The Unwired Case: UK Courts to Determine Global FRAND Licensing Terms

Posted on October 22, 2020

Co-authored by Shobana Iyer* and Tanya Garg*

Image Source: WTX News

Introduction

On 26 August 2020, the UK Supreme Court (“Supreme Court”) delivered the much-awaited landmark decision in Unwired Planet International Ltd v Huawei Technologies (UK) Co Ltd; Huawei Technologies Co Ltd v Conversant Wireless Licensing SARL; ZTE Corporation v Conversant Wireless Licensing SARL[1]

Lord Hodge gave the summary of the judgment by video; it can be seen here.

The joint appeals raised issues that are important to the international market in telecommunications, and concern actions for infringement of UK patents said to be essential to the implementation of international standards for mobile telephony, such that it is not possible to make, sell, use or operate mobile phones and other equipment that is compliant with the standards without infringing the patents. Patents of this kind are called Standard Essential Patents (“SEPs”), an earlier analysis of which was covered here.

The international standards in question are those set by the European Telecommunications Standards Institute (“ETSI”) for 2G (GSM), 3G (UMTS) and 4G (LTE). ETSI has over 800 members from 66 countries across five continents and is recognised as the standard setting organisation in the European Union telecommunications sector. Amongst other things, ETSI produces the technical standards needed to achieve a large unified European market for telecommunications, so that mobile phones and other telecommunications equipment can be used internationally. 

All members of ETSI must comply with its Rules of Procedure, which includes ETSI Intellectual Property Rights Policy (“IPR Policy”). Under its IPR Policy, ETSI then requires the SEP owner to give an irrevocable undertaking to license their patented technology on terms that are “fair, reasonable and non-discriminatory” (“FRAND”). This gives those implementing the standards access to the technology protected by SEPs, while also providing the SEP owners with a fair reward for the use of their SEPs.  This also prevents owners of SEPs from disrupting the international telecommunications market by refusing to license their inventions or by charging excessively high royalties for their use. ETSI therefore requires its members to declare any patents which might be used in a telecommunications industry standard

The judgment is a definitive statement from the Supreme Court that the English Courts are willing and able to determine the terms of global licences which are FRAND for portfolios of declared SEPs.

Background to the Appeal

The appeals consist of two parallel set of proceedings – Unwired Planet Appeal and Conversant Appeal.

Unwired Planet Appeal

In 2013, Unwired had acquired a portfolio of patents and patent applications from Telefonaktiebolaget L M Ericsson (“Ericsson”), a major developer of telecommunications technology and a participant in standard setting. The SEPs which are the subject of this case were licensed to Huawei by Ericsson. However, this license expired in 2012 but Huawei prolonged the usage of the technology covered by the patents, even after expiry. Unwired subsequently commenced proceedings in 2014 against Huawei, Samsung and Google alleging infringement of five SEPs to ETSI standards.

After a number of technical patent trials, and with Samsung and Google both having reached settlements, the UK High Court (“High Court”) held two of Unwired’s SEPs as both, valid and essential. The High Court also observed Huawei’s infringement of one or more of Unwired’s SEPs in Germany and subsequently, dismissed Huawei’s challenge to two Unwired’s patents in China. The judgment settled the terms of a FRAND licence, notably holding that the only licence that Unwired was required to offer was a global licence. Huawei would not commit to take the global licence which had been determined by the High Court and appealed to the Court of Appeal. The Court of Appeal upheld the High Court Judgment[2]. Hence, Huawei appealed to the Supreme Court. This forms the backdrop to Huawei’s appeal against Unwired Planet.

Conversant Appeal

Conversant had brought proceedings in 2017 against Huawei and ZTE alleging infringement of four UK SEPs, which it had acquired from Nokia Corporation in 2011. It sought declarations that the licensing offers made to Huawei and ZTE were FRAND. In the alternative, a declaration was sought to determine what licensing terms would be FRAND. These SEPs form part of a portfolio of about 2000 patents and patent applications, covering 40 countries.

Huawei and ZTE both issued applications challenging the jurisdiction of the English Courts to determine the validity of foreign patents or, in the alternative, for a stay of proceedings on the ground that the English Courts were not the appropriate forum for trying the case. The trial judge, Mr Justice Henry Carr[3] determined that the action was accurately characterised as a patent infringement claim and that consequently, the English Courts should exercise jurisdiction to enforce the undertaking made under ETSI’s IPR Policy; and to determine the terms of a FRAND licence. 

Huawei and ZTE appealed to the Court of Appeal which upheld the High Court Judgment[4]. Huawei and ZTE then appealed to the Supreme Court, with the appeal being listed to be heard together with the appeal in Unwired Appeal.

Supreme Court Judgement

The Supreme Court unanimously dismissed both appeals. Having set out the legal and policy background to the disputes, the Supreme Court considered five distinct issues which are of prime importance to the international market in telecommunications, and possibly spread to other sectors involving SEPs.

Issue 1 – Jurisdiction Issue

Whether the English Courts have jurisdiction, without the agreement of the parties, to:

  • Grant an injunction to restrain infringement of a UK SEP unless the implementer of the patented invention enters into a global licence under a multi patent portfolio?
  • Determine the royalty rates and other terms of such a licence?
  • Declare that such rates and other terms were FRAND?

The Supreme Court held that the contractual arrangements created by ETSI’s IPR policy gave the English Courts jurisdiction on all three questions, i.e. to determine a global FRAND licence even without the specific consent of the parties involved. The questions as to the validity and infringement of a national patent usually fall to be determined by the courts of the state which had granted the patent. However, the contractual arrangements ETSI has created under its IPR Policy gave the English Courts jurisdiction to determine the terms of a licence of a portfolio of patent which included foreign patents[5]

In reaching this finding, it noted that it was common industry practice for parties to agree global licences, and endorsed the view of the lower court which had “looked to the commercial practice in the industry of agreeing to take a licence of a portfolio of patents, regardless of whether or not each patent was valid or was infringed by use of the relevant technology in the standard, and construed the IPR Policy as promoting that behaviour[6]. The Supreme Court concluded that setting global FRAND terms did not involve the English Courts purporting to rule on the validity and infringement of foreign patents, which would have been beyond their jurisdiction.

Whilst dismissing the implementers’ arguments, the Supreme Court noted that ETSI’s IPR policy established a clear balance between the interests of SEP owners and those of implementers.  Failing to strike such balance could result either in:

(a) Holding up, whereby the advancement of technological standards can be delayed due to refusal by the SEP owners to licence their technology or the delay is communication acceptance; or

(b) Holding out where implementers continue to infringe SEPs during the period in which SEP owners were required, by ETSI’s IPR policy, to refrain from seeking an injunction.

The Supreme Court emphasised that the IPR Policy is intended to have an international effect and thus, confers the Courts to rule on this issue. Further, the Supreme Court found that the approach by the lower courts was consistent with several judgments in other jurisdictions, which contemplate that in an appropriate case, the court would determine the terms of a global FRAND license[7]. If an implementer is concerned about the validity or infringement of a particularly significant patent in a portfolio, it could seek to reserve the right to challenge those patents and to require that the royalties payable under the licence should be reduced if the challenge is successful[8].

Issue 2 – Appropriate Forum under the Doctrine of Forum Non Conveniens Issue

(Action Limited to Conversant Appeal)

Under what circumstances is it reasonable and proportionate to grant an injunction to stay proceedings as opposed to damages?

Huawei and ZTE argued that England was not the proper forum for such a claim in the circumstances of the Conversant Appeal. The parties argued that the jurisdiction on their Chinese entities should be set aside and the proceedings against their UK entities be permanently stayed as China is considered a more appropriate forum as per the doctrine of forum non conveniens.

In the alternative, the Appellants argued that the broad case management powers afforded the Court by the Civil Procedure Rules to be engaged so as to temporarily stay the English proceedings pending the outcome of the parallel Chinese litigation.

The Supreme Court held that a plea for staying proceedings on the ground of forum non conveniens can only be sustained if the court is satisfied that there is another tribunal, having competent jurisdiction, where the case may be tried more suitably for the interests of all the parties and for the ends of justice.[9] In doing so, the Supreme Court noted that challenging a jurisdiction on the footing of forum non conveniens places a positive obligation on the challenging party to identify another more appropriate forum.

In the instant appeal, Huawei and ZTE relied on evidence as to prove that the Chinese courts had jurisdiction to determine the terms of a global FRAND license. On the basis of such evidence, the Supreme Court held that the Chinese courts, the only alternative courts suggested by Huawei and ZTE, did not have such jurisdiction in the absence of agreement from the parties to set the terms of a global FRAND license; whereas the English Courts did have such jurisdiction. Accordingly, no alternative forum was available, and so England was the proper forum. Consequently, the appeal on the basis of forum non conveniens failed.

The Supreme Court found no fault in the reasoning of the courts below and therefore, refused to stay the proceedings and held that the English Court has the authority to decide on the matter before it.

Issue 3 – FRAND and Non-Discrimination Issue

(Limited to Unwired Planet Action)

What is the nature of the requirement that the FRAND licence “non-discriminatory” limb?

Under the IPR Policy, an SEP owner is required to give an irrevocable undertaking to license patented technology on terms that are FRAND. This serves a two-fold objective of allowing access to the technology protected by SEPs and also, providing the SEP owners with a fair incentive for the use of SEPs.

Following the trials in the Unwired proceedings, a settlement was reached between Samsung and Unwired Planet, that included a license granted to Samsung. This license was the yardstick Huawei sought to rely on. Huawei contended, the terms of any license to be granted by Unwired Planet should be no less favorable than those offered to Samsung.

The Supreme Court affirmed the reasoning of the Court of Appeal, in favor of Unwired Planet. According to the Supreme Court, the undertaking made by SEP owners comprised “a single unitary obligation” and the FRAND requirements should be construed “as a composite whole”. Thus, Huawei’s argument failed.

The fact that prospective licensors might offer different royalty rates was a true reflection of commercial reality and would not necessarily result in harm to either public or private interests. As noted by the Court of Appeal, provided an offer of a royalty rate is fair and reasonable, it could not be deemed discriminatory simply because a lower rate had been offered to another party. Non-discrimination under the ETSI contract was general in nature rather than hard-edged. That meant, an SEP holder had to offer a royalty rate set by reference to the true value of the SEPs being licensed.

Issue 4 – Competition Issue

Should an injunction be refused in circumstances where it is alleged that the SEP owner has breached Article 102 of the Treaty of the Functioning of the European Union (“TFEU”) by failing to comply with the conditions, for pre-litigation conduct, set out in the Court of Justice of the European Union (“CJEU”) decision in Huawei Technologies Co. Ltd v ZTE Corp. and ZTE Deutschland GmbH [10]?

The antitrust concern concerning SEPs arises from the immense market power held by the SEP holder as their patented technology is now a part of the essential standard. The pre-action conduct complained of by Huawei was Unwired’s failure to make a FRAND licence offer before issuing proceedings for injunctive relief.

Whilst reaffirming the decisions by the lower Courts, the Supreme Court observed that the CJEU laid emphasis on striking a balance between maintaining free competition and safeguarding the SEP holder’s IP rights, and its right to effective judicial protection guaranteed by Article 17(2) and Article 47 of the EU Charter of Fundamental Rights.

The only mandatory condition was the requirement for the SEP holder to notify or consult with the alleged infringer before bringing a claim for an injunction, and the nature of that notice or consultation depended on the circumstances of the case.

Therefore, the Supreme Court concluded, the numerous steps required in relation to a positive obligation on SEP owners to give notice to and consult with alleged infringers before applying for an injunction, are not prescriptive nor intended to establish a set of conditions. Consequently, the failure to comply with any or all such steps may not result in a breach of competition law.

Issue 5 – Remedies: Injunction or damages

Relying on One Step (Support) Ltd v. Morris-Garner[11], Huawei’s the final dispute revolved around whether the injunction granted by the Supreme Court would be a disproportionate or inappropriate remedy. As endorsed by previous judgments[12], Huawei stated that in the present case, damages rather than an injunction, would be considered as a more appropriate remedy.

While analysing this issue, the Supreme Court noted:

  • An award of damages in lieu of an injunction is a classic exercise of judicial discretion and an equitable remedy; and
  • Huawei had not argued this issue in either of the previous disputes in the lower courts.

Therefore, there was no basis to effectively substitute the injunction that those courts had granted, with damages. Consequently, the Supreme Court concluded that an injunction “is likely to be a more effective remedy, since it does not merely add a small increment to the cost of products which infringe the UK patents, but prohibits infringement altogether[13]”. Thus, the grant of an injunction against Huawei was valid and necessary.

Practical Implications

The biggest takeaway from this judgment is the definitive statement that the English Courts are willing to determine the terms of global FRAND licenses for portfolios of declared SEPs. The Supreme Court has established UK as a very attractive hub for SEP/FRAND telecom dispute resolutions. This judgment along with others will give SEP owners greater confidence that the English Courts will accept jurisdiction of disputes with global ramifications. Provided SEP owners can demonstrate why a global license is FRAND with respect to their portfolio and the operations of each potential licensee, this judgment offers them a means of achieving the complete resolution of the global licensing deal.

The Supreme Court laid emphasis on the extremely high costs and prolonged timeline of bringing enforcement proceedings on a case-by-case and jurisdiction-by-jurisdiction basis. This would defeat entire objective of swift enforcement and protection afforded to patent owners or assignees. While reiterating the findings of the lower court, the Supreme Court held, “It may be wholly impractical for a SEP owner to seek to negotiate a licence of its patent rights country by country, just as it may be prohibitively expensive for it to seek to enforce those rights by litigating in each country in which they subsist.”[14] Therefore, a SEP which has been the subject of litigation in the UK and subsequently declared essential and valid will be easier to enforce against third parties.

The judgment offers certainty to the UK jurisdiction and SEP holders can be expected to take advantage of this route to resolution of global licensing disputes but there is a high possibility that other jurisdictions, notably China and the USA, will attempt to follow in these steps and adopt a similar approach. More importantly, other cases may have differing arguments under the doctrine of forum non conveniens too. Hence there may well still be more contested jurisdictional disputes in the near future.

The finding that the non-discrimination limb of FRAND is not a stand-alone obligation, which does not mean that all similarly situated implementers have to be offered the same royalty rates, provided it does not unjustly distort competition. Royalty rates are just one factor to the terms which should be considered in a composite whole form, which gives a degree of flexibility to the FRAND negotiations. There may be an increased emphasis on negotiations based on the strength of the patent portfolio in key jurisdictions where the implementer has most sales or activities which affects the royalty rate.  The Supreme Court’s focus on the fairness of the negotiation process and the possibility of implementers to reserve the right to royalty adjustments is likely to affect negotiating the terms of global FRAND licences and on the drafting of these ‘adjustment’ terms.

Conclusion

This landmark decision has taken a progressive step in shaping the future of patent licensing. Additionally, it cements the attraction of doing business and resolving SEP disputes in the UK and gives the hopes of an excellent return on investment. It also has a degree of flexibility in negotiating FRAND licenses. Even though, FRAND disputes have popularly focused on the telecom industry, it is anticipated that with the advent of the fourth industrial revolution and the Internet of Things, the scope of such disputes shall expand.


*Shobhana Iyer, Advisor at IntellecTech Law, is a practicing Commercial Barrister and Arbitrator (FCIArb) based in London with specialized experience in complex commercial and corporate cases in the Technology-Media-Telecom, Finance, Energy and Creative Sectors.

*Tanya Garg, Senior Editor & Board Member at IntellecTech Law, completed her B.B.A. LLB. (Hons) degree from Symbiosis Law School, Pune (Batch of 2020) with specialization in Dispute Resolution, Intellectual Property, Technology and Antitrust Laws.

[1] Unwired Planet International Limited and another company v. Huawei Technologies (UK) Co. Limited and another company; Huawei Technologies Co Ltd and another company v Conversant Wireless Licensing SARL; ZTE Corporation and another company v Conversant Wireless Licensing SARL [2020] UKSC 37

[2] Unwired Planet v Huawei [2018] EWCA Civ 2344 

[3] Conversant v Huawei and ZTE [2018] EWHC 808 (Pat)

[4] Conversant v Huawei and ZTE [2019] EWCA Civ 38

[5] §58, Supra n 1

[6] §63, Supra n 1

[7] §66-84, Supra n 1

[8] §64-65, Supra n 1

[9] Sim v. Robinow (1892 Sess. Cas. 665 (Scot. 1st Div.)

[10] Huawei Technologies Co. Ltd v ZTE Corporation and ZTE Deutschland GmbH Case C-170/13

[11] One Step (Support) Ltd v Morris-Garner [2018] UKSC 20

[12] Lawrence v. Fen Tigers Ltd [2014] UKSC 13, Also see eBay Inc v. Mercexchange LLC 547 US 388 (2006)

[13] Para 167, Supra n 1

[14] Para 168, Supra n 1

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