Category Archives: Licensing

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.

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UCL IP Transactions course 2020 – bookings open

From 20-24 April 2020, we will be running the 8th annual outing of the popular, one-week course, Intellectual Property Transactions: Law and Practice, at University College London’s Faculty of Laws.

Several hundred people have attended the course in recent years – mostly junior IP lawyers but also patent and trade mark attorneys, licensing managers, and lawyers moving into a transactional IP role. Past attenders have been from many countries of the world, eg Japan and Colombia, as well as places closer to home. The course has a practitioner focus and combines formal teaching with practice-based sessions and workshops.

We are now getting a steady stream of applications for this year’s course. If you would like to attend, please complete the application form (which forms part of the course brochure – see link at foot of page here) together with a CV and personal statement to Lisa Penfold at UCL Laws.

While in sales mode, IP Draughts would like to remind you that the 4th edition of his book, Technology Transfer (Bloomsbury Publishing) will be published in the next 2-3 months. In the last few days we approved the final text, and just have to write the preface before the work is sent off the printers. The first edition was written two and a half decades ago.

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Dispute between licensees: who can sue and where?

The case of Ablynx NV & Anor v VHsquared Ltd & Ors [2019] EWCA Civ 2192 was published this week. It is a decision of the English Court of Appeal, and concerns a dispute over patent infringement between licensees of some university patents. The licensing aspects should be of interest to readers of this blog, but the facts and legal issues are a little complicated.

With some simplification, those facts are:

  1. The invention relates to immunoglobulins derived from camelid (camel family) antibodies. The Free University of Brussels (VUB) is the patent owner. The patents expired in 2013.
  2. In 1997, VUB granted a licence under these patents to Unilever NH (Unilever). The licence was exclusive in certain fields (defined as the Reserved Sector) including “packed food products”. It was non-exclusive in certain other fields.
  3. The licence agreement is subject to Belgian law and jurisdiction. But disputes over the definition of the Reserved Sector and the scope of the patents are to be decided by arbitration under the Rules of the International Chamber of Commerce.
  4. In 1998, VUB granted a licence under the patents to the Flanders Institute of Biotechnology (VIB). (Disclosure: many years ago, IP Draughts advised VIB, but not on this matter, as far as he can recall.)
  5. The licence to VIB was in all fields other than the Reserved Sector (using the same definition as in the Unilever licence).
  6. In 2001, VIB exclusively sub-licensed the patents to Ablynx. The field of the licence included products for diagnosing, preventing or treating disease in humans.
  7. The judge notes that the parties to the litigation agreed that Ablynx’s sub-licence could not be broader than the head licence, and therefore excluded the Reserved Sector. In the Ablynx sub-licence, Ablynx acknowledges that it has received a copy of the Unilever licence agreement.
  8. In 2005, Unilever novated the Unilever licence agreement to BAC, a Unilever group company. In the novation agreement (between VUB, Unilever and BAC), BAC granted a non-exclusive licence under the patents back to Unilever in the Reserved Sector.
  9. The novation agreement is made under Belgian law and subject to the non-exclusive jurisdiction of the Belgian courts.
  10. In 2010, Unilever granted VHsquared Limited (VH) a sub-licence under the patents in the Reserved Sector.

Pausing there, VH has a non-exclusive licence in the Reserved Sector including packed foods. Ablynx has an exclusive licence for certain medical uses that must fall outside the Reserved Sector.

So far, so good. Medicinal products and food products are completely different, aren’t they, so why would the licensees ever get into dispute? Well, maybe it’s not quite that simple.

The English Court of Appeal judgment notes that there have already been two rounds of litigation between the parties in the Netherlands. VH had argued that it was licensed to produce packaged foods, and these could include “functional foods” containing rotavirus antibodies. Meanwhile, Unilever had conducted research in Bangladesh and India into the use of antibodies directed against rotavirus in children. In the words of the UK National Health Service website:

Rotavirus is a highly infectious stomach bug that typically strikes babies and young children, causing an unpleasant bout of diarrhoea, sometimes with vomiting, tummy ache and fever.

In the English appeal, Ablynx narrowed their argument on the definition of Reserved Sector. They contended that the patents (and their rights as exclusive licensee) would be infringed by “products with a therapeutic or prophylactice effect with regard to specific pathogens, whatever the nature of those products.”

In IP Draughts’ words, they were arguing that they were licensed to food products containing antibodies for the prevention or treatment of ailments.

The Dutch court rejected VH’s argument that they were licensed to any kind of foodstuff. The Dutch court grappled with how to distinguish between foods and medicines. Ultimately, it was forced to go beyond the wording of the contract and determine the “common intent of the parties”. Oversimplifying, Unilever could have functional foods for general health promoting effects, but not products for curing ailments caused by pathogens. Unilever had gone over the line by researching foodstuffs to prevent or cure an ailment caused by a pathogen.

In passing, “the common intent of the parties” is a Belgian and more generally, civil law concept. A different method of interpretation would be applied to an English law contract, and might result in a different outcome.

In IP Draughts’ mind, the English court’s summary of the Dutch court’s judgment sounds a bit like the difference between the products you can buy in a health food store that are careful not to claim a physiological effect, and pharmaceutical drugs that generally require a licence.

In September 2018, Ablynx (drug licensee) started the present legal proceedings in the English High Court, alleging infringement by VH (food licensee). In the UK, an exclusive licensee can sue for infringement.

In January 2019, VH issued an application to contest the jurisdiction of the English courts, on the basis that the Unilever licence agreement provided for exclusive jurisdiction of the Belgian courts.

In March 2019, VH issued proceedings in the Brussels Enterprise Court. In those proceedings, it raised the issue of whether VH’s and Unilever’s activities are within the scope of the Unilever licence. The validity of the patents is not in issue in the Brussels court proceedings.

So, the issue before the English Court of Appeal is whether to postpone further consideration of the case until the Brussels court has reached a decision.

At this point, the English Court of Appeal’s judgment becomes highly technical, and of more interest to international patent litigators than to simple transactional lawyers such as IP Draughts. At one point, the judgment focuses on a short phrase in a witness statement by VH’s solicitor, the highly experienced Ian Karet of Linklaters, where he mentions “invalidity of the patents in suit”. Much is made of this phrase in the litigation. It is held against him by Ablynx, for reasons that need not concern us here.

The Court of Appeal discusses the effect of the EU Recast Regulation, which was designed to fix the problem of the “Italian torpedo” (starting a patent action in Italy in the expectation that it would take years to resolve, and meanwhile no actions could be brought in other European jurisdictions).

These and other technical points take up pages of the Court of Appeal’s judgment.

IP Draughts will draw a veil over these unseemly issues, which he wishes to remain blissfully ignorant of. He will jump to the conclusion, which in the words of Lewison LJ is:

Accordingly, in my judgment article 31 (2) requires this court to stay “the proceedings.” I take that to mean the whole of the proceedings. Since the scope of the licence is an integral part of the action as whole, it makes sense in case management terms to stay the whole of the action until such time as the Belgian court (a) decides whether it has jurisdiction and (b) if it decides that it has, rules on the scope of the licence.

Result

I would allow the appeal; and stay the action until the Belgian court has made its ruling.

In other words, VH is successful in its application to stay the English proceedings until the Belgian court has made its decision.

The issue that interests IP Draughts is the scope of the two licence agreements. It is not the first time he has come across disputes between two licensees of a patent, where one is claiming that the other’s activities are infringing its rights. Sometimes, the issue is that the drafter has been careless in defining the field of each licence, such that there is an overlap. The overlap may not be obvious at the time the licence agreements are signed, but future product developments create an unanticipated problem.

Here, the situation is slightly different, in that the drafting of the VIB/Ablynx licence clearly excludes the Reserved Sector. In theory, there can be no conflict. The circles in the Venn diagram don’t overlap. Usually, if this is achieved, IP Draughts is content that his licence agreements are sound and well drafted, at least on the field issue.

So, if the product in question is a food, VH is licensed and does not infringe Ablynx’s exclusive rights. Despite this, so far the Dutch court has interpreted “packed food products” as excluding drugs delivered in the form of food, and the Belgian court has yet to decide. Who knows whether this question of interpretation will come back before the English court.

Is the word “food” so ambiguous? Perhaps it is. IP Draughts is still processing the question, and hasn’t come to a conclusion. Can any reader help him with his mental struggle?

 

 

 

 

 

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Royalty-stacking, blog-stacking

IP Draughts first posted the article linked below four years ago, when he was in Australia, and he reblogged it two years ago. It is worth posting again, as the subject – royalty-stacking clauses in licence agreements – is evergreen.

https://ipdraughts.wordpress.com/2015/02/03/royalty-stacking-clauses/

If you are now ready for that lecture on the architecture of Melbourne bungalows, do let IP Draughts know…

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