Standardized technologies and essential patents align American and Brazilian Courts

In the world of mobile phones, there are technological standards that allow devices from different companies to talk to each other. Technically speaking, it is the interoperability between mobile phones. So when a company holds a patent to an invention that is part of standard technology, it has the option to declare it as essential to the standard. The other option is to keep the invention nonstandard and unique to only their mobile phones. However, what happens in practice is that most of these innovations end up being standardized.

For the essential patents not to become obstacles to this technology dissemination, international courts have developed rules limiting royalties to the terms considered fair, reasonable and non-discriminatory – the term FRAND – considering that these technologies, because they are standardized, should be used by everyone. The exception to this rule would be in the unlikely event of a company refuses to pay these reasonable royalties, in which case the patent holder could promote inhibitory actions. In Brazil, there was a recent case in which both Brazilian and North American justices applied these international rules to suspend a number of lawsuits brought by a famous Swedish company against a Chinese company.

What happened was that these companies were negotiating a global license for declared essential patents, and have also initiated arbitration proceedings in France and a lawsuit in the United States, with the specific purpose of fixing reasonable royalties for the use of standardized technologies, when the Swedish company, the patent holder, without waiting for the definition of the subject, proceeded to file a series of inhibitory actions against the Chinese company in several countries, including Brazil.

Making use of preliminary injunctions, the European company began to coerce the Asian company compromise in these international negotiations, while threatening to remove the Chinese company from the market. In Brazil, four inhibitory actions were filed.

In the four actions, injunctions have been granted ordering the Chinese company to cease commercialization and to withdrawal its mobile phones from the Brazilian market. The argument made by the Swedish company was simple: If the patented technology was standardized and essential for cell phones, it was obviously present in the devices of the Chinese company, meaning that, logically, these devices violated the patents of the Swedish group. However, the commitment to license these patents to all interested parties, assumed internationally by the Swedish company, when it chose to declare that their technology should be standardized, was never mentioned. Thus, initially the judges considered that this was a simple matter of patent infringement, when in fact, the question was more complex, in that the Swedish group on the one hand, had declared their technologies to being essential for the standard, pledging not to take injunctions against third parties, without first negotiating a license for the exploration of these key technologies, but on the other hand, ignored this commitment and filed court actions against the Chinese company without any royalties negotiation proposal, in Brazil.

After more than two years, the Brazilian courts, which originally had granted injunctions understanding that patent infringement would be obvious because it is a standardized technology, reviewed the issue in light of international rules and correctly changed their understanding.

Once the Courts understood the background of these actions was a global negotiation for reasonable royalties, and that the Swedish Company had opted to include its technologies in the international standard, it could not now refuse to license them under FRAND terms, and even worse take discriminatory action against one company before concluding the reasonable royalties negotiation, the 2nd Corporate Court of Rio de Janeiro revoked the previous injunctions and kept the cell phones in Brazil.

Following this same line, the US court went further and ordered the companies to interrupt any measure involving these essential patents, not only in America, but in all other countries, including Brazil, until that US court set what are the reasonable royalties to these patents.

Common sense prevailed, both in Brazilian Court and in the US Court, to the extent that if the Swedish company decided to standardize its technology, committing to license it globally on fair, reasonable and non-discriminatory terms, it cannot be accepted that they would take inhibitory measures while still discussing reasonable royalties for a global license.

This post was written by Eduardo da Gama Camara Junior and Rodrigo de Assis Torres.