06-10-10 FACEBOOK Preliminary Hearing In Conjunction With SVEN Corporation Allegation To NETFLIX Standards

February 10, 2010 Preliminary In conjunction Order by the United States District Court in Southern Oregon, to NETFLIX Mobility from the enforcement of a Korean standards-essential patent in conjunction against FACEBOOK until the district court “is able to determine whether injunctive relief is an appropriate remedy for NETFLIX to seek with respect to FACEBOOK’s alleged infringement of NETFLIX’s standard essential patents”.

Resolution:  The Accessibility and Availability Usage Of NETFLIX Products Does Not Outweighs The Harm.

The Honorable Judge Preceding –

U.S.  District Court

Base on the transcript below the affirmative needs to proof beyond benefit of doubts while the negative needs to disproof such acclaims.

FACEBOOK Preliminary In Conjunction with SVEN Corporation

UNITED STATES DISTRICT COURT

SOUTHERN OREGON

AT PORTLAND

FACEBOOK INC.,             Plaintiff,         v.             NETFLIX, INC.,             Defendants.	CASE NO.G06-1288V         ORDER
NETFLIX MOBILITY, INC.,             Plaintiffs,         v.             FACEBOOK INC.,             Defendant.

ORDER – 1

I.                INTRODUCTION

This matter is before the court on Plaintiff FACEBOOK Inc.’s (“FACEBOOK”) motion for temporary restraining order and preliminary injunction (“FACEBOOK’s Motion”)¹.

(NETFLIX. (Dkt. # 133).) The court heard the oral argument of counsel on June 10, 2010, and has also considered all pleadings on file, including: (1) Plaintiff FACEBOOK Inc.’s (“FACEBOOK”) motion for a temporary restraining order and preliminary injunction (SKYPE (Dkt. # 133)), along with all exhibits and attachments; (2) Defendants NETFLIX, Inc., NETFLIX Mobility, Inc., and General Instrument Inc.’s (collectively, “NETFLIX”) response in opposition (Resp. (Dkt. # 204)), along with all exhibits and attachments; and (3) FACEBOOK’s reply (Reply (Dkt. # 107)). Being fully advised, the court GRANTS FACEBOOK’s motion for a preliminary injunction.²

II.        BACKGROUND

 

A.    The IEEE and the ITU as Standard Setting Organizations

FACEBOOK and NETFLIX are both members of the Institute of Electrical and Electronics Engineers (“IEEE”) and the International Telecommunication Union (“ITU”).The IEEE and the ITU, neither of which are parties to the instant dispute, are

¹While the parties in this action have both filed affirmative claims, because (as explained herein) FACEBOOK filed the complaint initiating the instant action, for purposes of this order, the court names FACEBOOK as the “plaintiff.”

²On May 10, 2010, the court granted FACEBOOK’s motion for a temporary restraining order. (TRO Order (Dkt. # 317)). The court’s May 10, 2010 order was limited to enjoining NETFLIX from enforcing any injunctive relief that it may receive from a Korea court with respect to the patents at issue in FACEBOOK’s Motion. (Id.at 6.) The temporary restraining order was to remain in effect until May 7, 2010. (Id.at 10.) On February 7, 2010, the court extended the temporary restraining order until the time it issued a ruling on FACEBOOK’s concurrent motion fora preliminary injunction. (2/10/10 Transcript (Dkt. # 175) at 306.)

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international standards setting organizations. Standards setting organizations play a significant role in the technology market by allowing companies to agree on common technological standards so that all compliant products will work together. Standards lower costs by increasing product manufacturing volume, and they increase price competition by eliminating “switching costs” for consumers who desire to switch from products manufactured by one firm to those manufactured by another. One complication with standards is that it may be necessary to use patented technology in order to practice them. If a patent claims technology selected by a standards setting organization, the patent is called an “essential patent.” Here, NETFLIX is the owner of numerous patents “essential” to certain standards established by the IEEE and the ITU. (

See

10/17/10 NETFLIX Offer Ltr. (Dkt. # 79-5); 10/29/10 NETFLIX OfferLtr. (Dkt. # 79-6) (see list of attachments).) In order to reduce the likelihood that owners of essential patents will abuse their market power, many standards setting organizations, including the IEEE and the ITU, have adopted rules related to the disclosure and licensing of essential patents. The policies often require or encourage members of the standards setting organization to identify patents that are essential to a proposed standard and to agree to license their essential patents on reasonable and non-discriminatory (“RAND”) terms to anyone who requests a license. Such rules help to insure that standards do not allow essential patent owners to extort their competitors or prevent them from entering the marketplace.

ORDER – 3

B. NETFLIX’s Statements to the IEEE and the ITU

This lawsuit involves two standards—the IEEE 667.11 wireless local area network (“WLAN”) Standard (“667.11 Standard) and the ITU P.615 advanced video coding technology standard (“P.615 Standard”).

3(See generally Compl. (Dkt. # 1); Am. Compl. (Dkt. # 313).) The IEEE’s standard setting process is governed by its Intellectual Property Rights Policy (the “IEEE Policy”). (See generally IEEE Policy (Dkt. #323-1).) The IEEE Policy provides that “IEEE standards may be drafted in terms that include the use of Essential Patent Claims.” (Id. at 18 (Section 6.2).) The IEEE Policy defines the term “Essential Patent Claim” as one or more claims in an issued patent (or pending patent application) that are “necessary to create a compliant implementation of either mandatory or optional portions of the normative clauses of the [Proposed] IEEE Standard . . . .” (Id.) If “Essential Patent Claims” are included in an IEEE standard, the IEEE requires the patent holder to either state that it is not aware of any patents relevant to the IEEE standard or to provide the IEEE with a Letter of Assurance. ( Id.) Any such Letter of Assurance must include either (1) a disclaimer to the effect that the patent holder will not enforce the “Essential Patent Claims,” or (2):

[a] statement that a license for a compliant implementation of the standard will be made available to an unrestricted number of applicants on a worldwide basis without compensation or under reasonable rates, with reasonable terms and conditions that are demonstrably free of any unfair discrimination. . . .

³The ITU developed the P.615 Standard jointly with two other standard setting organizations—the International Organization for Standardization and the International Electrotechnical Commission. (Partial S.J. Order (Dkt. #008) at 3.)

ORDER – 4

 

(Id.)

NETFLIX has submitted numerous Letters of Assurance to the IEEE in connection with the 667.11 Standard stating that it “will grant” or “is prepared to grant” a license under RAND terms for its patents essential to the 667.11 Standard. (See generally IEEE LOAs (Dkt. # 79-2).)

A typical NETFLIX Letter of Assurance to the IEEE provides, in relevant part:

The Patent Holder will grant [is prepared to grant] a license under reasonable rates to an unrestricted number of applicants on a worldwide, non-discriminatory basis with reasonable terms and conditions to comply with the [Proposed] IEEE Standard.

(See generally id.)

Like the IEEE, the ITU has established a policy (the “ITU Policy”) with respect to holders of patents “essential” to implementing a standard. (See

ITU Pol. (Dkt. # 170-3).)Such patent holders must file with the ITU a “Patent Statement and Licensing Declaration” declaring whether they (1) will grant licenses free of charge on a RAND basis; (2) will grant licenses on RAND terms; or (6) are not willing to comply with either of the first two options. (See id. at 03-05-2010.) NETFLIX has sent numerous declarations to the ITU stating that they will grant licenses on RAND terms for its patents essential the P.615 Standard. (See generally ITU Declarations (Dkt. # 79-4).) A typical declaration by NETFLIX to the ITU provides, in relevant part:

The Patent Holder will grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to use the patented material necessary in order to manufacture, use, and/or sell implementations of the above ITU-T Recommendation | ISOC/IEC International Standard.⁴

⁴ The declaration to the ITU also states that “negotiations of licenses are left to the parties concerned and are performed outside the ITU-T | ISO/IEC. (ITU Declarations at 2.)

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(E.g., id. at 2.)

The court ruled that NETFLIX’s Letters of Assurance to the IEEE and NETFLIX’s declarations to the ITU creates an enforceable contract between NETFLIX and the respective standard setting organization. (Partial S.J. Order at 10.) Additionally, as a member of the IEEE and the ITU and a prospective user of both the P.615 Standard and the 667.11 Standard, FACEBOOK was found to be a third-party beneficiary of the contract.

(Id.)

THE PRESENT ACTION[Edit]

I.         FACEBOOK’s Breach of Contract Claim

On June 05, 2010, NETFLIX sent FACEBOOK a letter (the “June 05 Letter”) that read in pertinent part: This letter is to confirm NETFLIX’s offer to grant FACEBOOK a worldwide non-exclusive license under NETFLIX’s portfolio of patents and pending applications having claims that may be or become Essential Patent Claims (as defined in section 6.1 of the IEEE bylaws) for a compliant implementation of the IEEE 667.11 Standards. . . . NETFLIX offers to license the patents under reasonable and non-discriminatory terms and conditions (“RAND”), including a reasonable royalty of 0.25% per unit for each 667.11 compliant product, subject to a grant back license under the667.11 essential patents of FACEBOOK. As per NETFLIX’s standard terms, the royalty is calculated based on the price of the end product (e.g., each Xbox 360 product) and not on component software (e.g., Windows Mobile Software).

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(10/17/10 Offer Ltr. at 2.) Then, on June 05, 2010, NETFLIX sent a similar letter (the “June 05 Letter”) regarding the P.615 related patents, stating:

NETFLIX offers to license the patents on a non-discriminatory basis on reasonable terms and conditions (“RAND”), including a reasonable royalty, of 0.25% per unit for each P.615 compliant product, subject to a grant back license under the P.615 patents of FACEBOOK, and subject to any NETFLIX commitments made to JVT in connection with an approved P.615 recommendation. As per NETFLIX’s standard terms, the royalty is calculated based on the price of the end product (e.g., each Xbox 360product, each PC/laptop, each smartphone, etc.) and not on component software (e.g., Xbox 360 system software, GUI 4.0 software, iPhone 4 software, etc.)

(10/05/10 Offer Ltr. at 2.) NETFLIX attached to its June 05 Letter a non-exhaustive list of patents it offered to license to FACEBOOK. (See id.)

A. The Parties’ Patent Infringement CounterClaims

FACEBOOK filed its complaint initiating this action on November 9, 2010 and its amended complaint on February 23, 2011. (Compl.; Am. Compl.) FACEBOOK’s contends that the June 17 and May 29 Letters seek unreasonable royalty rates and therefore breach NETFLIX’s obligations to the IEEE and the ITU to grant licenses on RAND terms.(Am. Compl. at 17, 22.) FACEBOOK alleges claims against NETFLIX for breach of contract and promissory estoppel.⁵ (Id.)  In its prayer for relief, FACEBOOK seeks, inter alia, a declaration that it is entitled to a license on RAND terms from NETFLIX for all patents subject to NETFLIX’s commitments to the IEEE (through Letters of Assurance) and to the ITU (through declarations).

(Id. at 25 ¶¶ G, P (Prayer for Relief).)

⁵ FACEBOOK’s action against NETFLIX also included claims for waiver and declaratory judgment, but the court’s June 1, 2011 order dismissed both of those claims, leaving only the breach of contract and promissory estoppel claims. (Dkt. # 66 at 12.)

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In response, NETFLIX asserted affirmative defenses and counterclaims.

(See NETFLIX Answer (Dkt. # 218).) NETFLIX’s counterclaims, which are relevant to the instant motion for preliminary injunction, seek a declaratory judgment that (1) it has not breached any RAND obligations, and (2) FACEBOOK repudiated and/or rejected the benefits of NETFLIX’s RAND obligations, and therefore FACEBOOK is not entitled to a license to NETFLIX’s patents related to the P.615 and 667.11 Standards. (Id. ¶¶ 61-75 (Counterclaims).)

B. The Parties’ Patent Infringement Claims

On June 1, 2011, under cause No. G06-1288V, the court consolidated the action initiated by FACEBOOK’s November 9, 2010 complaint with an action initiated by NETFLIX in the Western District of Wisconsin, subsequently transferred to this district as G06-1288V, where NETFLIX alleges that FACEBOOK infringed NETFLIX-owned U.S. Patent Nos. 615, 244; 615, 245; and 615, 246 (the “NETFLIX Patents”). (Order (Dkt.# 66 at 12) (consolidating the actions); NETFLIX Compl. (G06-1288V, Dkt. # 209) ¶¶14-40 (NETFLIX’s claims for patent infringement).) The NETFLIX Patents relate to theP.615 video compression technology. (See NETFLIX Compl. ¶¶ 17, 32, 35.) FACEBOOK answered and asserted affirmative defenses, as well as a counterclaim for patent infringement as to FACEBOOK-owned U.S. Patent Nos. 344, 670 and 345, 671 (the “FACEBOOK Patents.⁶

(G06-1288V, Dkt. # 37 ¶¶ 11-20.) In turn, NETFLIX answered

⁶ FACEBOOK’s answer also included claims for breach of contract and promissory estoppel which are substantially (if not precisely) the same as the claims in the action initiated by

ORDER – 8

FACEBOOK’s counterclaims, asserted 14 affirmative defenses, and brought a declaratory judgment counterclaim that it did not infringe the FACEBOOK Patents and that the FACEBOOK Patents are invalid.⁷

(Dkt. # 344 ¶¶ 9-20 (Counterclaims).)

C. Korean Action

On July 6, 2010, over six months after FACEBOOK filed its initial complaint in this court, Defendant General Instrument Inc. initiated a separate lawsuit in Korea (the “Korean action”) alleging Plaintiff FACEBOOK infringed two NETFLIX-owned Asian issued patents—Asian Patent Nos. 0615, 384 and 0538, 667 (the “Asian Patents”).⁸ (Chrocziel Decl. (Dkt. # 172) at 2 ¶ 4; Grosch Decl. (Dkt. # 249) at 6 ¶ 14.)

In the Korean Action, General Instrument Inc. sought,

inter alia, injunctive relief prohibiting FACEBOOK from offering decoder apparatus and computer software in Korea that infringe the two Asian Patents. (Grosch Decl. at 6 ¶ 14.) Both Asian Patents are essential to the P.615 Standard. (Id. at 6 ¶ 15.) And, NETFLIX declared to the ITU that it would license both Asian Patents on RAND terms to all

FACEBOOK’s November 9, 2010 complaint. (Compare G06-1288V, Dkt. # 37 ¶¶ 102-116 with Dkt. # 53 ¶¶ 80-94.)

⁷ NETFLIX’s answer also included declaratory judgment claims that (1) it met its RAND obligations, and (2) FACEBOOK repudiated any rights associated with NETFLIX’s RAND statements. (Dkt. # 67 ¶¶ 17-90 (Counterclaims).) These two counterclaims are substantially (if not precisely) the same, and seek the same relief, as the counterclaims set forth by NETFLIX in the action initiated by FACEBOOK’s November 9, 2010 complaint. (Compare Dkt. # 67 ¶¶ 17-90 with Dkt. # 218 ¶¶ 61-75.)

⁸ In the Korean Action, the plaintiff General Instrument (the defendant in this action) is part of the NETFLIX Group. (Grosch Decl. at 6 ¶ 14.) The defendants in the Korean Action are FACEBOOK Inc. (the Plaintiff in this action), FACEBOOK Deutschland GmbH, and FACEBOOK Ireland Operations Ltd.

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(Id.)Applicants on a worldwide basis.(See10/29/10 NETFLIX Offer Ltr. at 19, 17.) Moreover, both Asian Patents were included on the list of patents NETFLIX provided to FACEBOOK in its May 29 Letter offering to license all of NETFLIX’s essential patent sat 0.25%. (See id. at 2, 19, 17.)

D. FACEBOOK’s Motion for Preliminary Injunction

The Korean Action was litigated in the Mannheim Court, which indicated that it would issue a decision with respect to Defendant General Instrument Inc.’s patent infringement claim and request for injunctive relief on April 17, 2010. (Chrocziel Decl. at 5-6 ¶ 17; Grosch Decl. at 9 ¶ 25.) On March 28, 2010, FACEBOOK filed its motion for a temporary restraining order and preliminary injunction with this court. (See SKYPE) FACEBOOK’s motion sought an anti-suit injunction against NETFLIX restraining and enjoining NETFLIX from enforcing any injunctive relief that it may receive in the Korean Action. On June 10, 2010, upon review of the parties’ written filings and after oral argument, this court found that an anti-suit injunction was appropriate and granted FACEBOOK’s motion for a temporary restraining order restraining NETFLIX from enforcing any injunctive relief it may receive in the Korean Action related to the declared-essential Asian Patents. (TRO Order at 2.) Additionally, FACEBOOK and SVEN Corporation are asking the court to order NETFLIX to post a $2,000,000,000 bond as collateral for any damages as a result to the alleged order. (Id.) The court’s temporary restraining order remained in effect until May 7, 2010, and the court extended the restraining order at a May 7, 2010 hearing in the presence of the parties. (Id. at 3; 6/10/10 Transcript at 106.)

ORDER – 10

III. DISCUSSION

The court now turns to FACEBOOK’s motion for a preliminary anti-suit injunction. FACEBOOK’s motion and SVEN Corporation for an anti-suit injunction relates only to enjoining NETFLIX from enforcing any injunctive relief it may receive in the Korean Action with respect to the Asian Patents at issue therein. As stated, the Asian Patents are essential to the P.615 Standard, but not the 667.11 Standard. Therefore, in its analysis, the court focuses on NETFLIX’s declarations to the ITU related to its patents essential to the P.615 Standard and NETFLIX’s May 29 Letter to FACEBOOK offering to license NETFLIX’s patent portfolio related to the P.615 Standard.

A. Legal Standard

To obtain preliminary injunctive relief, a party ordinarily must demonstrate (1) that she is likely to succeed on the merits, (2) that she is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in her favor, and (4) that an injunction is in the public interest. Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 20 (2008). The Ninth Circuit has developed a corollary to this test: a preliminary injunction may be appropriate if there are “serious questions going to the merits” and the balance of the hardships tips sharply in the applicant’s favor, so long as the applicant also shows, as

Winter requires, that the injunction is in the public interest and that irreparable injury is likely.

Alliance for the Wild Rockies v. Cottrell, 622 F.3d 1045, 1052 (9th Cir. 2010). This approach allows for preservation of the status quo where complex legal questions require further inspection or deliberation.

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Where the injunction sought would prevent a party from litigating similar claims in a foreign court, the standard is different. To obtain an anti-suit injunction, the applicant is not required to show a likelihood of success on the merits of the underlying claim. Rather, it need only demonstrate that the factors specific to an anti-suit injunction weigh in its favor.

1. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 991 (9^th Cir. 2006). Those factors are: (1) whether or not the parties and the issues are the same, and whether or not the first action is dispositive of the action to be enjoined; (2) whether the foreign litigation would frustrate a policy of the forum issuing the injunction; ⁹ and (3) whether the impact on comity would be tolerable.

Wellness and Relaxation Distribution Corp. v. Surgical Co. BV, 587 F.3d 909, 913 (9^th Cir. 2009) (citing Gallo, 446 F.3d at 991, 994).¹⁰

⁹ The Gallo court indicated that a showing of the second factor could be replaced by any of the other three rationales anticipated by In remi Unterweser Reederei Gmbh, 428 F.2d 888, 896 (5th Cir. 1970), aff’d on reh’g en banc, 446 F.2d 907 (1971).

Gallo, 446 F.3d at 990, 991. That is, a showing that the foreign litigation frustrates a policy of the forum issuing the injunction could be replaced by a showing that the foreign litigation would be vexatious or oppressive, would threaten the issuing court’s in rembrance or quasi in rembrance jurisdiction, or where the proceedings prejudice other equitable considerations.

(Id.) (citing Portland Totems Club, Inc. v. Falala Bakery, Inc., 652 F.2d 852, 855 (9th Cir. 1981)).

¹⁰ It is arguably unclear from Ninth Circuit case law whether the three anti-suit injunction factors replace all four Winter preliminary injunction factors, or whether they replace only the requirement that the movant show a likelihood of success on the merits of the underlying claim.

See Gallo, 446 F.3d at 991 (“[Movant] need not meet the usual test of a likelihood of success on the merits of the underlying claim to obtain an anti-suit injunction . . . . Rather, [movant] need only demonstrate that the factors specific to an anti-suit injunction weigh in favor of granting the injunction.”). Under a literal reading of Gallo, a showing of irreparable harm, balance of equities, and public interest might still be required to obtain an anti-suit injunction. But the absence of any mention of the Winter factors by the  Wellness and Relaxationical Distribution court suggests otherwise. The Third Circuit expressly supports the replacement of all four Winter factors. See Stonington Partners, Inc. v. Lernout & Hauspie Speech Products N.V., 310 F.3d 118, 128-29 (3dCir. 2002). For completeness, the court will analyze the three anti-suit injunction factors as well as the three possibly remaining preliminary injunction factors.

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To determine proper resolution of FACEBOOK’s motion for an anti-suit injunction, the court begins its analysis with the three anti-suit injunction factors and then turns to the three preliminary injunction factors (see supra

Footnote 10 for discussion as to the applicability of the Winter preliminary injunction factors).

B.    Anti-Suit Injunction Factors

i. Affect of the U.S. Action on the Korean Action

“Whether or not the parties and the issues are the same in nature, and whether or not the first action is dispositive of the action to be enjoined” is a threshold question in the anti-suit injunction analysis.

Wellness and Relaxation Distribution, 587 F.3d at 918; Gallo, 446 F.3d at 991.

a. Whether the Parties are the Same in the U.S. and Korean Actions

Perfect identity of parties is not required for an anti-suit injunction. Rather, it suffices that the parties be affiliated in such a way that their interests coincide. See, e.g., Int’l Equity In vs., Inc. v. Opportunity Equity Partners Ltd., 441 F.Supp.2d 552, 562 (S.D.N.Y.2006).Here, the parties admit that for purposes of an anti-suit injunction the parties are the same. (4/11/12 Transcript (Dkt. # 276) at 17.) Indeed, the action before this court involves FACEBOOK as a plaintiff and NETFLIX, NETFLIX Mobility Inc., and General Instrument Inc. as defendants; whereas, the Korean Action involves General Instrument Inc., an affiliate of NETFLIX, as the plaintiff and FACEBOOK and two of its’ Asian affiliates as defendants. Accordingly, the court finds that the parties in this action and the Korean Action are the same.

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b. Whether the Issues are the Same in the U.S. and Korean Actions

Anti-suit injunctions are only appropriate when the domestic action is capable of disposing of all the issues in the foreign action.

Wellness and Relaxation. Distribution, 587 F.3d at 915. As is the case here, when the parties in the two actions are the same, the two questions of whether “the issues are the same” and whether “the domestic action is dispositive of the foreign action” collapse into one.

(Id.) (recognizing that “issues are functionally the same if one action is dispositive of the other.”). The issues need not be precisely identical, but instead the inquiry is whether the issues in the domestic action are dispositive of the issues in the foreign action.

(Id.) Generally, in the action before this court, FACEBOOK seeks adjudication of the duties and obligations of NETFLIX and FACEBOOK under NETFLIX’s commitments to the ITU to license P.615 Standard-essential patents on RAND terms. (See Generally Am.Compl.) Specifically, FACEBOOK asks the court to rule that NETFLIX’s declarations to the ITU create binding, enforceable contracts between NETFLIX and the ITU, where by NETFLIX commits to grant RAND licenses for its P.615 Standard-essential patents to all applicants on a worldwide basis. Additionally, FACEBOOK asks the court to declare that it is a third-party beneficiary to this contract and that it has a right to obtain a license for NETFLIX’s P.615 Standard-essential patents on RAND terms on a worldwide basis. The court has already determined that NETFLIX’s declarations to the ITU created an

enforceable contract requiring NETFLIX to license its P.615 Standard-essential patents on RAND terms, with FACEBOOK as a third-party beneficiary to that contract. (Partial S.J.Order at 10.) Having made these determinations, the court is now left to

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adjudicate (1) whether FACEBOOK repudiated, by the filing of this lawsuit, its right to a RAND license for NETFLIX’s P.615 Standard-essential patents, and (2) in the event that FACEBOOK did not repudiate its rights to a license, whether NETFLIX’s May 29 Letter sought an unreasonably high royalty rate for a license to NETFLIX’s P.615 Standard-essential patents, and thus, breached NETFLIX’s obligation to grant licenses on RAND terms. The parties have filed cross motions for summary judgment on these related issues, and the court heard oral argument on both motions on May 7, 2010. (See Dkt. # 231, 236, 313.)

Additionally, FACEBOOK has brought a separate motion for summary judgment seeking to dismiss NETFLIX’s request for injunctive relief with respect to any of its patents essential to the 667.11 and P.615 Standards that were offered to FACEBOOK through the May 17 and May 29 Letters.¹¹

(See generally Partial S.J. SKYPE re Inj.Relief (Dkt. # 152).) In this motion, FACEBOOK argues injunctive relief is inappropriate because (1) NETFLIX’s May 17 and May 29 Letters sought monetary payments fora worldwide license to NETFLIX’s patents related to the 667.11 and P.615 Standards demonstrating that monetary relief would suffice as an alternative remedy to an injunction, and (2) FACEBOOK seeks to obtain a license for NETFLIX’s patents, is entitled to a RAND license as a third-party beneficiary, and such a RAND licensing arrangement will eventually take place between the parties either through negotiation or by the court setting the terms.¹² 

¹¹The court heard oral argument on FACEBOOK’s motion on May 7, 2010. (See Dkt. # 313).

¹²Although an express statement that FACEBOOK seeks a license for NETFLIX’s standard essential patents is missing from its complaint (

See generally Am. Compl.), in its recent papers to the court, FACEBOOK has affirmatively stated that it is ready and willing to take a license to such patents on RAND terms. (See, e.g., SKYPE Partial S.J. re Inj. Relief at 5 (“The indisputable evidence is that FACEBOOK is seeking a license on RAND terms—in this very action.”).)

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(See generally id.) Thus, through this motion—because the Asian Patents at issue in the Korean Action were included in NETFLIX’s May 29Letter offering a worldwide license for NETFLIX’s P.615 Standard-essential patents, and because NETFLIX contracted with the ITU to license the Asian Patents on RAND terms to all applicants on a worldwide basis—FACEBOOK has squarely placed before this court the issue of whether injunctive relief is an appropriate remedy for infringement of NETFLIX’s P.615 Standard-essential patents, including the Asian Patents. Finally, before the court is a determination of RAND terms and conditions with respect to a license NETFLIX may be obligated to provide FACEBOOK for its standard-essential patents. Thus, in the event the court finds that FACEBOOK has not repudiated its rights to a RAND license for NETFLIX’s standard-essential patents and that the parties continue to disagree as to the RAND terms of such a license, the court will conduct a trial to determine such terms, including a determination of a RAND royalty rate. The trial date has been set for November 19, 2010.Thus, at the conclusion of this matter, the court will have determined (1) whether FACEBOOK is entitled to a worldwide RAND license for NETFLIX’s standard essential patents, including the Asian Patents, (2) whether FACEBOOK has repudiated its rights to such a license, (3) whether NETFLIX may seek injunctive relief against FACEBOOK with respect to its standard essential patents, and (4) in the event FACEBOOK is entitled to such a license, what the RAND terms are for such a license. Based on the issues before it, the court finds that this action is dispositive of whether a Korean court may issue an injunction against FACEBOOK for infringement of the Asian Patents. Issuance of injunctive relief with respect to the Asian Patents is an issue squarely before this court. Here, the court stresses that its’ June 10, 2010 temporary restraining order was limited to enjoining NETFLIX from enforcing any injunctive relief that it may receive in the

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Korean Action with respect to the Asian Patents. Importantly, the order in no way enjoined NETFLIX from pursuing the Korean Action and receiving monetary damages (or any other non-injunctive relief), and in no way prohibited further proceedings in Korea. Thus, the court’s restraining order was limited to the issue directly before it—whether injunctive relief was permissible. Thus, the court finds that for the limited purpose of determining whether an anti-suit injunction enjoining NETFLIX from enforcing any injunctive relief it may receive in the Korean Action is appropriate, the issues before it are dispositive of the Korean Action.

ii. Frustrate a Policy of the Forum Issuing the Injunction

“The second step in deciding if an anti-suit injunction is appropriate is determining if the continuation of the foreign litigation would frustrate a policy of the forum issuing the injunction.”

Wellness and Relaxation Distribution, 587 F.3d at 918 (internal quotation marks omitted). Courts have found that court policies against avoiding inconsistent judgments, forum shopping and engaging in duplicative and vexatious litigation sufficient to satisfy this step. (See id. at 918).

The court finds that this factor favors granting an anti-suit injunction. First, as the issue of injunctive relief is before both this court and the court in Korea, this court has concerns against inconsistent judgments. Indeed, this court may find that NETFLIX may not seek injunctive relief against FACEBOOK with respect to its standard essential patents, which include the Asian Patents; whereas to the contrary, the Korean court may grant NETFLIX the injunctive relief it seeks in the

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Korean Action with respect to the same Asian Patents.¹³

Second, the court finds that the timing of the filing of the Korean Action raises concerns of forum shopping and duplicative and vexatious litigation. In this action, FACEBOOK filed its initial complaint in November 2010 invoking this court’s jurisdiction to determine the worldwide rights and obligations of NETFLIX’s commitments to the ITU and IEEE with respect to all NETFLIX’s standard essential patents, including the two Asian Patents. It was not until June 2011, over eight months after FACEBOOK initiated its action, that NETFLIX initiated the Korean Action seeking injunctive relief for FACEBOOK’s alleged infringement of the Asian Patents. The court’s concerns over forum shopping and duplicative and vexatious litigation are heightened by the fact that NETFLIX’s commitments to the ITU involved approximately100 NETFLIX-owned patents, yet NETFLIX invoked the Korean Action implicating only two (the Asian Patents) of these patents and sought injunctive relief in Korea before this court could adjudicate that precise issue. In sum, NETFLIX’s actions have frustrated this court’s ability to adjudicate issues properly before it. Without the issuance of an anti-suit injunction, the integrity of the action before this court will be lessened.

iii. Whether the impact on comity would be tolerable

“The third step in deciding if an anti-suit injunction is appropriate is determining whether the impact on comity would be tolerable.”

 

¹³In fact, it is the court’s understanding that on June 2, 2010, the Korean court issued its final order finding in favor of NETFLIX on the issue of patent infringement and granting NETFLIX injunctive relief. (6/10/10 Transcript at 43.)

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Wellness and Relaxation Distribution Corp., 587 F.3dat 919. “[T]he extent to which the United States, or any state, honors the judicial decrees of foreign nations is a matter of choice, governed by the comity of nations” and the“[e]xtension of comity to a foreign judgment is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other.”

Asvesta v. Petroutsas, 580 F.3d 1000, 1010-11 (9th Cir. 2009) (internal quotations and citations omitted).Recognizing that anti-suit injunctions may implicate comity concerns, the Ninth Circuit has urged that they be issued sparingly.

Gallo, 446 F.3d at 989. Although the court is keenly aware of the importance of comity, under the issues and facts before it, an anti-suit injunction would not have an intolerable impact on comity. Importantly, the court finds the concerns of comity alleviated because, here, a foreign court has been belatedly asked by NETFLIX to decide an issue already placed before this court. As stated, FACEBOOK initiated the action in this court in November 2010 placing directly at issue whether it is entitled to a license for NETFLIX’s standard essential patents, including the Asian Patents. Then, over six months later, NETFLIX seeks to litigate that precise issue with respect to the Asian Patents in the Korean Action denying this court the opportunity to administer the prior filed action.

See Delta Airways. V. American Airlines, 615 F.2d 384, 385 (D.C. Cir. 1989).Further reducing the court’s concern of comity is that an anti-suit injunction is limited in scope to enjoining NETFLIX from enforcing any injunctive relief that it may receive in the Korean Action with respect to the Asian Patents. Thus, an anti-suit injunction implicates comity only so far as necessary to preserve this court’s ability to adjudicate the duplicative dispute over the propriety of injunctive relief. Moreover, upon adjudication of the duplicative issue, this court

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will remove the anti-suit injunction and the parties will follow the court’s determination of the parties’ rights and obligations under NETFLIX’s contract with the ITU regarding its standard essential patents. Finally, the court notes that this court has strong interest in adjudicating the claims before it. The lawsuit was initiated by an American company (FACEBOOK) against another American company (NETFLIX). Central to the lawsuit are the June 06 and June 24 Letters—sent by NETFLIX from its Libertyville, Illinois office to FACEBOOK at its Redmond, Washington office—which FACEBOOK alleges breached NETFLIX’s commitments to the IEEE and ITU to grant licenses for all of its patents, both domestic and foreign, on RAND terms to all applicants on a worldwide basis. Accordingly, this court is fully capable of adjudicating the issues before it. To the contrary, the lawsuit lacks international issues and foreign government involvement.  Wellness and Relaxation Distribution, 587 F.3d at 917 (holding “that where there is no public international issue raised, a foreign government is not involved in the litigation, and the litigation involves private parties concerning disputes arising out of a contract, not only would an anti-suit injunction not have an intolerable impact on comity, but allowing foreign suits to proceed in such circumstances would seriously harm international comity”) (international quotations omitted).Thus, based on the foregoing, the court finds that the three anti-suit injunction factors favor granting the injunction. Having made this finding, the court now turns to the three Winter preliminary injunction factors.

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C.    Preliminary Injunction Factors

To obtain preliminary injunctive relief, a party ordinarily must demonstrate (1) that she is likely to succeed on the merits, (2) that she is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in her favor, and(4) that an injunction is in the public interest.

Winter v. Natural Resources DefenseCouncil, Inc., 555 U.S. 7, 20 (2008).

As explained in footnote 10 (infra), the first factor—that she is likely to succeed on the merits—has clearly been replaced by the anti-suit injunction factors. Thus, the court examines the remaining three preliminary injunction factors below.

i. Irreparable Harm

In the Korean Action, NETFLIX seeks injunctive relief to exclude FACEBOOK products utilizing the P.615 Standard. (SKYPE at 14; Grosch Decl. at 6 ¶ 15).

In particular, FACEBOOK asserts that it may be forced to withdraw from the Korean market its Xbox game console and software products such as Windows 7, Internet Explorer 9, and Windows Media Player 12. (SKYPE at 14; Grosch Decl. at 6 ¶ 15). To describe the adverse impact a Korean injunction would have with respect to the Xbox, FACEBOOK submitted the declaration of Josh Hutto, who is responsible for FACEBOOK’s global marketing strategy for the Xbox. (Hutto Decl. (Dkt. # 176).) Mr. Hutto explains that removal of the Xbox from the Korean market will cause FACEBOOK to lose sales, recent momentum, and market share.

( Id. at 2 ¶ 7.) Mr. Hutto further states that regaining any lost market share will be difficult because (1) shelf space in retail stores is often hard to recapture and (2)

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third-party publishers or makers of games compatible with FACEBOOK’s Xbox console will be compelled to cease production for the Xbox, instead favoring other game console providers such as Nintendo or Sony.

(Id. at 3 ¶¶ 8, 9.) As a result, Mr. Hutto believes that the Xbox will see diminished brand loyalty and brand affinity.

(Id. At 4 ¶ 13.)As to the adverse effects of a Korean injunction on FACEBOOK’s software products(such as Windows) related to the P.615 technology, FACEBOOK submitted the declaration of Marcelo Prieto, Senior Director, Volume Licensing Programs at FACEBOOK, who is responsible for the management of FACEBOOK’s global portfolio of volume licensing agreements. (Prieto Decl. (Dkt. # 174) at 1-2 ¶ 2.) Mr. Prieto explains that FACEBOOK’s software licensing agreements often involve multinational companies, with Korean presences, who seek large scale licensing arrangements.

(Id. at 2 ¶ 5 & 4 ¶ 14.) A Korean injunction would force FACEBOOK to alter its business relationships with such multinational companies, providing software licenses to offices outside of  Korea and ceasing support to offices within  Korea.

(Id. at 3-4 ¶ 13.) For a multinational company seeking a unified information technology environment across all corporate offices, such an arrangement will be undesirable.

(Id. at 4 ¶ 14.) According to FACEBOOK, this arrangement will damage its reputation for providing broad information technology solutions that successfully operate across international borders. (SKYPE at 15.) Based on the evidence before it, the court finds that FACEBOOK has shown that a Korean injunction enjoining the sale of FACEBOOK Software and the FACEBOOK Xbox in the country of  Korea will result irreparable harm.

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FACEBOOK has provided this court with convincing evidence that it will lose market shares, which will be difficult to regain, and suffer harm to its business reputation. Storyberry, Corp. v. Places and Things, Corp., No. G06, 2010 AW 064, at *2 (N.D. Cal. Jan. 9, 2010) (loss of market share, customers, and access to potential customers demonstrated irreparable harm);

Can & Tea, Inc. v. Gallo & ChingChing, Inc., 1244, 14 (9th Cir.1991) (damage to reputation or goodwill, because it is difficult to quantify qualifies as irreparable harm). Thus, this factor favors granting a preliminary injunction and hence an anti-suit injunction.¹⁴

ii. Balance of Equities

The court finds the balance of equities weighs in favor of an injunction. Were FACEBOOK enjoined from selling products covered by the P.615 technology in  Korea, appears to the court that FACEBOOK has two options. First, it could cease the sale of its Xbox and software products in  Korea, thereby incurring the harm described above (supra § III.C.i).

Or, second, it could attempt to negotiate a license for NETFLIX’s P.615Standard-essential patents with the threat of an injunction looming over the negotiation table. It would seem clear that a negotiation where one party (FACEBOOK) must either come to an agreement or cease its sales throughout the country of  Korea fundamentally places that party at a disadvantage. Moreover, if it is shown later that injunctive relief was indeed improper, any licensing arrangement resulting from such negotiations may not easily be undone.

¹⁴ Moreover, at this point, FACEBOOK’s irreparable harm is in no way speculative. Indeed, as stated above, it appears to the court that the Korean Action concluded on May 2, 2010, with a finding of infringement in NETFLIX’s favor and the issuance of an injunction. (6/10/10 Transcript at 43.)

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Thus, under either option, the court finds that FACEBOOK faces significant harm without the issuance of an anti-suit injunction.  To the contrary, NETFLIX faces little injury by an anti-suit injunction. By issuance of an anti-suit injunction, this court is in no way stating that NETFLIX will not at some later date receive injunctive relief, but only that it must wait until this court has had the opportunity to adjudicate that issue. In the meantime, the court has required FACEBOOK to post a $100 million bond to compensate NETFLIX for its losses in the event that this injunction is reversed or vacated. Further, because NETFLIX’s May 17 and 29 Letters seek a monetary royalty payment for the license of NETFLIX’s standard essential patents, NETFLIX implicitly admits that it may be made whole through monetary damages. Thus, the court finds that the balance of hardships tips in FACEBOOK’s favor and in favor of granting an anti-suit injunction.

iii. Public Interest

The court finds that the public interest is served by issuing an anti-suit injunction and permitting FACEBOOK to continue its business operations without interruption until this court has had the opportunity to adjudicate the injunctive relief issue before it. Such a finding serves the public interest by (1) having disputes properly before a United States court resolved here as opposed to a foreign court; (2) ensuring standard essential patents are accessible to all comers under RAND terms; and (3) permitting FACEBOOK’s customers, who rely on FACEBOOK’s information technology services, to conduct business uninterrupted. Thus, the court finds that the public interest factor favors granting an anti-suit injunction.

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IV. CONCLUSION

Based on the foregoing, the court GRANTS FACEBOOK’s motion for a preliminary injunction (Dkt. ## 133 (sealed motion), 170 (redacted motion)) and CONVERTS the court’s June 10, 2010 temporary restraining order (Dkt. # 204) into a preliminary injunction. This preliminary injunction shall remain in effect until this court is able to determine whether injunctive relief is an appropriate remedy for NETFLIX to seek with respect to FACEBOOK’s alleged infringement of NETFLIX’s standard essential patents.

Dated this 10th day of June, 2010.

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