Judge Raymond Chen, U.S. Court of Appeals for the Federal Circuit. Photo by Diego M. Radzinschi/ALM.

The U.S. Court of Appeals for the Federal Circuit on Thursday handed a big win to wireless giant Ericsson but disappointed intellectual property lawyers eager for more guidance on litigating standard-essential patents.

A unanimous panel of the Washington, D.C.-based appellate court threw out a 115-page order from U.S. District Judge James Selna of the Central District of California. Following a closely watched 10-day bench trial in 2017, Selna established a new framework for determining fair, reasonable and non-discriminatory royalties for SEPs.

The Federal Circuit didn't pass judgment on Selna's methodology in TCL Communications v. Telefonaktiebolaget Ericsson, but ruled instead that Ericsson had a Seventh Amendment right to a jury trial on the amount of money smartphone maker TCL Communications Technology Holdings Ltd. must pay to be released from past infringement.

"Because we conclude that the release payment is in substance compensatory relief for TCL's past wrongs (i.e., practicing Ericsson's patented technologies without a license), we hold that the district court deprived Ericsson of its constitutional right to a jury trial on that legal relief by requiring that Ericsson adjudicate that relief in a bench trial," Judge Raymond Chen of the U.S. Court of Appeals for the Federal Circuit wrote.

Although foreshadowed at August oral arguments, Thursday's decision is surely deflating for the many amici curiae who weighed in on the pros and cons of Selna's "top-down" approach for adjudicating FRAND royalties. Because relatively few FRAND disputes go to trial, the law around how to litigate them is still developing.

"For Ericsson, this is a good win. For the rest of us, it's disappointing," said David Long, author of the Essential Patent Blog, which has followed the case.

The Federal Circuit's decision means that "if one side or the other wants a jury trial" in a FRAND dispute, "they're going to get it," said Long, an attorney for Essential Patent LLC. That won't help develop the law, he said, because judges typically spell out their rationale in bench trials, while jury verdicts are more of a black box.

Thursday's win goes to Jeff Lamken of Molo Lamken, who argued the appeal for Ericsson, and a McKool Smith team led by Theodore Stevenson III who tried the case. TCL has been represented all the way through by Sheppard, Mullin, Richter & Hampton.

The case focuses on the interplay between patents and standards. Standardization ensures that smartphones can be used with any wireless carrier, that laptops can connect with any coffee shop WiFi, and that vehicles can use any charging infrastructure. Standard-setting organizations generally require patent holders who contribute technology to a standard to license the patents that are essential to practicing it on a FRAND basis. The idea is that patent holders should get a fair return on their research and development investment, but not be able to "hold up" implementers once they're locked in to practicing a single standard.

Patent owners and implementers usually work out FRAND rates in private negotiations, but occasionally they need to be resolved in court. TCL and Ericsson began licensing negotiations over 3G patents in 2011. Still without an agreement three years later, TCL sued in the U.S. District Court for the Central District of California for a declaration that Ericsson had not made a FRAND offer. Ericsson, meanwhile, sued in Texas for patent infringement and a declaration that it had met its FRAND obligations. The actions were consolidated in the Santa Ana court.

Before Selna, Ericsson outlined two proposed FRAND offers. Each included a release payment for past unlicensed sales. Selna ultimately concluded that the offers were unfair and discriminatory. He set his own FRAND rate by calculating the aggregate value of the 2G, 3G and 4G standards, and then allocating a percentage to Ericsson based on the relative value of its portfolio, while cross-checking the rate against comparable licenses.

Selna used his FRAND rate to calculate the release payment, ordering TCL to pay Ericsson $16.4 million for past unlicensed sales.

On appeal, TCL argued that the release payment constitutes specific performance for a term in a contract, which can be tried to the court. But Chen concluded that would elevate form over the substance of the release payment. "The court's own actions confirm that the release payment functions as a substitute for patent infringement damages," Chen wrote, and damages are triable to a jury.

The Federal Circuit vacated the judgment, "including the underlying question of whether Ericsson's Option A and Option B offers that include the release payment term are FRAND."

Long said the FRAND focus will now shift to another case involving Ericsson, in which U.S. District Judge Rodney Gilstrap of the Eastern District of Texas found the company's 4G offer to HTC Corp. was fair and reasonable based on comparable licenses. Long said Gilstrap's methodology is somewhat at odds with Selna's and with rulings from U.S. District Judge Lucy Koh of the Northern District of California in the Qualcomm FRAND/antitrust litigation. He expects Gilstrap's decision to be appealed to the Fifth Circuit.