The Supreme Court has today (26th August 2020) issued decisions unanimously dismissing two parallel appeals from English Court of Appeal decisions. In particular, the "Unwired appeal" and the "Conversant appeal". The Supreme Court heard the oral arguments in October 2019. The decision can be found here.
The "Unwired appeal" concerned an action brought in by Unwired Planet in 2015/16 against Huawei for infringement of five UK patents forming part of a worldwide Standard Essential Patent (SEP) portfolio. The SEP portfolio was acquired by Unwired, an intellectual property licensing company, from Ericsson. Although Ericsson previously licensed the SEPs to Huawei, the licence expired in 2012. Initially, in the UK, Unwired accused Samsung, Google and Huawei of violating these patents. Google reached a settlement with Unwired before trial.
With regard to the Huawei dispute with Unwired, at first instance in the UK High Court, Judge Birss, found that a global licence was an appropriate FRAND licence for Unwired's SEP portfolio and that it was appropriate for the English court to determine the FRAND terms. Huawei argued that setting global FRAND terms on the basis of national findings of infringement was unjust. There was ongoing litigation in other jurisdictions with regard to some of the SEPs. Huawei sought the same FRAND rates as those that had been offered to Samsung alleging that this was required for the licence to be "non-discriminatory". Huawei also alleged abuse of a dominant position by Unwired because in view of the Huawei v ZTE CJEU judgement, Unwired ought to have offered a FRAND licence prior to bringing a proceedings for an injunction.
The Court of Appeal found that although Unwired did hold a dominant market position, it had not abused this by failing to offer a FRAND licence prior to bringing proceedings. The Court of Appeal agreed with Birss J that a global licence could be negotiated by a willing licensor and licensee, although departed from the first instance judgment by concluding that there was no requirement that only one set of licence terms could be FRAND in any given circumstance. In particular, there was no reason why a SEP owner cannot license at rates below a FRAND benchmark, making the lower rates offered to Samsung irrelevant.
Unwired Planet's parent company (Panoptis) and Huawei settled corresponding FRAND litigation in Germany earlier this year (2020) before Germany's highest court, the Federal Court of Justice, could reach its decision. In October 2020 the German Federal Court of justice declared an Unwired SEP patent valid, paving the way for a subsequent decision on infringement and FRAND compliance, but the case was withdrawn in view of the settlement between Panoptis and Huawei.
The "Conversant appeal" concerned an action brought by Conversant, another intellectual property licensing company, against Huawei and ZTE for infringement of four UK patents from a large patent portfolio of SEPs acquired from Nokia in 2011. Huawei and ZTE applied for an order dismissing Conversant's claims, arguing that the English courts: (i) did not have jurisdiction to determine validity of foreign patents; or (ii) were not an appropriate forum for trying the case so a stay of proceedings should be granted. The trial judge dismissed both of these applications holding that the English courts had the jurisdiction to enforce SEPs under the European Telecommunications Standards Institute's (ETSI's) intellectual property rights (IPR) policy and the right to determine the terms of a FRAND licence. With regard to validity and infringement, the terms of any FRAND licences determined by English courts could be adjusted to reflect any relevant validity and infringement rulings of foreign courts.
Questions Answered by the Supreme Court
The Supreme Court addressed a number of questions in these appeal decisions that will prove very important for both implementers and patent holders of SEPs in the wireless telecommunications sector. The questions and corresponding answers are set out below.
The Jurisdiction Question
Q1. Does the English court have the power or jurisdiction, or is it a proper exercise of any such power or jurisdiction without the parties' agreement:
- to grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio;
- to determine the rates/terms for such a licence; and
- to declare that such rates/terms are FRAND?
A1. YES, the English Courts do have jurisdiction to grant an injunction, to determine rates/terms and to declare such rates/terms FRAND. Although questions of validity and infringement of a national patent must be determined by the courts of the state in which the national patent was granted, the contractual arrangements specified in the ETSI IPR policy give English courts the jurisdiction to determine licence terms of a patent portfolio including foreign patents.
The Suitable Forum Question
Q2. If the answer to Q1 is "yes", is England the proper forum for such a claim in the circumstances of the Conversant proceedings?
A2a. YES, England is a proper forum despite a high proportion of Huawei and ZTE turnover being in China. Huawei and ZTE had argued that the Chinese courts would be a more suitable forum for resolving their dispute with Conversant. Chinese courts do NOT currently have the jurisdiction needed to determine the terms of a global FRAND licence without the consent of the parties. By way of contrast, the English court does have jurisdiction.
A2b. Furthermore, the decision of the Court of Appeal not to stay proceedings pending the outcome of Chinese proceedings challenging the validity of Conversant's Chinese patents was the correct decision.
Non-discrimination aspect of the FRAND Question
Q3. What is the meaning and effect of the non-discrimination component of the FRAND undertaking and does it mean that materially the same licence terms as offered to Samsung must be offered to Huawei in the circumstances of the Unwired case?
A3. NO, the nature of the licence must be in line with the ETSI IPR policy. ETSI previously rejected a "most favourable licence" term of the kind that would require SEP owners to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees. The nature of the consultation between implementer and SEP holder prior to the SEP holder seeking an injunction depends on the facts of the case. The obligation to licence on "fair, reasonable and non-discriminatory ...terms and conditions" is a single composite obligation rather than three separate obligations. Unwired Planet has not breached the "non-discrimination" limb of the FRAND undertaking by not offering Huawei a licence with a worldwide royalty rate equally as favourable as those licence terms previously agreed with Samsung.
The Appropriate Remedies Question: Damages or Injunction
Q4A. Does the CJEU's decision in Huawei v ZTE mean that a SEP owner is entitled to seek an injunction restraining infringement of those SEPs in circumstances such as those of the Unwired case?
A4a. YES, a SEP owner is entitled to seek an injunction from an English court in these circumstances. An award for damages would not be an appropriate alternative.
Q4B. Was there an Abuse of a Dominant Position by Unwired in way in which the injunction was Sought?
A4B. Unwired Planet's claim for an injunction was NOT an abuse of a dominant position, as had been alleged by Huawei. The Supreme Court confirmed that whilst bringing an action for an injunction without notice of prior consultation of the alleged infringer would be abuse of a dominant position (contrary to Art 102 of Treaty on the Functioning of the European Union), the nature of the notice or the consultation required will depend on the facts of the case. The protocol set out in Huawei v ZTE is not mandatory. In the present case, Unwired had shown a willingness to grant a licence to Huawei on whatever terms the court decided were FRAND and thus there was no abuse of a dominant position.
The Supreme Court's parallel decisions in these two appeals represent very good news for SEP holders and give long awaited clarity on FRAND licence terms, at least for ETSI SEPs. Confirmation that the UK courts do have jurisdiction to grant an injunction in respect of a SEP and to determine FRAND rates for a worldwide portfolio regardless of ongoing foreign litigation is welcome. Although infringement and validity are matters for national law, the FRAND rates settled via the UK courts can be appropriately adjusted to take into account any national findings of invalidity or non-infringement.
These Supreme court decisions offer the SEP holder flexibility in agreeing licence terms so they are not constrained by the most favourable licence previously offered. Furthermore, seeking an injunction without first offering the implementer a licence is not automatically abuse of a dominant position because the nature of the notice or prior consultation required prior to seeking an injunction depends on the facts of the case. It is not mandatory to follow the safe harbour conditions set out in Huawei v ZTE when seeking to injunct an implementer based on a SEP. Demonstrating a willingness to grant the implementer a licence on whatever terms the UK court decides are FRAND was sufficient in this case to justify seeking an injunction. One question that remains unanswered is how the FRAND obligations of a SEP patent holder might be affected by transfer of SEPs. Furthermore, since different Standards bodies set their own IPR policies, the wider applicability of this decision, which relates to an ETSI standard, could depend on the specific terms of the IPR policy at issue.
This article was prepared by HGF Partner Dr Susan Keston and Senior Patent Attorney Dr Sofie McPherson. If you would like further advice on this or any other matter, please contact Susan or Sofie. Alternatively, you can contact your usual HGF representative or visit our Contact page to get in touch with your nearest HGF office.
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