Worldwide: Where Will Be The Most Favorable FRAND Forum?

2020 was a big year for standard-essential patents (SEPs) and the trend continues in 2021. The U.S., Germany, and the U.K. have all issued decisions favoring SEP holders' business interests and enforcement freedom. The U.S. courts have rejected antitrust claims against SEP holders, and the German and U.K. high courts have put the onus on implementers to explain why they should avoid an injunction.

The U.K. court further asserted the power to set fair, reasonable, and non-discriminatory (FRAND) licensing rates for international patent portfolios. Seemingly in response, the Chinese Supreme Court expressed a dissenting view, issuing an anti-suit injunction in favor of an SEP implementer and declaring that Chinese courts, like their U.K. counterparts, are willing and able to set FRAND terms for worldwide portfolios.

As SEP stakeholders continue their licensing negotiations in conference rooms or virtually, judges around the world seem to be inviting them to take their disputes to court, in a judicial competition to be the most favorable FRAND venue in the world. This article reviews recent developments in the SEP landscape and courts' efforts to defend their power over FRAND disputes through anti-suit and anti-anti-suit injunctions, and provides practical considerations for industry stakeholders facing the escalating SEP battles.

International SEP Landscape

U.K.

In August 2020, the U.K. Supreme Court issued its landmark Unwired Planet decision. Rejecting the jurisdictional challenge from Chinese implementers, the court held that U.K. courts can issue injunctions based on a U.K. SEP if an implementer refuses to take a global license that the court determines to be FRAND. The court found this power in the European Telecommunications Standards Institute's (ETSI's) intellectual property rights (IPR) policy. The policy says nothing about the U.K. courts, but the court concluded that it was the only suitable forum for the case. The court considered China, which was proposed by the implementers as a more proper forum, but decided that China lacked jurisdiction to determine global FRAND terms, at least without all parties' consent.

Germany

In Sisvel v. Haier, the German Federal Court of Justice issued its first FRAND decision since the Court of Justice of the European Union's (CJEU's) 2015 landmark decision in Huawei v. ZTE. The German court further clarified the procedural obligations of SEP holders and implementers during licensing negotiations.

During negotiations, an implementer must respond to the SEP holder promptly, expressing a clear, unconditional willingness to take a FRAND license. Only then can the implementer be considered a willing licensee and thus avoid an injunction. In a more recent and related November 2020 ruling, the court further tightened the requirements for implementers, stressing that the implementers, after showing such willingness, must also subsequently act with continued willingness towards a license.

The SEP battles launched by telecom licensors against automakers in the connected-car world continues to unfold. Nokia has won several of its SEP battles against Daimler, who refused to accept the one-stop license Nokia and other SEP licensors offer to automakers through the Avanci platform. In August 2020, the Mannheim Regional Court issued an injunction against Daimler, finding Daimler and its co-defendants did not behave the way willing licensees should. The Munich Regional Court issued another injunction against Daimler, another in a string of setbacks for the automaker in suits launched by Avanci licensors.

In November 2020, the Du?sseldorf Regional Court referred several SEP and FRAND questions to the CJEU, seeking more guidance. Among other questions, the court asked the CJEU to clarify whether SEP holders are obligated to license component suppliers like Continental, or whether they can require OEMs like Daimler to obtain separate licenses. That echoes the core dispute in the related U.S. case filed by Continental against Nokia and the Avanci licensing platform.

U.S.

In FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020), the Ninth Circuit reversed an injunction against Qualcomm's allegedly unreasonable licensing royalties, "no license, no chip" policy for OEM manufacturers, and its refusal to license to rival chip-suppliers. The appeals court found Qualcomm's licensing model to be chip-supplier neutral and did not undermine competition in the chip-supply market. The decision cautioned against using antitrust laws to address FRAND issues and stressed that remedies for FRAND breaches are better addressed by contract and patent law.

In Continental Automotive Systems, Inc. v. Avanci LLC, Civil Action No. 3:19-cv-02933-M (N.D. Tex. Sep. 10, 2020), a Texas court reached similar conclusions in dismissing auto supplier Continental's antitrust claims against Avanci and licensors on its platform. The court held that Avanci's allegedly non-FRAND royalties for downstream OEMs did not create an antitrust injury for upstream suppliers like Continental. The court cited the Ninth Circuit's Qualcomm holding that a violation of contractual FRAND obligations is not an antitrust violation.

China

One day after the U.K. high court issued the Unwired Planet decision, the Du?sseldorf Regional Court issued an injunction against Huawei, in a parallel German case Conversant filed based on related German SEPs. The next day, in a parallel Chinese case, the Chinese Supreme Court issued an unprecedented anti-suit injunction barring Conversant from enforcing the German injunction against Huawei. Huawei v. Conversant, (2019) Zui Gao Fa Zhi Min Zhong 732, 733 and 734 No 1. (Su. People's Ct. 2020). In general, anti-suit injunctions are orders from one court enjoining a party from proceeding with an action in a foreign jurisdiction. Given the extraterritorial reach and comity concerns, such orders traditionally are issued sparingly.

Here, the Chinese case involves Conversant's appeal from a Nanjing court's 2019 decision setting FRAND rates for its licenses with Huawei. The appealed Nanjing-court decision was the first top-down FRAND decision in China and set rates significantly lower than Conversant's demands. In issuing the anti-suit injunction, the Chinese Supreme Court reasoned that enforcing the injunction would negatively impact the parallel Chinese proceeding, and that the anti-suit injunction was necessary to prevent irreparable harm to Huawei. The court also noted that international comity considerations favor granting of the anti-suit injunction because the Chinese case commenced earlier.

In October 2020, two months after the U.K. Unwired Planet decision, a Shenzhen court issued a decision confirming Chinese courts' jurisdiction to set global FRAND terms in Oppo v. Sharp, (2020) Yue 03 Min Chu 689 (Shenzhen Interm. People's Ct. 2020). The case involves SEP licensing disputes between Oppo, a Chinese mobile device manufacturer, and Sharp. Oppo requested a declaratory judgement that Sharp violated its FRAND obligations during licensing negotiations and asked the court to set global licensing terms for Sharp's SEP portfolio.

Sharp contended that Chinese courts lacked jurisdiction because no licensing contract existed to provide jurisdiction under Chinese law and setting global terms exceeded the Chinese courts' power. The court rejected Sharp's arguments. Because Oppo is a Chinese company and the patents-in-suit were allegedly implemented in China, the court held that the case had a sufficient jurisdictional connection with China. The Chinese court, like the U.K. court in Unwired Planet, noted that its ruling on global FRAND rates would improve efficiency and avoid multi-jurisdictional suits.

My House, My Rules

Several major jurisdictions have rejected challenges to their power to set global FRAND rates. They have also issued anti-injunctions and countered other courts' anti-suit injunctions with anti-anti-suit injunctions. Observers worry these developments might result in a world where parties race to leave the negotiating table to file suit in the most favorable forum, while the national courts of numerous countries compete to control the FRAND landscape and see which court can issue the injunction with the most "anti-"s.

China and India

In China, following the anti-suit injunction from the Chinese Supreme Court, a Wuhan court granted Chinese company Xiaomi's request for an anti-suit injunction against InterDigital, barring InterDigital from seeking junctions in a parallel Indian suit or initiating FRAND suits elsewhere. Xiaomi v. InterDigital, (2020) E 01 Zhi Min Chu 169 No. 1 (Wuhan Interm. People's Ct. 2020). After its licensing negotiations with InterDigital stalled, Xiaomi sued and asked the Wuhan court to set global FRAND terms for InterDigital's SEP portfolio. InterDigital subsequently brought suit in Delhi, India, seeking injunctions and requesting the Indian court to set FRAND terms. Xiaomi responded by seeking an anti-suit injunction against InterDigital, which the Chinese court granted.

In response, InterDigital sought an anti-anti-suit injunction from the Indian court preventing Xiaomi from enforcing the Chinese anti-suit injunction. The Indian court granted InterDigital's request on the ground that the Chinese court's order intruded on the Indian court's authority. InterDigital also petitioned the Chinese court to reconsider and vacate the anti-suit injunction, which the Chinese court denied. See Xiaomi v. InterDigital, (2020) E 01 Zhi Min Chu 169 No. 2 (Wuhan Interm. People's Ct. 2020) (China). In its decision, the Chinese court recognized that jurisdiction over FRAND issues may lie in courts of different countries and noted that, in the absence of agreement, one party willing to accept FRAND adjudication may choose one court over the others. Once the choice is made, according to the Chinese court, other jurisdictions should, out of comity and deference, decline to move forward so that only the chosen court can resolve the dispute.

U.S., Germany, U.K., and France

In the U.S, U.K., Germany, and France, anti-suit injunctions continue to escalate the tension. Several jurisdictions in Europe, although historically disfavoring anti-suit injunctions, have reacted to anti-suit injunctions obtained in other countries with anti-anti-suit injunctions of their own.

In the U.S. Continental v. Avanci case, Continental had sought an anti-suit injunction from a California court to enjoin Nokia from pursuing infringement suits against Continental customer Daimler in Germany. In response, Nokia turned to the German court and sought an anti-anti-suit injunction against Continental. The German court expedited Nokia's request and granted the anti-anti-suit injunction ex parte two days later, ordering Continental to withdraw its U.S. motion, citing the impact it would have on the German proceedings and Nokia's rights under German law. Continental subsequently withdrew its anti-suit injunction motion in the U.S. court relating to the German suits.

Courts in the U.K. and France have also granted anti-anti-suit injunctions against anti-suit injunctions issued by U.S. courts, to enjoin the parties from interfering with the proceedings in their respective jurisdictions.

The Clash Between U.S. and Chinese Courts

The tale of anti-suit and anti-anti-suit injunctions concluded its 2020 chapter with a clash in Ericsson Inc. v. Samsung Electronics Co. Ltd, No. 2:20-cv-00380-JRG (E.D. Tex.). The clash has led to conflicting submissions from two former Federal Circuit chief judges, an anti-anti-suit injunction from Texas in response to a Chines anti-suit injunction, and a barrage of International Trade Commission (ITC) complaints.

On Dec. 11, 2020, Ericsson sued Samsung for FRAND breaches in Texas. Samsung subsequently notified Ericsson that it had filed a suit in the Wuhan court that issued the anti-anti-suit injunction in Xiaomi. Samsung had asked the Chinese court to determine global FRAND rates for Ericsson's SEPs. Because Samsung's Chinese filing was not immediately publicly available and Samsung was not obligated to notify Ericsson of the suit, Ericsson did not know it had been sued until later.

A few days after Ericsson sued in Texas, Samsung requested an anti-suit injunction from the Chinese court to enjoin Samsung from pursuing FRAND suits elsewhere. The Chinese court granted the request on Dec. 25, reasoning that Samsung filed in China first and, expressing the popular explanation of courts everywhere, the order would prevent overlap and conflicts between this and later-filed suits.

In response, Ericsson filed in the Texas court an emergency motion for a temporary restraining order and anti-interference injunction to prevent Samsung from interfering with the U.S. suit. The Texas court issued the temporary restraining order on the same day. After a January 2021 hearing, it issued a preliminary injunction—an anti-anti-suit injunction—to prevent Samsung from enforcing the Chinese anti-suit injunction and interfering with the court's exercise of its jurisdiction.

In issuing the injunction, the court applied the test U.S. courts use in issuing anti-suit injunctions, finding it instructive in the anti-anti-suit injunction context. The court noted that the order in which the suits were filed was not dispositive, and the legal questions before the Chinese and the U.S. courts were different. In the Texas court's view, the Chinese court was asked to set FRAND rates, while the Texas court was asked to evaluate the parties' conduct during negotiations.

According to the court, the injunction would not offend international comity because it would only "preserve the ability for litigation to proceed in parallel." The court found that Samsung would not suffer inequitable hardship if suits were to proceed in both courts. Instead of ordering Samsung to make any formal motion in the Chinese suit, however, the court ordered it to indemnify Ericsson from penalties under the Chinese anti-suit injunction. Samsung has requested an expedited appeal of the Texas court's order to the Federal Circuit.

Takeaways

Will the SEP battles lead to anti-anti-anti-suit injunctions? Maybe. Courts have shown they generally do not welcome challenges to their authority. The question thus is, if concurrent jurisdiction exists, who should decide which court is a better forum and based on what test? Should standard-setting organizations step in and prevent jurisdictional battles from the onset by setting forum-selection or dispute-resolution rules?

Perhaps clarification and order will come as the cases continue through various nations' courts. However, that seems unlikely in the short term given what has transpired so far. Meanwhile, stakeholders should factor the changing climate and jurisdictional differences into their SEP strategies. Out of chaos, opportunities emerge.

FRAND Jurisdiction

Despite differences in jurisdictional rules, national courts in the world's economic centers appear willing to resolve FRAND disputes involving multinational portfolios. The U.K. high court based its jurisdiction over global FRAND terms on the contractual nature and goals of the standard-setting organization's policy. China, on the other hand, looked at the connection between Chinese courts and the dispute, such as where the alleged infringing activities occur. The U.S. court in Continental v. Avanci also rejected jurisdictional challenges over foreign SEPs in the antitrust setting. The court noted that FRAND obligations involve activities concerning global licenses and global markets, which necessarily include the U.S. market.

Similar logic can apply elsewhere, and stakeholders may find it difficult to divest an unfamiliar or unfriendly court of its power over the case. With the cross-border nature of standards, global penetration of products, and inherent contractual attributes of licensing, SEP matters will unlikely be confined to one country.

Considerations for Selecting A More Favorable FRAND Court

Stakeholders must consider where their FRAND disputes may land and explore ways to direct the disputes to a favorable jurisdiction. Previous court-set rates remain a primary consideration in the selection of jurisdictions. In general, licensing rates set by Chinese courts tend to be significantly lower than courts in the U.S. or Europe. Perhaps more important, however, is which jurisdictions are more likely to grant injunctive relief.

An injunction against the selling of products in the SEP context is far more likely in the European courts than in the U.S. or China. An SEP holder who can bring suit in the U.S. ITC, however, may have a better chance of getting an exclusion order there than getting an injunction in district court. It remains to be seen how German courts will implement the Sisvel v. Haier framework. Perhaps an implementer will show the rest of the world how to avoid an injunction in Germany.

The parties should also account for the strength of SEPs involved in a target jurisdiction. An SEP holder should consider basing a suit on stronger national patents and assess the flexibility of licensing strategies should validity challenges ensue. On the other hand, an implementer should explore potential claims and defenses in view of recent decisions. For instance, where anti-competition challenges or defenses are considered, implementers should be mindful of the potential hurdles in the U.S. in the post-Qualcomm era, or what is expected of a willing licensee in post-Sisvel Germany.

On the procedural side, where the first suit is filed matters. Although courts have disagreed on to what extent that should impact comity concerns or whether to issue anti-suit injunctions, timing remains an important consideration. As in Ericsson v. Samsung, some jurisdictions allow a bigger gap between the time of complaint filing and when the other party becomes aware of the suit. Securing an early filing date may give one party more leverage in the race to direct the suit to a preferred jurisdiction. Another consideration is the synergy between the infringement and invalidity proceedings. For instance, because of its bifurcated patent system, Germany allows injunctions to issue before validity proceedings conclude. An injunction may therefore incentivize compromises in negotiations before validity ruling concludes.

Business presence in the relevant markets also should affect how parties approach FRAND litigations. For an SEP holder, suing or obtaining injunctions in an implementer's major market may create more pressure on the implementer regardless of the technological value of the patents-in-suit. An implementer, on the other hand, should consider strategically steering the negotiations or litigations elsewhere, either partially or for the entire portfolio.

The implementer should also investigate the essentiality or validity of the SEPs-at-issue, especially those obtained in major markets, to gain more leverage and formulate litigation defenses accordingly. That homework should be done early, not as an afterthought when the SEP holder's terms are on the table and the complaint has been filed.

Practical Considerations for Conducting FRAND Negotiations

FRAND licensing negotiations continue to be an intricate art. Despite jurisdictional differences, there are common themes at play.
Regarding substantive terms, the royalty-calculation methodologies adopted by courts provide valuable guidance. To the extent possible under relevant discovery rules, an implementer should seek disclosure of pre-existing licenses from the SEP holder or from related third parties. Comparable licenses are generally accepted as valuable references in setting royalty terms. The implementer should be aware of the procedures in the U.S. that allow a district court to order discovery relevant to foreign disputes, even disputes in discovery-averse countries.

As for conduct, good faith matters. In jurisdictions like Germany, the parties should carefully follow the court's guidance on negotiation conduct to ensure their ability to obtain or avoid injunctions. Although European courts may have more specific rules on the parties' negotiation conduct than elsewhere, virtually all courts disfavor behavior that can be characterized as bad faith. And a national court's evaluation of negotiation conduct may well extend beyond the parties' conduct within one particular jurisdiction.

Stakeholders should also consider taking advantage of contractual flexibility to craft licensing terms that best serve their interests. For instance, where major markets are involved, the parties may consider seeking agreement on arbitration or forum selection early on or add market-specific provisions. An implementer may consider separate licenses for markets of particular significance. For a global license, the implementer may consider adding terms ensuring its ability to alter rates should certain national patents in those markets be invalidated or found non-infringed or non-essential. As with virtually any term, sacrificing this flexibility can be compensated by adjustments in the royalty terms.

The SEP landscape continues to change. There may or may not be a most favorable court, but the FRAND race is on, and the time to prepare and gear up is now.

Originally Published by Bloomberg Law, March 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.