Unwired Planet v Huawei – Supreme Court Rules on Global FRAND Licensing Powers of UK Courts

By Richard Kempner (Partner) and Greg Ward (Senior Associate)

Summary

Earlier this week the Supreme Court handed down the decision in Unwired Planet v Huawei, one of the most important standards related patent cases handled by the UK courts in recent years.  The Supreme Court has determined that the UK Courts have jurisdiction to determine FRAND terms for global licences of SEPs- a decision which is likely to secure the position of the UK as the jurisdiction of choice for SEP holders wishing to protect their rights through litigation.

The issues addressed are discussed in detail below, after a brief overview of the background to the decision. The likely impact of the decision is then considered.

We would be happy to help answer any questions which you or your business have about this decision or any related issues. Please contact the authors using the contact details below, or your regular Haseltine Lake Kempner contact.

Background

Case background

The Supreme Court’s judgment represents the conclusion of two separate legal disputes, which were heard together because they raised closely related legal and commercial issues.

In the first dispute, Unwired Planet brought infringement proceedings against Huawei (as well as Samsung and Google, both of whom reached earlier settlements with Unwired Planet) in respect of five standard essential patents (“SEPs”, explained below) and one non-standard essential patent. In the second dispute, Conversant brought infringement proceedings against Huawei and ZTE in respect of four SEPs.

Both disputes therefore shared similar underlying facts. Unwired Planet and Conversant (the “Respondents” in the Supreme Court proceedings) held a number of SEPs relating to telecommunications. The Respondents commenced proceedings, respectively, against Huawei and against Huawei and ZTE (the “Appellants” in the Supreme Court proceedings) for infringement of those patents.

Telecoms background

SEPs are of critical importance to the telecoms sector. SEPs are patents which are essential to implement a telecoms standard (such as 3G, 4G, and so on) that allows communication between technology produced by different manufacturers. The use of standards ensures the interoperability of the technologies to which they relate. The standards themselves are determined by standard setting organisations (“SSOs“). In the present case, the relevant SSO is the European Telecommunications Standards Institute (“ETSI“). ETSI includes representatives from companies generating and holding patents (“Rights Holders”) and companies implementing the patented technologies (“Implementers”). ETSI seeks to reconcile the potentially conflicting interests of rights holders and implementers using an IP rights policy, which requires that ETSI members who are SEP owners give an irrevocable undertaking to grant licences of their SEPs on fair, reasonable and non-discriminatory (“FRAND“) terms. Typically, licences are granted for the portfolio of an SEP holder as a whole (rather than for individual patents) – these portfolios can contain several thousand patents, and the licence rates are set on the assumption that some of the patents may be invalid or not infringed, but that testing whether every patent individually is valid and infringed is unfeasible.

The meaning of FRAND has a strategically important role in both commercial negotiations and legal disputes in the telecommunications sector. In the majority of cases, parties are able to agree licences without resorting to litigation, or parties settle any dispute before reaching determination of FRAND terms by the courts (which are expensive and time-consuming). However, this means that there is very little judicial guidance on what FRAND actually means. This uncertainty then feeds back into commercial negotiations and disputes.

Legal background

In the High Court, Unwired Planet sued Huawei (an implementer) for infringement in the UK of 5 Unwired Planet patents relating to 4G technology. Unwired Planet argued that the patents were SEPs and that Huawei had refused to take a FRAND licence. Huawei countered that the patents were not SEPs and also were invalid, and further claimed that Unwired Planet had failed to offer a licence on FRAND terms. Ultimately, 2 of the 5 patents were found to be valid and SEPs.

Unwired Planet offered Huawei a global licence for their SEPs, while Huawei offered to take a licence only for the Unwired Planet UK SEPs. The High Court (Mr Justice Birss) decided that the proposed Unwired Planet global licence satisfied FRAND requirements, while the Huawei proposed, UK only licence did not, on the basis that willing and reasonable parties would agree on a global licence due to Unwired Planet’s global patent portfolio and Huawei’s global sales.  The court also granted an injunction against the infringement of the 2 SEPs by Huawei without licence. As a result, the court required Huawei to enter into a global licence in order to work the UK SEPs. Mr Justice Birss also set terms and rates for the global licence which he determined to be FRAND.

Huawei appealed the decision in relation to the licence to the Court of Appeal, on the ground that a national court should not require a global licence based on a finding of national infringement, and was also not empowered to set terms for the global licence. This argument was rejected by the Court of Appeal (Lord Justice Kitchin), which found that a UK only licence could not satisfy FRAND requirements and that the global licence offered by Unwired Planet was acceptable. The Court of Appeal thereby found that the UK court could grant an injunction restraining infringement of a UK SEP unless a potential infringer enters into a global licence, and also could establish FRAND terms for a global licence; these findings were appealed by Huawei to the Supreme Court and are referred to below as issue (1).

In the Conversant dispute, which started following the decision of the Court of Appeal in the Unwired Planet dispute as discussed above, Huawei and ZTE contested the jurisdiction of the courts of England and Wales to determine claims relating to FRAND licences on the terms sought by Conversant. In particular, Huawei and ZTE argued that the Chinese courts were a more suitable forum, given that a high proportion of the turnover for both companies was in China. This is referred to below as issue (2).

In relation to the Unwired Planet dispute, Huawei also argued that they should be offered by Unwired Planet materially the same licence terms as had previously been offered to Samsung, in order to comply with the non-discrimination component of FRAND. Under financial pressure, Unwired Planet had previously offered Samsung more favourable licence terms than those offered to Huawei. This is referred to below as issue (3).

Also in relation to the Unwired Planet dispute, Huawei argued that Unwired Planet had breached a dominant position by bringing proceedings prematurely, citing an earlier Court of Justice of the European Union (“CJEU”) case Huawei v ZTE and arguing that a set of pre-action steps set out in that case were mandatory. Unwired Planet had not completed the steps before bringing proceedings. This is referred to below as issue (4).

The judgment

The Supreme Court was asked to decide the four specific issues (referred to above and set out again below) in order to resolve both disputes.

  1. Does the English court have the power or jurisdiction, or is it a proper exercise of any such power or jurisdiction without the parties’ agreement:
    • to grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio;
    • to determine the rates/terms for such a licence; and
    • to declare that such rates/terms are FRAND?

In a unanimous decision handed down by Lord Hodge, the Supreme Court held that the Courts of England and Wales have jurisdiction and may exercise a power to restrain infringement of a UK SEP unless an implementer takes a global licence on FRAND terms. The Supreme Court also found that the Courts have the power to set terms and rates for the FRAND global licence. Accordingly, the answer for issue (1) was Yes.

The Supreme Court recognised that determination of the validity and infringement of a national patent is a matter for national courts of the nation that granted the patent, but held that the ETSI IP rights policy both preserved a patent holder’s right to an injunction and empowered national courts to determine the terms of a global licence. The Supreme Court also found that the lower courts had not presumed to determine the validity or infringement of foreign patents, but had instead drawn on industry practice of agreeing to take a licence to a portfolio of patents (of an SEP holder), regardless of whether or not each patent was valid or was infringed by use of the relevant technology in the standard, as envisaged and promoted by the ETSI IP rights policy.

The Supreme Court also determined that a UK injunction is an appropriate remedy when a UK patent is infringed due to refusal to accept a global licence, as by accepting a licence an implementer obtains “not solely access to the UK market but certainty that it has the ability legally to manufacture and sell products which comply with the standard on a worldwide basis.” (para. [86])

  1. If the answer to (i) is “yes”, is England the proper forum for such a claim in the circumstances of the Conversant proceedings (Conversant)?

The answer for issue (2) was also yes; the Courts of England and Wales were found to be a suitable forum. The Supreme Court also recognised that the courts of the suggested alternative forum, China, have not (at this time) made a finding that they have jurisdiction to determine the terms of a global FRAND licence.

  1. What is the meaning and effect of the non-discrimination component of the FRAND undertaking and does it mean that materially the same licence terms as offered to Samsung must be offered to Huawei in the circumstances of the Unwired case (UP)?

The answer for issue (3) is no. The Supreme Court found that the ETSI IP rights policy did not require Unwired Planet to offer a licence to Huawei on the same terms as had previously been offered to Samsung. In explaining this decision the Supreme Court determined that “fair”, “reasonable” and “non-discriminatory” should not be seen as three separate obligations, but rather as a single obligation in which non-discriminatory “provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context (para [114]). Further the Supreme Court observed that the ETSI IP rights policy did not include a “most-favoured licence” term (as was implied by the Huawei interpretation of non-discriminatory). Such a term had previously been considered by ETSI and rejected.

  1. Does the CJEU’s decision in Huawei v ZTE mean that a SEP owner is entitled to seek an injunction restraining infringement of those SEPs in circumstances such as those of the Unwired case?

The answer on issue (4) was yes. The Supreme Court found that Unwired Planet had not abused a dominant position in the market by commencing legal proceedings before making a FRAND offer; the circumstances of the CJEU case relied upon were different to those of the Unwired Planet v Huawei case, and Unwired Planet had shown itself willing to grant a licence on terms considered by the courts to be FRAND. The Supreme Court also stated that making a FRAND offer prior to commencing proceedings to obtain an injunction is not a mandatory requirement to comply with competition law.

The court also considered a further argument, not previously advanced, that an injunction was not the appropriate and proportionate remedy and that an award of damages was a more suitable remedy. This argument was rejected as the ETSI IP rights policy allows for the award of injunctions to protect patent holder rights, and damages were also not considered an adequate substitution for an injunction.

Likely Impact

First and foremost, the decision from the Supreme Court is likely to secure the position of the UK as a forum of choice for SEP holders wishing to secure their rights, as a global licence may be secured without the requirement for infringement proceedings in a large number of jurisdictions. The decision also provides some information on how FRAND terms may be established, for example, considering the global situation rather than just the national situation. Also, the answer for issue (3) clarifies that matching the terms of previously offered licences is not required to satisfy FRAND. The decision overall therefore significantly strengthens the position of SEP holders. However, the court will not order an implementer to enter into a global licence; the implementer may instead decide to accept the injunction and either pay damages if required, or simply not operate in the UK market.

From the position of implementers, a primary consideration may be whether to attempt to obtain a licence quickly at a reasonable rate; following the decision on issue (3), there is no obligation on the part of SEP holders to match previous offers. A further consideration, as mentioned above, is how to respond if sued. If the terms offered by an SEP holder for a global licence are unreasonable, there may be some benefit in having the courts determine FRAND terms (as the courts have now demonstrated willingness to do). Also, although issue (4) established that competition law does not require an SEP holder to make a FRAND offer before commencing proceedings, competition law defences may still be available if an SEP holder acts unreasonably. Finally, and as mentioned above, the option of simply accepting a UK injunction as discussed above is currently available.

It is likely that other national courts will follow the lead of the UK courts and determine that they too have the power to set global FRAND licence terms. If other national courts do follow the lead of the UK courts, a degree of forum shopping on the part of SEP holders is likely to result, for example, if various national courts differ when interpreting FRAND requirements and setting licence rates and terms. Potential differing interpretations of the CJEU decision in Huawei v ZTE (see issue (4)) may also be a factor when determining a suitable (EU) forum in which to initiate proceedings. Also, if other national courts follow the lead of the UK courts as regards issue (1) and grant injunctions restraining infringement of national SEPs unless a defendant enters into a global licence, this may reduce the attractiveness for implementers of simply accepting an injunction and paying damages or avoiding that national market.

Summary

The Supreme Court decision will be viewed positively from the perspective of SEP holders, although the consequences are not entirely negative for implementers. The consequences of the decision are likely to be felt in the SEP arena for some time, and with the Conversant FRAND trial expected to be scheduled this year in the High Court, an application of the decision may soon be available.