Teaching IP transactions via Zoom

It’s now decided. This year’s one-week course, Intellectual Property Transactions: Law and Practice, will run at the UCL Faculty of Laws from 9-13 November. It will be conducted via Zoom or Teams (apparently some teachers are not allowed to access Zoom on their work computers).

IP Draughts was unsure whether to stretch the course out over several weeks, in view of the online format. We offered several alternatives to the students who were booked on the course, and the most popular response was to stick with the one-week format.

Apart from IP Draughts, who tends to involve himself in most of the talks, this shouldn’t be a problem for the 30-or-so teachers, whose duties vary between an hour or so and half a day. It is mostly the students who will need stamina. We will be increasing the breaks, so that people can stretch their legs and refocus their eyes on a different field of vision.

IP Draughts now has a fair amount of experience of teaching via Zoom. This week he gave three half-day talks. In the coming weeks he is running several one-day talks in half-day bursts. His UCL courses can be found (along with some other UCL courses) here.

Some of the techniques that he has been developing for these courses include:

• running polls – a few alternative answers to a question – and then discussing the answers with the class
• he has decided that referring people to short sections of long documents is quite difficult using the “share” function, and instead he may create extracts either on paper or as Powerpoint slides
• running two screens (one for shared papers, one for seeing the class) has proved too difficult, given the many settings in Zoom or Teams that need to be in place, and which seem to be in different positions each time you use it.

For the one-week course, we are thinking of using a “Jeopardy” format (matching answers to questions) for the daily workshops. Some of you will know what this means!

We are looking forward to welcoming this year’s cohort of students on the course. If you haven’t yet booked, you can apply here. See you there!

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.

Achieving critical mass in IP firms

Precise definition is elusive, but the theory goes that once a law firm reaches a certain size, further growth becomes easier. A law firm with so-called critical mass has sufficient presence in the market to attract new clients and repeat business, persuade good lawyers to work for it, and take investment decisions without worrying unduly.

This is not a theory that has troubled IP Draughts over the years. 26 years ago, he started his IP law firm as a sole practitioner, without employees. Since then, the firm has grown organically, attracting new clients, employees and, for the last 9 years, new partners. At times, the growth has been lumpy – you get busy enough to justify the investment in taking on another trainee, but that investment results in a reduction of profits, and may take several years to show a return. Similarly, loss of one significant client may knock back growth for a year or two. But, overall, we have managed to grow steadily and significantly without needing to be a certain size.

He has been fortunate to find and retain very good lawyers, some of whom have slipped through the crude net of major law firms’ recruitment policies. And some very good clients.

So, the idea of a firm needing a critical mass is not one that has resonated with IP Draughts. But now that the firm has grown to 15 lawyers (including trainees and a paralegal), he is starting to wonder if there is something in it.

Patterns are difficult to see in a time of extreme disruption to the economy caused by coronavirus. At present we seem to be in a short-term period of strong activity, to the point where IP Draughts worries about meeting client expectations while partners are on holiday. Will this last? Who knows.

Is it a peculiar by-product of the pandemic, or of Brexit, very different to the situation facing many consumer businesses? Or are we in the state of turbulence that comes just before achieving critical mass, like an aeroplane passing through the sound barrier, or a space ship re-entering Earth’s atmosphere? Your guess is as good as (or perhaps better than) mine.

It does, though, make us think about recruitment, particularly of senior lawyers who can work without extensive partner supervision. If you are a transactional IP lawyer with good experience, an engaging personality, and excellent technical skills, and you would like to work in a a growing, specialist firm that has a strong reputation, we would be interested to hear from you.

 

Co-ownership of IP: complex and obscure

A reader has contacted IP Draughts from New Zealand, asking some questions about co-ownership of IP.

[Idle thought: why do we hear so little about (old) Zeeland – apparently the country is named after the Dutch province, rather than the Danish island(?) (Old) South Wales is familar to IP Draughts – the UK Intellectual Property Office is based there. (Old) York is a beautiful city in the north of England. IP Draughts grew up in the old, rather than the Nova, Scotia (Scotland).]

Anyway, enough of that. Lawyers and patent attorneys are often, rightly, cautious about agreeing that the output of collaborations will be jointly owned. That subject has been discussed before on this blog.

Where IP is jointly owned, what exactly is the nature of each owner’s legal interest in the IP? Most readers will be aware that the rules on what you can do with joint IP differ acccording to jurisdiction – the USA being an outlier and allowing each owner to license or assign its interest without the consent of the other owner(s), whereas most jurisdictions require such consent. Those rules tend to be set out in the relevant IP legislation.

This article is about something more fundamental. UK patent law says that each co-owner has an “equal, undivided share” in the patent. What, exactly, does this mean, and what are its implications?

Undivided share

It is necessary to go beyond the statutory provisions of patent law to understand this legal concept, and delve into the general law of property. IP Draughts doesn’t claim to be an expert on this subject, which seems to have acquired centuries of patina, grime, half-baked legal principles and obscure exceptions. Land law can be learnt by rote, but appears to have little logic to it. He does briefly consider the effect of real property law on IP transactions in chapter 9 of his book, Technology Transfer (4th edition, Bloomsbury, 2020).

The phrase undivided interest seems to mean that each co-owner has rights to the entire property. There is no geographical or other division of the property. In the context of patents, there is no split of field, territory etc., and all the claims “belong” to all the co-owners, irrespective of who might be considered the primary inventor in respect of each claim.

A related question is whether the multiple owners of the IP are co-owners or joint owners. Readers in the UK may be aware that when spouses buy a house together, they typically declare whether they are to be tenants in common (co-owners) or joint tenants (joint owners). If they elect for joint tenancy, on the death of one of them the house automatically becomes the sole property of the other. If they elect for tenancy in common, when one dies, their share passes under their will.

Another name for “tenancy” in this context is beneficial ownership. English law distinguishes between legal ownership and beneficial ownership.

The default for collective IP ownership is likely to be beneficial co-ownership, though IP Draughts prefers to state this explicitly (e.g. in co-ownership agreements where the parties agree on how the IP is to be managed and commercialised). It is noteworthy that the heading to section 36 of the Patents Act 1977 is “co-ownership”. Co-ownership also seems to be implied by the fact that the collective owners can agree different (unequal) shares of the IP, as to which, see below.

These might be considered to be clues to the nature of collective ownership of IP. It would be much better if these and other aspects of IP ownership were spelt out explicitly in the IP legislation. IP Draughts would love to be in charge of a project to modernise the ownership and transactional aspects of IP legislation.

As a UK government website notes:

Joint tenants

As joint tenants (sometimes called ‘beneficial joint tenants’):

• you have equal rights to the whole property
• the property automatically goes to the other owners if you die
• you cannot pass on your ownership of the property in your will

Tenants in common

As tenants in common:

• you can own different shares of the property
• the property does not automatically go to the other owners if you die
• you can pass on your share of the property in your will

The following notes from a website for law students echo this point:

Where there is a tenancy in common, each co-owner will own a share of the property eg 50% or 80%. The share is undivided meaning that they are entitled to occupy the whole of the property even if their share is small. There is still unity of possession and no physical division of the land. The relevance of the shareholding is evident on sale, death or distribution of income from the property.

Equal shares

Separate from the question of undivided shares is the question of equal shares. Section 36(1) of the UK Patents Act 1977 provides:

Where a patent is granted to two or more persons, each of them shall, subject to any agreement to the contrary, be entitled to an equal undivided share in the patent.

Therefore, the owners can agree that they will not have “equal” shares but will have some other split, e.g. 80:20. As noted above, this “bites” on the question of revenue-sharing, e.g. on sale of the property.

Having reflected on this subject for some years, IP Draughts has come to the provisional conclusion that the respective shares of ownership are a bit of a red herring under UK IP laws, but may be more important under other countries’ laws.

Under UK IP laws, as IP Draughts understands the position:

• each co-owner can use the IP (e.g. “work the invention”) themself, without compensating the other co-owner(s)
• but if they want to license or assign the IP, they must get the consent of the other co-owner(s)

The other co-owner(s) can impose conditions on giving consent, e.g. as to revenue share.

Therefore, there seems to be little for a default ownership share to bite on. Perhaps it comes up more in litigation, where a party has done something outside their rights as co-owner?

Under some countries’ laws (e.g. in some civil-law jurisdictions), IP Draughts understands that any use of co-owned IP, including internal use, may be subject to obligations to account to the other co-owner(s), e.g. by sharing revenues. In such circumstances, a percentage ownership share may more frequently have legal significance.

Having said all this, IP Draughts is very conscious that he is dealing with an obscure subject that seems to attract very little case law, at least in the English courts. If you know better, IP Draughts would be delighted to hear from you!