A recent case at the Unified Patent Court (UPC) in Europe raises concern about what a new state-of-play could look like for American companies if lawmakers follow through with IP “reforms” that were introduced in the previous Congress. Netgear, the California-based computer networking firm, settled patent infringement litigation in January with the Chinese mega-manufacturer Huawei after facing an injunction which would have banned its router technology in seven European countries. While the case occurred abroad, it underscores the underlying dynamics of cases where injunctions are the default, and is a cautionary tale for those who would like to move U.S. policy in a similar direction.
The dispute centers around a Huawei patent for transmitting wireless area network information via Wi-Fi-6-capable routers. According to Juve Patent, Huawei has been actively enforcing its Wi-Fi 6 patents as part of a “large-scale campaign” against various companies, including Amazon and Stellantis, while refusing to license them on fair terms. In response, Netgear countersued Huawei in California, accusing it of antitrust, racketeering, and fraud violations.
Despite Netgear’s claims, the UPC’s Munich local division ruled in Huawei’s favor, rejecting Netgear’s fair, reasonable, and non-discriminatory (FRAND"Fair, Reasonable, and Non-Discriminatory" licensing. A licensing commitment made for standard-essential patents in the context of technology standard setting activities. See also RAND.) defense and granting an injunction to block Netgear’s competition in seven European markets. Faced with the prospect of a debilitating product ban, Netgear settled in early January and agreed to license Huawei’s Wi-Fi 6 patents.
The case exemplifies the rising trend of foreign entities using injunctive threats as settlement leverage, including direct competitors to U.S. companies like Huawei as well as foreign-based and foreign-funded non-practicing entities (NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it.). And it exemplifies exactly why the RESTORE Act would harm American innovation. As it stands, the unanimous 2006 Supreme Court decision in eBay v. MercExchange established a four-pronged standard for granting injunctions in U.S. patent cases: 1) The plaintiff must have suffered irreparable injury 2) Monetary damages alone are insufficient 3) The balance of hardships favors injunctive relief and 4) The public interest would not be harmed by a permanent injunction. For nearly two decades, this standard has worked – preserving the ability of operating companies to secure an injunction where appropriate but preventing NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. from using the threat of injunction to extort settlements.
The RESTORE Act, however, would overturn this precedent and reinstate the presumption of automatic injunctions in all patent cases. The Netgear-Huawei example happened to be an operating company based in China vs. an operating company based in the U.S., but if RESTORE goes into effect NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. are sure to take advantage of the power imbalance that the threat of automatic injunction provides.
The result, much to the detriment of promoting American manufacturing and industry, would be additional headwinds against reshoring our supply chains. As I explained in testimony before the Senate IP Subcommittee in December, “an injunction bars not just the sale of a product in the United States but also its manufacture here,” encouraging businesses to move their factories overseas, where their manufacturing could continue and only their sales in the U.S. would be barred.
If passed, the RESTORE Act would tilt the playing field in favor of NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. and foreign-based companies who seek to gain a competitive edge through litigation. Already, a December GAO report highlighted China’s role in backing patent litigation in the U.S., suggesting that this “litigation funding could be used by foreign entities to divert U.S. companies from their core mission by entangling them in costly and distracting legal battles.” RESTORE would further empower this type of bad actor.
RESTORE’s advocates should closely consider the Netgear-Huawei case, as they promote a policy that includes removing a public interest consideration from injunction decisions. The injunction status quo is working as intended. Injunctions can be obtained by operating companies when appropriate, but have been made more difficult for NPEsNon-Practicing Entity. A broad term associated with trolls but now disfavored because it includes universities and legitimate technology developers that seek to license technology in advance rather than after a producing company has independently developed it. to weaponize. Those in favor of overturning eBay should be careful about what they wish for.
