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UK Patents Court continues to grapple with FRAND disputes

David Knight
29/01/2020

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United Kingdom

In this blog we look at two recent decisions where the UK Patents Court has ruled in ongoing disputes involving standard essential patents (SEP) patents and licenses on FRAND (fair, reasonable and non-discriminatory) terms. In both cases, the infringing companies tried unsuccessfully to bring the litigation to an end. 1. Philips v ASUS & HTC [2020] EWHC 29 (Ch)

Background

We have mentioned in previous blogs the practice in the English Courts of separating trials on infringement and validity from FRAND trials in the context of litigating SEP patents.   FRAND trials are complex, and therefore costly, affairs.  Understandably, an implementer having lost on the issues of infringement and validity, might wish to avoid such a trial particularly if its market in the UK is small. 
 
Facts in this case

This is just the position that ASUS found itself in following findings that it (and its co-defendants HTC) had infringed valid patents held by Philips.  ASUS therefore decided to withdraw the infringing products from the UK market and consented to an injunction restraining it from further sales in the UK.  It further offered to pay damages for past sales on the basis of the formula:

               Number of Infringing Devices x The Asserted FRAND Royalty Rate (US$0.75)

On ASUS' calculations this would equate to US$45,577.50.

On this basis, ASUS considered it had provided all the relief Philips could demand and sought to extract itself from the five-week FRAND trial, which anyway would have to continue against HTC.

Whether ASUS could so extract itself is the subject of a recent judgment by Marcus Smith J.

Philips' response

Not so said Philips.   Putting to one side the complicating factor that it had in the meantime resiled from its previous assertion that US$0.75 was the appropriate FRAND rate, Philips position was that this approached past damages in the wrong way.   Philips asserted that in the counterfactual:-
  • What ASUS should have done was acquire a licence to render lawful the otherwise unlawful sales of infringing devices. 
  • The only such licence would have been a FRAND licence.
  • In this case a FRAND licence would have been a worldwide portfolio licence (i.e. not limited to one country and one patent).
  • Therefore under such a counterfactual licence, ASUS would have paid the FRAND royalty on worldwide sales of all products, and not just on the 60,770 sales of the infringing devices in the UK.
  • Alternatively, the typical FRAND licence is a worldwide portfolio licence obligating the originator to pay royalties irrespective of whether patent rights even exist in some territories, and the royalty rate is discounted to reflect this.   Consequently, if the FRAND licence were limited to the UK only, and to the infringing devices only, the rate per device would be considerably higher than US$0.75.
Patents Court's ruling

The key question therefore was the extent to which FRAND terms might be "read across" into the assessment of the appropriate compensatory damages for past infringements.

The judge concluded that "both ASUS and Philips misunderstand the essence of the compensatory principle", which is to put the patentee in the position it would have been in had the tort not been committed, and that "both ASUS and Philips have been too dogmatic in reading across (selected) terms of the [FRAND] Licence" resulting in assessments of past damages that likely were too low or too high respectively.  

The judge went on to state that any "automatic linkage" between a FRAND licence and a counterfactual licence is wrong in principal.  However, the FRAND licence terms may have a bearing on and inform the assessment of past damages.  In summing-up:

"The short answer to ASUS' application is that the extent to which the terms of the [FRAND] Licence are relevant to the assessment of damages is itself a question of fact to be determined at trial.  That question is in no way susceptible of summary determination.  It follows that the dispute between ASUS and Philips as to the damages payable for ASUS' past infringement of the Philips UK Patents is one that has to be determined at a trial.  Given that the terms of the [FRAND] Licence are relevant to that question, it follows that this issue must be determined as part of the [FRAND trial]."

Result

Consequently, as the terms of a FRAND licence might have a bearing on the licence fee in the counterfactual licence, the outcome of the FRAND trial could be determinative of ASUS' damages and ASUS could not therefore short-circuit the FRAND trial.

2. Optis v Apple [2019] EWHC 3538 (Pat)

In a separate SEP case, various Apple companies sought to have struck out a patent infringement claim instigated against it by Optis & Unwired Planet.  The basis of Apple's application was that Optis had abused its dominant position.

Background

In Huawei v ZTE (Case C170/13) and Unwired Planet v Huawei [2018] EWCA 2344 (see previous blog: The best of FRANDs? - the Court of Appeal rules in Unwired Planet v Huawei) the issue of SEPs, FRAND licensing and abuse of a dominant position had been considered, and established two principles a SEP owner should follow:-
  • Give notice of the claim to an allegedly infringing implementer.
  • Express a willingness to enter a licence and set out in writing the FRAND terms.
  • The first of these was mandatory, and the second was not mandatory, but compliance would provide a safe-harbour and not of itself determinative of an abuse of dominant position.
Facts in this case
It was alleged by two of the three Apple defendants that Optis had not complied with either of the foregoing requirements as Optis had been (over a long period of time) negotiating with Apple Inc, and not with these specific legal entities.  It follows, so they asserted, that there was a clear abuse of process.

Patents Court's ruling
 
The judge (Nugee J) held in his judgment that he could not conclude at this stage that there was no reasonable prospect of Optis being able to defend the abuse allegations.  He further held that although the Claimants had a 100% market share for the patents, this did not de facto mean that they had a dominant position - in order to establish that it would be necessary for the court to assess whether there were any substitute technologies, something that was not suitable for summary determination.

Result:  Apple's application failed.

Comment

These two recent decisions from the UK Patents Court demonstrate to litigants in the SEP patent sphere that it is not easy to shortcut the complexities involved and the stages that an action has to follow through the courts before reaching a conclusion.

Meanwhile the ruling of the UK Supreme Court in the Unwired Planet v Huawei case and the linked case of Conversant v Huawei  is keenly awaited, following the hearing last October.

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Intellectual Property