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FRANDS for the memories – Supreme Court brings Unwired Planet v Huawei to a close

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Last week we blogged on the breaking news that the UK Supreme Court had at last given judgment in the landmark Unwired Planet v Huawei case (and related cases), a ruling which is likely to have far reaching consequences for the international telecommunications industry.  We now look into the details of this judgment and its practical implications for the industry and UK litigation. 

SEP patents – a brief explanation

Standard essential patents (SEPs) are patents that protect an invention/technology, the use of which is essential in order to implement a specific agreed industry standard.  Therefore, competitors producing a product which complies with the relevant industry standard (in this case in the mobile telecommunications sector) will necessarily infringe the SEP.  Holders of SEPs undertake to the relevant standard-setting bodies to offer licences on a FRAND (fair, reasonable and non-discriminatory) basis.

The international standards in question are those set by the European Telecommunications Standards Institute (ETSI).  ETSI requires its members to declare any patents which might be used in a telecommunications industry standard.  Under its IPR Policy, the SEP owner has to give an irrevocable undertaking to license their patented technology on FRAND terms.  ETSI does not check the validity of information supplied to it by its members, or the relevance of the identified patents, and is unable to confirm whether they are, in fact, essential.

Background to the appeals

There were three appeals before the Supreme Court which were heard together in October 2019:

1.  Unwired Planet appeal

The first appeal was an action brought by Unwired Planet against Huawei for infringement of five UK patents which Unwired Planet claimed to be SEPs.  Unwired’s business is licensing patents to companies who make and sell telecommunications equipment.  The particular patents were part of a worldwide patent portfolio, which it had acquired from Ericsson.  (Ericsson had previously licensed the relevant SEPs to Huawei, but the licence expired in 2012.)

In 2015 and 2016, three technical trials were held in the High Court in which two of the patents were found to be both valid SEPs and infringed by Huawei.  In a subsequent ground breaking judgment Birss J held that unless Huawei took a global FRAND licence, the sale of its products in the UK would be prevented by an injunction.  His decision was upheld by the Court of Appeal (see our blog, The best of FRANDs? - the Court of Appeal rules in Unwired Planet v Huawei.)

2.  Conversant appeals

After the above High Court ruling in Unwired Planet, Conversant Wireless issued similar proceedings against Huawei and ZTE for infringement of four of its SEPs (in two separate actions which were later joined together). 

The defendants challenged the jurisdiction of the English court, arguing that China was the appropriate forum.  The High Court rejected their application and its decision was upheld by the Court of Appeal in January 2019 (see our blog, Court of Appeal keeps its FRANDs to itself.)

Issues before the Supreme Court

The Supreme Court ruled on five issues raised by the appeals, all of which it said were important to the international market in telecommunications, namely:

1.  Do the English courts have jurisdiction and can they properly exercise a power without the agreement of both parties to:
    (a) grant an injunction to restrain the infringement of a UK patent that is a SEP unless the defendant enters into a global licence on FRAND terms of a multi-national patent portfolio; and
    (b) determine the royalty rates and other terms of such a global licence and to declare that such terms are FRAND?
2.  Is England the proper forum for such a claim? (This arose in the Conversant appeals only.)
3.  What is the meaning and effect of the non-discrimination component of the FRAND licence? (Unwired Planet appeal only.)
4.  Competition issue: was Unwired Planet's claim for an injunction an abuse of its dominant position? Had it complied with the CJEU's guidance in Huawei v ZTE (Case C-170/13).  (Unwired Planet appeal only).
5.  Was an injunction, rather than damages, an appropriate and proportionate remedy?

Supreme Court's ruling

The Supreme Court reached a unanimous decision on all five issues.  On 26 August 2020, a summary of the judgment was live streamed by Lord Hodge first and then the judgment released in written format shortly afterwards. 

In the remainder of this blog we will focus on the Supreme Court's decision on the first three issues. 

(For a discussion about the competition issue, see our earlier blog: The behaviour expected of an SEP owner: the latest from Unwired Planet v Huawei which looks at the High Court's decision, which the Court of Appeal and now the Supreme Court have upheld.)

1.  Jurisdiction issue

The Supreme Court began by emphasising that it was undisputed that questions as to the validity and infringement of a national patent were within the exclusive jurisdiction of the courts of the state which has granted the patent.  It also accepted that without ETSI's IPR Policy an English court could not determine a FRAND licence of a portfolio of patents which included foreign patents; it was the contractual arrangement which ETSI had created under its IPR Policy which gave the English court jurisdiction to determine a FRAND licence. 

The court considered the external context in which SEP owners and assignees operated.  It found it was "common practice" and a "practical solution" for operators to license their portfolio of SEPs and the price should reflect the untested nature of many of the patents in the portfolio; in doing so it purchased "certainty". 

Birss J and the Court of Appeal had not ruled beyond their jurisdiction by determining the terms of a licence involving foreign patents, according to the Supreme Court.  Instead the lower courts had looked at the commercial practice of the industry.  Similarly, the court rejected the argument that the IPR Policy prevented challenges to any particular patent in the portfolio, or prevented a SEP owner from seeking an injunction from a national court.

Recognising that Birss J had gone further than other courts in his willingness to determine the terms of a FRAND licence, the Supreme Court devotes sometime in its judgment looking at the approach of the courts in other jurisdictions including the US, Germany, China and Japan.  We will not delve into the details in this blog, but suffice to say the Supreme Court rejected the argument that the judge was out of line with the approach of the other courts and said that there appeared to be a "willingness in principle" to set a global FRAND licence, at least from the US courts. 

2.  Suitable forum issue

This issue only arose in the Conversant appeals where the defendants argued that China was a more appropriate forum for the infringement action (being where the vast majority of their sales took place) and that consequently, jurisdiction should be declined as to the Chinese defendants and the case permanently stayed as to the English defendants.

The main bone of contention between the parties throughout these proceedings was how the dispute should be characterised – was it a dispute about the terms of a global FRAND licence, or, to enforce a national patent?  Birss J and the Court of Appeal had considered it the former, but the Supreme Court, although appearing to agree with the lower courts, avoided making any definitive ruling by concluding that in either case China had not been shown to be a proper alternative to the English courts.  The Chinese courts did 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 had the jurisdiction to do so.

In what the Supreme Court labelled "case management", it agreed that the Court of Appeal had been right not to temporarily stay the English proceedings while there were ongoing proceedings in China in relation to the validity of Conversant's Chinese patents. 

3.  FRAND and non-discrimination

This issue arose in the Unwired Planet appeal and was about the proper construction of the non-discrimination limb of its FRAND licence.  Huawei argued that this should be “hard-edged”, meaning that like situations must be treated alike and different situations differently.  Consequently, the licence offered to Huawei should have a worldwide royalty rate which was as favourable as those Unwired Planet had previously agreed with Samsung.

The Supreme Court, agreeing with the lower courts, instead found that the relevant clause in the IPR Policy imposed a "general" rather than a "hard-edged" obligation.  It said that "fair", "reasonable" and "non-discriminatory" should not be seen as three separate obligations, but rather as a composite whole.  The third limb "provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context."

This conclusion was reinforced by the fact that ETSI had previously rejected proposals to include a “most favourable licence” term of this kind in the FRAND undertaking.  The court added that this approach reflected commercial reality enabling, for example, a SEP owner to offer lower rates to earlier licensees. 

What does this ruling mean for SEP disputes in the future?

Huawei's submission that English judges were setting up the English jurisdiction as “a de facto international or worldwide licensing tribunal for the telecommunications industry” was considered but dismissed:-

"We recognise that Birss J has gone further than other courts have done thus far in his willingness to determine the terms of a FRAND licence which the parties could not agree, but that does not involve any difference in principle from the approach of courts in other jurisdictions.  Otherwise his approach is consistent with several judgments in other jurisdictions …"

Thus, although widely touted as a ground-breaking decision, the really ground-breaking part of Birss' judgment was grasping the nettle of the painstaking task of actually evaluating what the FRAND terms would be.   This can-do and flexible approach is a hallmark of the English Patents Court.  It does make the English Patents Court a good jurisdiction for a SEP owner to bring proceedings as it provides the potential in one action to resolve FRAND terms on a worldwide basis, but it can be expected that the courts in other jurisdictions will follow in these footsteps.

We now have some clarity as regards SEPs in the telecoms sector, but it is interesting to speculate whether this might transfer to other sectors.  For example, it is speculated that a burgeoning growth area for SEPs is in autonomous vehicles, for example as standards evolve around cars 'talking' to each other to avoid collisions.  The Unwired Planet decision will apply to such SEPs, but in the authors' opinion it is less likely that in the autonomous vehicle sector parties freely negotiating a FRAND licence would take a worldwide licence for at least two reasons: people travel the globe much less with their cars than their phones so interoperability is less of a problem; and secondly, vehicle manufacturers are used to making market specific vehicles, and are better placed to operate to the parameters of market specific licences.  Conceivably the court might hold that a FRAND licence is regional, so in this sector the impact of the Unwired Planet decision will be commensurately much smaller, but nevertheless still important.

The significance of the issues raised in these appeals to the telecoms industry is demonstrated by the fact that Apple, Ericsson and Qualcomm Incorporated, three key players in the industry submitted written interventions to the Supreme Court setting out their views on industry practice and on the main issues, including the interpretation of ETSI's IPR Policy.

Right from the beginning, this case has generated novel decisions, which now are considered to be normal – for example, the then new idea to split a patent case into technical trials, followed by (if needed) a non-technical trial on the FRAND issues.  It seems now that after many years the case has reached its final conclusion at the Supreme Court. But, potentially coming down the tracks, unless settled, is the continuation of the Conversant cases with a FRAND trial.

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