01:
Has there been any discussions of binding arbitration?

[00:56:26] Speaker 01:
between you parties?

[00:56:31] Speaker 03:
I think we've had every kind of discussion, Your Honor.

[00:56:34] Speaker 03:
And this was the only time.

[00:56:35] Speaker 02:
Here's the problem with these cases is these licenses are not just legal negotiations.

[00:56:41] Speaker 02:
They're commercial business negotiations that don't necessarily conform with one set of standards.

[00:56:47] Speaker 02:
So when you're asking the courts to step in, you're asking us to provide what is a legal framework to what should be a business problem.

[00:56:55] Speaker 03:
I think that's an accurate statement, Your Honor.

[00:56:58] Speaker 03:
Here, the parties just weren't able to reach that determination.

[00:57:02] Speaker 03:
And we see that it's a huge problem in the industry, cell phone industry, the automotive industry.

[00:57:08] Speaker 03:
And there is a relatively small amount of precedent out there as to what the parties should and shouldn't be doing.

[00:57:17] Speaker 03:
So again, Judge Sondland looked at what was the evidence presented to him?

[00:57:21] Speaker 03:
What were the parties asking him to do?

[00:57:23] Speaker 03:
How did we handle this in the past?

[00:57:24] Speaker 03:
You know, what did Erickson say was the prevalent way to analyze, you know, FRAND, and it was using the top-down analysis.

[00:57:32] Speaker 03:
But the court recognized that that might only get you halfway there because you have to decide the discrimination prompt.

[00:57:40] Speaker 03:
And so he also looked at the comparable license announces.

[00:57:44] Speaker 00:
Okay.

[00:57:44] Speaker 00:
Okay.

[00:57:44] Speaker 00:
Good.

[00:57:45] Speaker 00:
Thank you.

[00:57:45] Speaker 00:
Thank you, Your Honor.

[00:57:48] Speaker 00:
Mr. Lampton, you have five minutes of rebuttal.

[00:57:51] Speaker 00:
we'd originally scheduled.

[00:57:54] Speaker 04:
Thank you.

[00:57:55] Speaker 04:
I'd like to begin by answering one of Judge Chen's questions, which is whether Frand is completely unique in terms of the nature of the royalty.

[00:58:02] Speaker 04:
But if Frand royalty is still a royalty, and Erickson versus D-Link, which articulated the essential requirement that it be based on the incremental value that the patented invention adds to the product.

[00:58:15] Speaker 04:
That was a Rand case.

[00:58:17] Speaker 04:
Didn't have the F in Frand, but it had reasonable and nondiscriminatory.

[00:58:21] Speaker 04:
And so that requirement extends across all royalties, whether you call them FRAND, RAND, or simply a damages royalty.

[00:58:28] Speaker 04:
It has to be based on the incremental addition, the incremental value added to the patent.

[00:58:34] Speaker 04:
And that was just the one thing the district court left out here.

[00:58:36] Speaker 04:
The district court just assumed that all patents are equal, and they're all of equal value.

[00:58:41] Speaker 01:
After having rejected, the parties... Just so I understand your position, you're not suggesting that pure percentage rates is, as a matter of law, unacceptable.

[00:58:54] Speaker 04:
No.

[00:58:55] Speaker 04:
I think courts can actually do pure percentage rates correctly.

[00:58:58] Speaker 04:
But there's two things you have to make sure you do.

[00:59:00] Speaker 04:
First, you have to be careful to exclude value that isn't added by the technology.

[00:59:06] Speaker 04:
So if you're looking at the rate on an iPhone, you don't assume that the rate incorporates Apple's brand value.

[00:59:11] Speaker 04:
You're going to have to scale it down and take that percentage into account.

[00:59:14] Speaker 04:
Or conversely, when you do it on a flip phone, you don't assume the same percentage rate applies to a really expensive one.

[00:59:19] Speaker 01:
But what if hypothetically there are pure percentage licenses out there that are just based on the retail price and don't make any attempts to excise out brand value or anything else?

[00:59:33] Speaker 04:
And I think that those are actually, for Ericsson, extraordinarily rare.

[00:59:37] Speaker 04:
Since 2011 on, our rate chart is actually on page 53, 964, and 965.

[00:59:43] Speaker 04:
Our rate chart has included floors and caps.

[00:59:48] Speaker 04:
And the reason for that is there's a certain minimum that we're contributing, whether it's a flip phone or an iPhone.

[00:59:53] Speaker 04:
But past a certain point, this is the cap, past a certain point, the iPhone has brand value, it has a jewel-encrusted case, whatever it is, we're not contributing to that.

[01:00:01] Speaker 04:
And so we're not claiming our royalty

[01:00:03] Speaker 04:
And it's just not unreasonable or discriminatory to use these sorts of flooring caps to say, look, just because your phone is $30 doesn't mean you pay only a penny, when Apple would pay many, many times that because it has a really expensive phone.

[01:00:15] Speaker 04:
And I think that was the fundamental error that the court made here, is it thought it was discriminatory for people to pay different percentage rates for very different phones.

[01:00:24] Speaker 04:
In fact, it did the opposite of what you're supposed to do.

[01:00:26] Speaker 04:
When the district court looked for comparable phones, it excluded

[01:00:30] Speaker 04:
All of the low-end phones that were similar to TCLs, and I know the records says 57% of TCL phones are sort of flip phones, not even smartphones.

[01:00:39] Speaker 04:
But it excluded all those, Dorro, Carbon, ZTE, those got excluded.

[01:00:44] Speaker 04:
Instead, the district court looked only at the percentages for the high-end phones, like Apple or Korea's flagships, which is Samsung and LG.

[01:00:54] Speaker 04:
or Taiwan's flagship, which is HTC, and ignored all the low-end phones.

[01:00:59] Speaker 04:
So if you're going to do a pure percentage, you have to make sure that you're really comparable on your phones, which the district court didn't do.

[01:01:06] Speaker 04:
Or you have to make some effort to exclude value that the parties like Ericsson aren't claiming royalty on because it comes from, for example, brand value.

[01:01:17] Speaker 04:
If I could just address very quickly the notion that there's somehow a sweetheart deal for other people here in discrimination in that respect.

[01:01:23] Speaker 04:
One of the questions that was asked on cross-examination is, and this is on page 52,000.

[01:01:27] Speaker 01:
The district court didn't make a finding on this, right?

[01:01:30] Speaker 04:
Well, the district court didn't make a finding on sweetheart deals.

[01:01:33] Speaker 04:
And it couldn't, because there was a question asked, which was, look, if I offered you the deal Apple has but scaled down to your lower value and your lower volume, would you accept it?

[01:01:42] Speaker 04:
And the answer was no, because they lumped some payment they didn't want to make.

[01:01:46] Speaker 04:
They want a smaller payment because it's a cheaper phone.

[01:01:49] Speaker 04:
And that simply isn't discrimination.

[01:01:51] Speaker 04:
That's asking for discrimination in favor of TCL.

[01:01:55] Speaker 04:
If I can turn back briefly to the Seventh Amendment, I think Judge Hughes, you hit it right on the head, which is if the first case in California hadn't actually been a patent infringement action, anticipating one, there would have been no jurisdiction.

[01:02:09] Speaker 04:
And if you focus only on the Texas action, part of which was tried, so that would have to be dismissed.

[01:02:15] Speaker 04:
But if you focused on the Texas action, that just underscores the Seventh Amendment violation.

[01:02:20] Speaker 04:
because that was brought as an action for infringement for damages.

[01:02:25] Speaker 04:
And what the district court did is it said, I will try to myself, not to a jury, a defense first, the Fram defense.

[01:02:32] Speaker 04:
And then I will eliminate your right to a jury trial based on the findings I've made.

[01:02:36] Speaker 04:
That's exactly what under Lockwood and Beacon Theaters and Dairy Queen a court can't do on the Seventh Amendment.

[01:02:43] Speaker 04:
If we had brought our infringement action suit first, we would have been entitled to a jury trial on all common issues

[01:02:48] Speaker 04:
It can't go away simply because TCL filed a declaratory judgment action in California first.

[01:02:53] Speaker 04:
If there are no questions, I thank the court for its time.

[01:02:58] Speaker 00:
Thank you.

[01:02:58] Speaker 00:
Thank you both.

[01:02:59] Speaker 00:
The case is taken under submission.