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Court of Appeal keeps its FRANDs to itself

12/02/2019

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United Kingdom

We have been tracking developments in the ongoing dispute between Conversant and Huawei in relation to a global FRAND licence. In this latest ruling, the Court of Appeal has agreed that the English courts, and not those in China, are the right forum for the case, as we discuss in this blog.

We have been tracking developments in the ongoing dispute between Conversant and Huawei in relation to a global FRAND licence. In this latest ruling, the Court of Appeal has agreed that the English courts, and not those in China, are the right forum for the case, as we discuss in this blog. (For a link to its judgment [2019] EWCA Civ 38, see here.)

The dispute so far …

The details of the dispute between the parties can be found in our earlier blog. In brief, Conversant, a Luxembourg company, had asserted its patents against four defendants: the Chinese companies Huawei and ZTE (who manufacture and sell mobile phone devices globally) and their respective English subsidiaries. The relief sought by Conversant was the determination of FRAND terms for patents in its global standard-essential patent (SEP) portfolio. (For background about SEPs and FRAND licences, see our blog here).

Huawei and ZTE challenged the UK courts' jurisdiction on two grounds, arguing that:

  • As the claims were in substance and effect claims for infringement of foreign patents the validity of which was in dispute, the English court had no jurisdiction.
  • Alternatively, the English court should decline jurisdiction as England was not the natural or appropriate forum (forum non conveniens); China was the natural forum.

Fundamental to their challenge was the China-centric nature of their businesses. Both Huawei and ZTE manufactured the allegedly infringing products in China, which represented their biggest market: respectively 56% and 60% of worldwide sales, in contrast to respectively 1% and 0.07% in the UK. However, as discussed in our blog, the High Court dismissed these arguments, but did allow Huawei and ZTE to appeal.

Meanwhile … Unwired Planet v Huawei Court of Appeal ruling

By the time of the Court of Appeal hearing in December 2018, the court's ruling in another high profile case involving Huawei had been handed down: Unwired Planet v Huawei [2018] EWCA Civ 2344 (Unwired CA). Unwired CA was an appeal from a decision of Birss J in which he had decided on the terms of a global licence between the parties on terms he considered to be FRAND. (For details of this ruling see our blog here.)

In the light of Unwired CA, Huawei and ZTE accepted that the justiciability limb of their jurisdiction challenge was no longer arguable at this level, although they reserved their position if the case went further.

Court of Appeal decision

The Court of Appeal, rejecting Huawei and ZTE's appeal, agreed with Carr J that England, not China, was the appropriate forum. Floyd LJ's judgment (with which the others agreed) is comprehensive in its analysis of the background to licensing in the SEP arena, the wider battle between the parties, and analysing the complex law on forum non conveniens. He also makes frequent references to the judgment in Unwired CA.

Key points in his analysis include the following:

  1. Characterisation of the dispute

To decide whether an English court is the proper forum for the determination of a dispute, a critical initial question is how the dispute is properly to be characterised. Here, the Court of Appeal agreed with Carr J's conclusions. Conversant's claim in this case was closely analogous to the claim advanced in the Unwired CA case, namely that:

  • The UK patents were essential to the standard; 
  • It had complied with its European Telecommunications Standards Institute undertaking, in that the offers which it had made were FRAND;
  • Huawei and ZTE had not so complied and had not given any reasonable ground for not doing so; and 
  • It was therefore entitled to enforce its UK SEPs and obtain the usual relief for infringement, including a FRAND injunction and damages.

The court added that if Conversant were made to seek a remedy in China, it would have to bring its case based on different patents, relying on different facts. It was not legitimate to characterise the claim as one for the enforcement of a global portfolio right, as no such right existed.

  1. Appropriate forum

Applying the above, the court considered that the forum conveniens question answered itself. It was a dispute involving determination of infringement, validity and essentiality of UK patents. The fact that the dispute concerned UK patents was a matter of substance and not of form. As the circumstances in Unwired CA illustrated, the FRAND element was embedded in the determination of whether Conversant was entitled to the relief for infringement of their UK SEPs; that element could not be treated separately for forum conveniens purposes.

The court concluded that a UK forum was clearly the most appropriate forum and that further evidence of new Chinese law (which the defendants had sought to admit) could not influence this outcome.

  1. CJEU reference?

At the appeal, Huawei and ZTE argued strongly that there should be a reference to the CJEU in relation to the justiciability issue. This was rejected by the Court of Appeal for a number of reasons, one being that Huawei, a party in the Unwired CA case, had not at any point sought such a reference.

Comment

This decision of the Court of Appeal is not particularly surprising given its very recent decision in the Unwired CA case and Carr J's clear first instance decision. It once again demonstrates the UK courts' pragmatic and flexible approach to the increasing number of FRAND/SEP cases it is being asked to determine.

The court was not immune to the fact that its decision would impact upon China, but commented that it was "a fact of life that the effect of decisions taken by the courts in one country can be felt elsewhere in the world". As Floyd LJ commented, whilst the English courts would be deciding the royalty for China, it would be doing so without precluding the Chinese court from deciding on the validity and essentiality of the Chinese patents.

This case is far from over yet - with the preliminary issue of jurisdiction dealt with for now, it is back to the High Court to determine validity and infringement. Watch this space…!

POSTSCRIPT:

Leave to appeal to the Supreme Court was given in April 2019.

 

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