English courts can determine terms of global licences for portfolios of standard essential patents

We discuss the Supreme Court ruling in the Unwired Planet v Huawei case

01.09.2020

Supreme Court Judge

Andy Bowler and Matt Hunt were interviewed by Robert Matthew. This is the resulting article, published first on Lexis Nexis, August 2020.

Supreme Court: English courts can determine terms of global licences for portfolios of SEPs (Unwired Planet v Huawei)

IP analysis: The Supreme Court has decided that the contractual arrangements which the European Telecommunications Standards Institute (ETSI) has created under its intellectual property rights (IPR) policy give the English courts jurisdiction to determine the terms of a licence of a portfolio of patents which includes foreign patents. Andrew Bowler, partner, and Matthew Hunt, associate, at Bristows LLP examine the court’s decision.

Unwired Planet International Ltd and another company v Huawei Technologies (UK) Co Ltd and another company; Huawei Technologies Co Ltd and another company v Conversant Wireless Licensing SARL; ZTE Corporation and another company v Conversant Wireless Licensing SARL  [2020] UKSC 37

 

What are the practical implications of the judgment?

This judgment is a definitive statement from the Supreme Court that the English courts are willing and able to determine the terms of global licences which are fair, reasonable and non-discriminatory (FRAND) for portfolios of declared standard essential patents (SEPs).

If an SEP holder can prove before an English court that one or more of its SEPs are valid and essential to a standard such as 4G, and are therefore infringed by an implementer (a manufacturer of mobile devices that make use of standards such as 4G), the implementer will have to choose between accepting a global FRAND licence set by the court or face being injuncted in the UK. SEP holders will still have to demonstrate why a global licence is FRAND with respect to their portfolio and the operations of each potential licensee. This judgment therefore offers SEP holders the means of achieving the complete resolution of a global licensing dispute.

The judgment is likely to have an immediate impact upon FRAND licensing negotiations, particularly as some negotiations will have stalled pending the Supreme Court’s decision. There may be an increased emphasis in negotiations upon the strength of the patent portfolio in key jurisdictions.

The finding that the non-discrimination limb of FRAND does not mean that all similarly situated implementers have to be offered the same royalty rates offers parties a degree of flexibility in negotiations, and may make settlements more likely.

The judgment could lead to an increase in SEP/FRAND litigation in the UK. It offers certainty as to the UK position, and SEP holders can be expected to take advantage of the confirmed route to securing global FRAND licences through the English courts. However, the case is unlikely to be the final word on jurisdiction, as arguments regarding the appropriate forum will resume if and when (as seems likely) other national courts adopt a similar approach to jurisdiction in FRAND cases.

 

What was the background?

The respondents in the joined cases before the Supreme Court are companies which license patents for royalty income. They had brought actions for infringement of patents which they claimed were SEPs.

In the Unwired case, the first respondent commenced proceedings in 2014 against Huawei, Samsung and Google, alleging infringement of five patents declared essential to ETSI standards which it had acquired from Ericsson. After a number of patent trials, and with Samsung and Google both having reached settlements, the High Court held a trial of the FRAND issues as between the first respondent and Huawei. The judgment settled the terms of a FRAND licence, notably holding that the only licence that the first respondent was required to offer was a global licence. Huawei would not commit to take the global licence which had been settled by the court and, accordingly, an injunction arising from a finding of patent infringement was the appropriate remedy.

Huawei appealed to the Court of Appeal, which upheld Birss J’s judgment. The only significant point of disagreement was that the Court of Appeal held that the FRAND rate for a portfolio could be a range, overturning Birss J’s finding that there was only one true set of FRAND terms for any given set of circumstances. However, in this case, only a global licence was FRAND. Huawei appealed to the Supreme Court.

In the Conversant case, the second respondent brought proceedings in 2017 against Huawei and ZTE. The second respondent alleged infringement of four SEPs, which it had acquired from Nokia, and sought declarations that the licensing offers it had made to Huawei and ZTE were FRAND (or, in the alternative, a declaration as to what licensing terms would be FRAND).

Huawei and ZTE both issued applications challenging the jurisdiction of the English court. The applications alleged inter alia that the English courts could not, or in the alternative should not, exercise jurisdiction over the second respondent’s claim(s). Henry Carr J determined that the action was properly characterised as a patent infringement claim and that consequently the English courts should exercise jurisdiction over it.

Huawei and ZTE appealed  to the Court of Appeal, which upheld Carr J’s judgment. Huawei and ZTE appealed to the Supreme Court, with the appeal being listed to be heard together with the appeal in Unwired.

 

What did the Supreme Court decide?

There were five issues before the court.

English courts’ jurisdiction

The question was whether the English courts had jurisdiction and could they properly exercise such power, without the parties’ agreement, to: (i) grant an injunction restraining infringement of a UK SEP unless the defendant entered into a global licence under a multinational patent portfolio; (ii) determine the rates and other terms for such a licence; and (iii) declare that such rates and other terms were FRAND.

The Supreme Court held that the contractual arrangements created by ETSI’s IPR policy gave the English courts jurisdiction to determine a global FRAND licence even without the specific consent of the parties involved. In reaching this finding it noted that it was common industry practice for parties to agree global licences and endorsed the view of the lower courts that setting global FRAND terms did not involve the English courts purporting to rule on the validity and infringement of foreign patents (which would be non-justiciable).

Appropriate forum

Huawei and ZTE argued that England was not the proper forum for such a claim in the circumstances of the Conversant proceedings.

The Supreme Court found that the evidence before it had not shown that the Chinese courts (the only alternative courts suggested by Huawei and ZTE) would have jurisdiction at present to set the terms of a global FRAND licence, whereas the English courts did have such jurisdiction.  Accordingly, no alternative forum was available, and so England was the proper forum.

Non-discrimination

The court then considered how the English courts should interpret the ‘ND’ limb of FRAND.

It held that non-discrimination under the ETSI contract was ‘general’ in nature rather than ‘hard-edged’. That meant an SEP holder had to offer a royalty rate set by reference to the true value of the SEPs being licensed. That rate did not cease to be FRAND simply because the SEP holder had previously granted a licence on more favourable terms. Therefore, the Supreme Court agreed with the lower courts that the first respondent did not have to offer the same royalty rates to Huawei as it had given to Samsung in a 2016 licence.

Abuse of dominant position

The next issue was whether the court should refuse to grant an SEP owner an injunction in circumstances where it had not fully complied with the guidance given by Court of Justice of the European Union (CJEU) in Huawei Technologies Co Ltd v ZTE Corp and another company (C-170/13) [2015] All ER (D) 237 (Jul).

The Supreme Court agreed with the lower courts that the only mandatory condition in the Huawei v ZTE framework was the requirement for the SEP holder to notify or consult with the alleged infringer before bringing a claim for an injunction, and the nature of that notice or consultation depended on the circumstances of the case. Compliance with the other steps in the Huawei v ZTE framework was not mandatory but did give the SEP holder ‘safe harbour’ against a finding of abuse of dominance under Article 102 of the Treaty on the Functioning of the European Union. The Supreme Court did not interfere with Birss J’s original finding that the first respondent had not acted abusively in bringing its claim for injunctive relief against Huawei.

Remedies

The final issue was whether the equitable jurisdiction to award injunctions was prohibited by the nature of SEPs.

The Supreme Court held that damages in lieu would not be an adequate substitute for an injunction because this would give implementers an incentive to hold out country-by-country until compelled to pay damages in each country.

Andrew Bowler

Author

Matthew Hunt

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