This article first appeared on EPLaw Patent Blog.
On 23 October 2018, the Court of Appeal handed down its judgment in Unwired Planet v Huawei on FRAND licensing of standard-essential patents (‘SEPs’). The Court of Appeal dismissed all three grounds of Huawei’s appeal and upheld Birss J’s decision from first instance to issue an injunction to prevent Huawei from selling wireless telecommunications products in the UK. The Court of Appeal disagreed with Birss J’s finding that there is only one set of FRAND terms in any given set of circumstances.
This did not, however, have a material impact on the overall outcome.
The appeal judgment is structured around the three grounds of appeal, as summarised below.
- Global licensing may be FRAND
Perhaps most significantly, the Court of Appeal confirmed that a SEP owner can meet its FRAND obligations by offering a worldwide licence in circumstances where the portfolio has global coverage and the implementer operates globally. If the implementer refuses that offer, then it may be subject to an injunction preventing further infringement in the UK. The Court agreed with Birss J that Unwired Planet’s substantial portfolio and Huawei’s global business were factors in favour of a global licence. In such circumstances, country-by-country licensing would be inefficient and would condemn the SEP owner to “impossibly expensive” litigation in each country in which it wanted to obtain royalties.
As noted above, the Court of Appeal disagreed with Birss J on one point. In the Court’s view, Birss J’s finding that there can only be one set of FRAND terms in any given set of circumstances lost sight of the complexities of SEP licensing, and did not sit easily with concepts such as fairness and reasonableness. The Court instead found that several different sets of terms are capable of being FRAND and a SEP owner can fulfil its FRAND obligations by offering any one of those sets to a licensee.
- Unwired Planet’s offer was non-discriminatory
The Court rejected Huawei’s appeal on the so-called ‘hard-edged’ non-discrimination point. Birss J was correct to hold that the ‘ND’ part of FRAND is a ‘general’ non-discrimination obligation. In other words, it only requires a SEP holder to offer a rate which reflects the proper valuation of its patent portfolio to all potential licensees. The Court acknowledged that differential pricing is not objectionable in itself and that an effects-based approach to non-discrimination is therefore appropriate. In the Court’s analysis, once the hold-up problem inherent in standardisation had been addressed by ensuring that the licence is available at a rate which does not exceed the fair and reasonable ‘benchmark’ rate, it is difficult to see any purpose in preventing the SEP holder from charging less than the licence is worth if it wants to do so. Any discrimination below the benchmark rate which causes competitive harm can be addressed through the application of competition law. On this basis, it was held that the licence on offer to Huawei, which was at the fair and reasonable benchmark rate, was on non-discriminatory terms.
- The Huawei v ZTE framework gives SEP owners a ‘safe harbour’
The Court of Appeal agreed with Birss J that the licence negotiation framework established by the CJEU in Huawei v ZTE does not present a set of prescriptive rules. Endorsing Birss J’s pragmatic approach, the Court held that only one part of the framework is mandatory: the obligation on the SEP owner to notify the implementer before starting litigation. Precisely what notice must be given will depend on the circumstances of the case in question. The Court found that while the other steps in the Huawei v ZTE framework are not mandatory conditions, compliance with them gives the SEP owner ‘safe harbour’ protection against a finding of abuse of dominance. If it strays outside the framework, the SEP owner faces the risk of infringing Article 102 TFEU and being unable to obtain an injunction.
What happens next?
The High Court’s judgment has been upheld and so the ‘FRAND injunction’ issued by Birss J will now take effect, unless a further suspension is ordered while an appeal to the Supreme Court takes place. Huawei has already indicated that it will seek permission to appeal, so there may yet be a further twist in the Unwired Planet v Huawei saga.
A copy of the judgment can be found here.