InterDigital Loses ITC Patent Case Against Microsoft, ZTE

InterDigital Inc. lost its patent case against Nokia Oyj and ZTE Corp. at the U.S. International Trade Commission, dealing the phone-chip researcher another blow in its efforts to create a new royalty stream. InterDigital pledged to appeal.

Nokia phones, now made by Microsoft Corp., and devices by ZTE didn’t violate InterDigital patent rights, the ITC said in a notice today on its website. The commission upheld, with modifications, June findings from a trade judge who said that Nokia didn’t infringe one patent and that ZTE didn’t infringe that patent or two others.

The case -- InterDigital’s third at the ITC -- is part of a years-long struggle to get royalties on sales of the newest generations of mobile phones. InterDigital got almost all of its $325 million in sales last year from patent licensing with companies such as BlackBerry Ltd. and HTC Corp. Nokia and ZTE have held out, denying they owe any money.

In 2006, Espoo, Finland-based Nokia agreed to pay InterDigital $253 million to end a licensing dispute over earlier phone technology. A year later, InterDigital filed suit again over technology not covered by the earlier agreement, and the companies haven’t been able to reach an agreement since.

“The commission’s decision is disappointing, running contrary to a number of judicial decisions involving, in some instances, the exact same patents as in this case,” InterDigital Chief Executive Officer William Merritt said in a statement. “We do not feel this decision will have any meaningful impact on our progress towards our licensing goals.”

Microsoft Purchase

The ITC has been the locus of the fight, because the trade agency has the power to block imports of products made overseas that violate U.S. intellectual property rights. The first ITC case, which InterDigital lost, was revived on appeal and is scheduled for a new hearing in January. The Wilmington, Delaware-based company lost a second case in December, which is on appeal.

Microsoft bought Nokia’s handset business in April and has told the agency it agreed to assume all of Nokia’s liabilities and have “sole control over the defense, including sole authority to resolve this action.” Even so, Nokia remains in the case.

Nokia was accused of infringing a patent for a method to improve transmissions. ZTE was accused of infringing that patent as well as two others for mobile-phone technology. ITC Judge Theodore Essex found that the three patents weren’t infringed.

Fair Terms

Separately, the judge ruled that InterDigital hadn’t fulfilled the requirement of a market in the U.S. for the patents because there wasn’t a link between the three patents and any product. The agency’s job is to protect U.S. markets from unfair trade practices, so patent owners must prove they have a domestic industry to defend. The commission upheld Essex on that point.

He did find that InterDigital hadn’t violated its pledge to license the patents on fair terms, and said that, in some instances, it’s the company making the products that’s being unreasonable in licensing talks. The commission took no position on that part of the judge’s findings, saying the issue of patents on standardized technology will be considered in the other case against Nokia that InterDigital has pending.

“InterDigital is trying to block our products based on patents it openly promised the industry could use at reasonable rates,” David Cuddy, a Microsoft spokesman, said in a statement. “We’re grateful the commission has now confirmed that we don’t even use these patents in our products.”

Senators’ Letters

Officials with InterDigital didn’t immediately respond to a query seeking comment after normal business hours.

The reasoning behind the commission’s decision will be available after both sides have a chance to redact confidential information.

Essex recommended that should a violation of InterDigital’s patent rights be found, the agency issue an import ban and delay the implementation for six months to limit the effect on consumers.

U.S. Senators Robert Casey, a Democrat, and Pat Toomey, a Republican, both representing Pennsylvania, separately wrote to the agency last month on InterDigital’s behalf. The company was formerly based in King of Prussia, Pennsylvania, and some of its almost 300 workers are still in the state.

“Their business model and the future success of their workers are based on the licenses paid for their innovations used by equipment manufacturers,” Toomey wrote. Allowing companies to infringe patents without paying “will only deter companies like InterDigital from taking bets on future research and development. That cannot be good for American innovation and job creation.”

The case is In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities, 337-868, U.S. International Trade Commission (Washington).

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