FRAND licensing in the UK Supreme Court

Last week, the UK Supreme Court published its judgment in the combined cases of

1. Unwired Planet International Ltd and another (Respondents) v Huawei Technologies (UK) Co Ltd and another (Appellants);
2. Huawei Technologies Co Ltd and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent); and
3. ZTE Corporation and another (Appellants) v Conversant Wireless Licensing SÀRL (Respondent)

This blog has discussed here, here and here the contractual aspects of the High Court and Court of Appeal judgments in the first of the above cases, and in 2017 IP Draughts wrote a journal article (in JIPLP) on the subject: How to Draft a Licence Agreement that is Fair, Reasonable and Non-Discriminatory – A 10-Point Plan.

Unlike most commentary at the time of the High Court judgment (by Birss J), IP Draughts’ articles focused on contract drafting aspects of the judgment. These aspects have not had so much prominence on appeal, which leads IP Draughts to the conclusion that Birss J’s judgment on these aspects is sound law, except where expressly overruled – as to which, see below.

On the issues before it on appeal, the Court of Appeal agreed with Birss J except on one significant point. Birss J had held that there was only one set of licence terms that were FRAND. The Court of Appeal decided that there could be a range of FRAND terms.

On the key issues before the Court of Appeal, the Court of Appeal agreed with Birss J, namely:

1. Birss was right to say that the licence had to be global, rather than limited to the UK as Huawei sought.
2. It was not discriminatory for the terms of the licence to be different to those UP had previously provided to Samsung.
3. UP had not abused a dominant position by starting legal proceedings against Huawei.

The Supreme Court has largely agreed with Birss J’s “impressive judgment”. This blog is primarily concerned with the contractual aspects of IP law rather than litigation issues, so it will confine itself to listing the issues identified in the Supreme Court judgment and briefly giving the court’s conclusions (in some cases using material taken from the court’s very helpful summary of the decision in a so-called “press release”).

1. Jurisdiction. Whether the English courts have jurisdiction and may properly exercise a power without the agreement of both parties (a) to grant an injunction restraining the infringement of a UK SEP unless the defendant enters into a global licence on FRAND terms of a multinational patent portfolio and (b) to determine royalty rates and other disputed items for a settled global licence and to declare that such terms are FRAND. Answer:The English courts have jurisdiction and may properly exercise these powers. Questions as to the validity and infringement of a national patent fall to be determined by the courts of the state which has granted the patent. However, the contractual arrangements ETSI has created under its IPR Policy give the English courts jurisdiction to determine the terms of a license of a portfolio of patents which includes foreign patents.
2. Most suitable court – part 1: Should the High Court have: (a) set aside service of Huawei and ZTE out of jurisdiction; and (b) permanently stayed the proceedings as against the English subsidiaries of Huawei and ZTE, on the basis that China was a more suitable forum for hearing the dispute than England? Huawei and ZTE argue that the Chinese courts would be a more suitable forum for determiningtheir dispute with Conversant. Answer: This argument must fail because the Chinese courts do not currently have the jurisdiction needed to determine the terms of a global FRAND licence, at least, without all parties’ agreement that they should do so. In contrast, the English court has jurisdiction to do this.
3. Most suitable court – part 2: whether the English proceedings should be stayed temporarily until the Chinese proceedings challenging the validity of Conversant’s Chinese patents have been concluded. Answer: The Court of Appeal was right to refuse any case management solution.
4. The non-discrimination issue. Huawei argues that SEP owners like Unwired must grant the same or similar terms to all licensees, unless it can be shown that there are objective reasons for treating them differently. Accordingly, Unwired should have offered Huawei a licence with a worldwide royalty rate which was as favourable as those it had previously agreed with Samsung Answer: Unwired had not breached the non-discrimination limb of the FRAND undertaking. ETSI’s IPR Policy requires SEP owners to make licenses available“on fair, reasonable and non-discriminatory… terms and conditions”. This is a single, composite obligation, not three distinct obligations. The “non-discriminatory” part of the undertaking indicates that, to qualify as FRAND, a single royalty price list should be available to all market participants. This must be based on the market value of the patent portfolio, without adjustment for the characteristics of individual licensees. However, there is no requirement for SEP owners to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees. Indeed, ETSI previously rejected proposals to include a “most favourable licence” term of this kind in the FRAND undertaking.
5. The competition issue. Huawei argues that Unwired’s claim for an injunction should be regarded as an abuse of its dominant position, contrary to Article 102, TFEU. Answer: Bringing an action for a prohibitory injunction without notice or prior consultation with the alleged infringer will infringe Article 102. However, there is no mandatory requirement to follow the protocol set out in the CJEU’s decision in Huawei v ZTE. On the facts, what mattered was that Unwired had shown itself to be willing to grant a licence to Huawei on whatever terms the court decided were FRAND. Unwired had not therefore behaved abusively.
6. The remedies issue. Huawei argues that, even if it is infringing Unwired and Conversant’s SEPs, the court should not have granted an injunction to stop the continuing infringement. Instead, the more appropriate and proportionate remedy would be for the court to award the claimants damages, based on the royalties which would reasonably be agreed for a licence of the infringed UK patents. Answer: There is no basis on which the Court could properly substitute an award of damages for the injunction granted in the Unwired appeal. There is no risk that Unwired or Conversant could use the threat of an injunction as a means of charging exorbitant fees, since they cannot enforce their rights unless they have offered to license their SEPs on terms which the court is satisfied are FRAND. Moreover, an award of damages would not be an adequate substitute for an injunction.

Comments

Most of the above points are concerned with litigation topics, including jurisdiction, legal process and remedies. Only the non-discrimination point is directly concerned with the terms of a FRAND licence agreement – it is relevant when proposing royalty terms.

As other commentators have noted, the Supreme Court’s judgment is likely to make the English courts even more attractive to owners of standards-essential patents as a forum for deciding disputes with actual and potential licensees (or “implementers”, as they are described in the litigation).

With this in mind, IP Draughts would like to see some well-drafted template agreements for FRAND licensing that would be clear and would limit the range of topics that the English court would need to decide when deciding whether a licence agreement was FRAND.

Given the interplay of legal and commercial topics in these cases – conflict of laws, IP infringement litigation, competition laws, economic theory – as well as pure licensing topics, this task is probably best undertaken by a firm that has handled SEP cases and also has sound contract drafting skills. Perhaps the commercial IP team at Bristows would like to take the lead on this important topic?

The other point that strikes IP Draughts is how complimentary the Supreme Court was to Birss J, who has recently been promoted to the Court of Appeal. Could he be the second IP judge to “go all the way”, and end up in the Supreme Court in a few years’ time? His colleague, Lord Kitchin (who was one of three judges in the Court of Appeal in Unwired Planet) is already there. As another, senior IP judge once commented to IP Draughts, if you can do IP you can do anything. Finally, the powers-that-be in the judiciary seem to be realising this.