PK Brief in Realtek v. LSI
PK Brief in Realtek v. LSI
PK Brief in Realtek v. LSI

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    In the
    United States Court of Appeals for the Ninth Circuit

    REALTEK SEMICONDUCTOR CORPORATION, a taiwanese corporation, Plaintiff-Appellee,


    LSI CORPORATION, a delaware corporation; and AGERE SYSTEMS LLC, Defendants-Appellants.

    Appeal from the United States District Court for the Northern District of California at San Jose


    The controversy in this case is over a unique type of contract, an agreement between a technology-inventing company that proposed a technology standard and the standard-setting organization that adopted the standard. The contractual subject matter is not performance of services or shipment of goods, but rather a promise by the company to license its patents to others on fair, reasonable, and non-discriminatory terms. The beneficiaries are third parties external to the agreement, including the party enforcing that contract today.

    Such a contract, called FRAND after the promised licensing terms, strongly implicates the public interest. The promise is made to the public, the beneficiary is the public, and the public is charged with enforcing the terms. It is fully appropriate to interpret that contract in view of the public interest.

    Read in view of the public interest, the FRAND agreement should be con- strued to broadly proscribe activities that create “patent holdup,” namely a situation in which a patentee’s market power resulting from the patent’s being incorporated into a standard allows that patentee to demand unreasonably high royalties beyond the actual value of the patent. Patent holdup is widely recognized by scholars, federal authorities, and courts to be a real problem with direct impact on the consumer interest, and as this Court has recognized, the FRAND agreement is intended specifically to deal with that problem.

    The filing of an action before the U.S. International Trade Commission creates exactly this type of holdup situation. The ITC’s exclusionary remedies effectively block products from being sold in the United States, thus amounting to a form of injunctive relief. Such a threat to a product manufacturer or vendor, that its products will be held off of the market until it negotiates a license with the patentee, creates undue negotiating leverage that may enable the patentee to extract unduly high royalties—thus precisely satisfying the conditions for patent holdup.

    Accordingly, by creating a patent holdup situation, the filing of an ITC action can contravene the public interest and thus constitute a breach of the FRAND agreement. The judgment of the district court should thus be affirmed.