October 8, 2020 | 7 minute read

UK courts set themselves up to resolve global standards licences

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Brown Rudnick

Unwired Planet v Huawei and Conversant v Huawei and ZTE [2020] UKSC 37

Overview

The principle issue before the Supreme Court was whether or not an English court was able and entitled to set the terms of a global portfolio FRAND (“fair, reasonable and non-discriminatory”) licence for patents declared by a standards body to be essential for the technology in question (“Standard Essential Patents” or “SEP”s) where all the parties had not agreed that it should be able to do so.

The UK’s Supreme Court handed down its landmark judgment in the joined appeals in the Unwired Planet and Conversant cases on 26 August 2020[1]. In a unanimous judgment of the panel, the Supreme Court dismissed Huawei’s and ZTE’s appeals and upheld the decisions of the courts below in finding, inter alia, that the UK courts have jurisdiction to determine the terms of a worldwide FRAND licence to SEPs, and that in the circumstances of the Conversant case the UK court is an appropriate forum to hear that dispute.

Background

In 2014 Unwired Planet, a US- based patent assertion entity (“PAE” – formerly and sometimes unfairly known as “patent trolls”), brought a claim in the English patents court against Huawei and other smartphone manufacturers for infringing UK patents that it acquired from Ericsson. The patents had been declared essential to the 2G, 3G, and 4G wireless telecommunications standards developed by the European Telecommunications Standards Institute (“ETSI”), an international standards-setting organisation (“SSO”). Another PAE, Conversant Wireless Licensing, brought a companion case with respect to its SEPs that it had previously acquired from Nokia.

Ericsson and Nokia participated in the development of the wireless telecommunications standards through ETSI and, as such, were bound by their various policies, including its patent policy. When the patents were acquired by Unwired Planet and Conversant, these policies continued to apply. The ETSI patent policy requires that ETSI participants that hold SEPs give an irrevocable undertaking to license them to implementers of the standards (e.g. smartphone manufacturers and OEMs) on terms that are “fair, reasonable and non-discriminatory” (FRAND).

Huawei and ZTE are China-based smartphone manufacturers with operations in the UK. Unwired Planet and Conversant offered to license the SEPs to them on a worldwide basis, but the manufacturers objected to the terms of the proposed licences including the proposed royalty rates, claiming that they were not FRAND. Unwired Planet commenced proceedings in 2014 claiming infringement of a number of their UK SEPs seeking an injunction to prevent further infringement. Huawei objected to the proceedings arguing, amongst other things, that any licence entered to settle the UK litigation should cover only UK patents. In 2017, the English patents court held that a FRAND license between large multinational companies needs to be a worldwide license of commercial necessity. Furthermore, if Huawei did not agree to such a worldwide license incorporating FRAND royalty rates determined by the court, the court could grant an injunction against Huawei’s sale of infringing products in the UK. The Court of Appeal largely upheld the High Court’s ruling. The judgment from the Supreme Court affirmed the judgments below in every particular.

Summary

In its judgment, the Supreme Court recognised the tensions inherent in a system of national patent enforcement and a global telecommunications market which is based on standards. It also recognised the tension which policies such as the ETSI are aimed at addressing, namely the prevention of the owners of SEPs “holding up” the implementation of the standard (by refusing to grant licences and enforcing the patents) and the “mischief” of “holding out” whereby the implementors carry on using the SEPs while failing to agree the terms of the licence for their use on FRAND terms.

The judgment therefore highlights the strong public policy considerations underpinning its decision. It recognised that the ETSI policy (which is a contract subject to French law) had not identified any forum where disputes regarding the terms of FRAND licences should be determined. The court based its judgment on the overarching view that FRAND disputes are commercial problems which require someone to be willing to provide a resolution when the parties cannot.

Following an analysis of the allegation by Huawei that the English courts were out of step with foreign courts in requiring an implementer to enter into a global licence or face an injunction for infringement of a national patent, the Supreme Court determined that they were not and, indeed, that the approach by the courts below was not inconsistent with several judgments on similar (but not the same) issues in other jurisdictions. The court ruled that the English courts have jurisdiction to rule upon the contractual defence on which implementers rely on the basis of the irrevocable undertaking given by the owners of SEPs under the ETSI policy to grant licences to them on FRAND terms.

There were 5 issues considered by the Supreme Court.

The jurisdiction of the English courts – As noted above, English courts have jurisdiction, and may exercise it without the consent of the parties, to (a) grant an injunction against the infringement of a UK patent, and (b) determine royalty rates and other disputed terms of a global licence and to declare that such rates/terms are FRAND. The court did not discuss the governing law of such a contract nor the jurisdiction in which disputes relating to its terms would be heard but it might be assumed that the law would be English law and the jurisdiction that of the courts of England.
Forum non conveniens – The forum non conveniens doctrine requires the English court to decide whether it or a suggested foreign court with jurisdiction is the more suitable forum for determining a dispute. Only one alternative was put forward; it was argued by ZTE and Huawei that China was the more appropriate forum, but the judge found, having heard expert evidence, that the prospect that the Chinese courts would adopt the dispute as no more than speculative, at least in the absence of agreement by all parties that they should do so, a view agreed by the Court of Appeal. In addition, the court noted that pursuing the case via the Chinese courts would have an “adverse commercial effect of further delay in the enforcement of Conversant’s elderly patents”. Accordingly, the Supreme Court confirmed the ruling of the lower courts that the English courts were an appropriate forum.
FRAND and non-discrimination – The court addressed the question as to the meaning and effect of the non-discrimination component of the FRAND undertaking and whether it equates to a “most favoured licensee” obligation such that the SEP owners in this case would need to offer Huawei and ZTE substantially the same licence terms as had been offered to Samsung, whose terms were more favourable?
It decided that the requirement that a FRAND licence be non-discriminatory did not equate to a most-favoured licensee obligation and instead “indicates that the terms and conditions on offer should be such as are generally available as a fair market price for any market participant, to reflect the true value of the SEPs to which the licence relates and without adjustment depending on the individual characteristics of a particular market participant.”
Abuse of a dominant position and the CJEU’s judgment in Huawei v ZTE – Huawei argued that the Court of Justice of the European Union (“CJEU”) in Huawei v ZTE [2] had laid down a series of mandatory conditions which must be complied with if a SEP owner is to be entitled to obtain injunctive relief so that, if they fail to comply, its claim for an injunction will be regarded as an abuse of its dominant position, contrary to Article 102 TFEU.
The Supreme Court decided that the steps laid down by the CJEU are only a “safe harbour” rather than mandatory set of requirements. The only mandatory condition set out by the CJEU is the requirement for the SEP owner to notify or consult with the alleged infringer before seeking an injunction. In this case, Unwired Planet had shown itself willing to offer a licence on whatever terms the court decided were FRAND. As a result, Unwired Planet was found not to be in breach of Article 102 TFEU
Damages in lieu of an injunction – In an issue that was not considered in the courts below, Huawei argued that damages would be a more appropriate remedy for infringement of SEPs than the grant of an injunction, and these would be based on the royalties that would reasonably be agreed for a licence of the infringed UK patents. The Supreme Court did not agree; it decided that an award of damages would be unlikely to be an adequate substitute for what would be lost by the refusal of an injunction in a SEP case. Otherwise implementers would have “an incentive to continue infringing until, patent by patent and country by country, they were compelled to pay royalties”.

Concluding Thoughts

This judgment is interesting for (at least) three reasons.

First, the decision that English courts have jurisdiction to determine the terms of a global licence pursuant to, in this case, a French law contract, which does not provide for a mechanism to resolve disputes over the terms of such a licence. Or stated another way “this court has no basis for declining jurisdiction”.

Second, and perhaps of more interest, is the way in which the courts have reached this decision. This forms the main part of the judgment in the Supreme Court decision and, essentially, after having disposed of the argument that the English courts have no jurisdiction to determine the terms of a licence to non-UK patents, consists in large part of a review of decisions of the senior courts in a number of other jurisdictions (USA, China, Germany and Japan plus the decision of the European Commission in an abuse of dominance investigation against Motorola[3]) and a conclusion that whilst none of these decisions went as far as ruling that a national court had such jurisdiction, none had said that they did not, and accordingly the approach of the English courts in this case was not out of step with the decisions of courts in “most significant jurisdictions”. In other words, there was a void to be filled and the UK courts are prepared to fill it.

Third, the decision recognises that in so doing, there is an increased risk that parties to such disputes will forum shop and that there may be conflicting judgments and applications for anti-suit injunctions. In other words, courts may compete to resolve such disputes and parties to them will take advantage of the forum the best suits them. The Supreme Court accepts that this may be so but firmly blames the policies of the SSOs for failing to put in place a procedure concluding in a reference to an agreed tribunal to resolve disputes between the owners of SEPs and the implementers. It makes the point that the participants in such SSOs can devise such procedures to provide for international tribunals or national courts to do so. Implicit in this is the message that the English courts are open for business and well placed to resolve such disputes in a measured fair manner – a message which will be welcomed by English legal practitioners in this year of Brexit and the withdrawal of the UK from the EU’s Unified Patent Court.