The UKSC Unwired Planet & Conversant judgment
This combined appeal deals with the relationship between patent owners, whose patents are declared essential to certain technical standards, and manufacturers of mobile devices (implementers) that make use of those standards. In this case, the standard essential patents (SEPs) in issue had been declared essential to the Standard Setting Organisation (SSO) ETSI’s standards for telecommunications equipment.
The first appeal in the Unwired Planet case stems from proceedings brought by Unwired Planet (UP) in 2014 against Huawei, Samsung and Google alleging infringement of five SEPs which it had acquired from Ericsson. After several technical trials and also Samsung and Google having settled, the High Court progressed to a non-technical FRAND trial between UP and Huawei concerning the FRAND licence which UP was required to offer Huawei.
The judgment of Birss J in that case settled the terms of a FRAND licence, holding that none of the parties’ licence offers had been FRAND and concluding that the licence should be a global one given the size and geographic scope of UP’s patent portfolio and the geographic scope of Huawei’s sales. The Judge found that a reasonable licensor and licensee would agree a worldwide licence. At a subsequent hearing, Birss J ruled that, as Huawei would not commit to take the global licence which had been settled by the court, an injunction arising from an earlier finding of patent infringement was the appropriate remedy.
The Court of Appeal upheld Birss J’s judgment on appeal, with the only significant point of disagreement being that it held that the FRAND rate for a portfolio may be a range. This overturned Birss J’s finding that there was only one true set of FRAND terms for any given set of circumstances. However, in this case, only a global licence was FRAND. Huawei appealed again to the Supreme Court (UKSC).
The second appeal in the Conversant case stems from proceedings brought by Conversant in 2017 against Huawei and ZTE. Conversant alleged infringement of four SEPs, belonging to a portfolio it had acquired from Nokia in 2011, and sought declarations that the licensing offers it had made to Huawei and ZTE were FRAND (or, in the alternative, a declaration as to what licensing terms would be FRAND).
Huawei and ZTE each applied under CPR 11 to challenge jurisdiction, alleging inter alia that the English Courts could not, or in the alternative should not, exercise jurisdiction over Conversant’s claims. Henry Carr J dismissed these challenges, determining that the action was properly characterised as a patent infringement claim and that consequently the English Courts should exercise jurisdiction over it.
Huawei and ZTE appealed to the Court of Appeal, which upheld Henry Carr J’s judgment. They appealed again to the UKSC, with the appeal being listed to be heard together with the appeal in Unwired.
What did the court decide?
There were five issues before the UKSC:
1. Does the English court have the jurisdiction and can it properly exercise such power 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 and other terms for such a licence; and
- to declare that such rates and other terms are FRAND?
Yes. The UKSC held that the contractual arrangements created by ETSI’s IPR Policy give the English courts’ jurisdiction to determine the terms of a global FRAND licence even in the absence of consent by the parties involved. In reaching this finding it took into account the external context surrounding the Policy, noting that it is common industry practice for parties in the telecommunications industry to agree global licences. It also endorsed the view of the lower courts that setting global FRAND terms does not involve the English courts purporting to rule on the validity and infringement of foreign patents (which would be non-justiciable). The court’s view was also that it might be FRAND for implementers to reserve the right to challenge relevant patents in foreign courts and to require that the licence provide a mechanism to alter the royalty rates as a result of those proceedings.
2. If the answer to (1) is “yes”, is England the proper forum for such a claim in the circumstances of the Conversant proceedings?
Yes. The evidence before the court had not shown that the Chinese courts (the only alternative courts suggested by Huawei and ZTE) would have jurisdiction at present to set the terms of a global FRAND licence and the prospect that they would undertake such an exercise as no more than speculative. The English courts were held to have such jurisdiction and, as no alternative forum was available, the court was right to have exercised it.
3. How should the English courts interpret the ‘ND’ limb of FRAND?
The UKSC adopted a conservative approach to non-discrimination, finding that under the ETSI contract it is ‘general’ in nature rather than ‘hard-edged’. In the court’s view, the FRAND obligation imports a single unitary obligation and a rate does not cease to be FRAND simply because the SEP holder has previously granted a licence on more favourable terms. A SEP holder has to offer a royalty rate set in relation to the true value of the SEPs being licensed, however there may be circumstances in which the owner of a SEP portfolio would choose to license its portfolio at a rate which does not actually reflect that true value. Consequently, the UKSC agreed with the lower courts that UP did not have to offer the same royalty rates to Huawei as it had given to Samsung in a 2016 licence.
4. Should the court refuse to grant a SEP owner an injunction in circumstances where it has not fully complied with the guidance given by Court of Justice of the European Union (CJEU) in Huawei v ZTE?
The UKSC agreed with the lower courts that a necessary component to maintain the balance between SEP owners and implementers is the possibility for a national court to grant an injunction. The only mandatory condition in the Huawei v ZTE framework is the requirement for the SEP holder to notify or consult with the alleged infringer before bringing a claim for an injunction, and the nature of that notice / consultation required depends on the circumstances of the case. Compliance with the other steps in the Huawei v ZTE framework is not mandatory but does give the SEP holder ‘safe harbour’ against a finding of abuse of dominance under Article 102 TFEU. The UKSC did not interfere with Birss J’s original finding that UP had not acted abusively in bringing its claim for injunctive relief against Huawei.
5. Is the equitable jurisdiction to award injunctions prohibited by the nature of SEPs?
No. The UKSC held that damages in lieu would not be an adequate substitute for an injunction because this would give implementers an incentive to hold out country-by-country, forcing SEP owners to bear the cost of bringing enforcement proceedings around the world which would be “impossibly high”.
What are the practical implications of the judgment?
This judgment is a definitive statement from the UKSC that will have serious implications for those involved in SEP licencing in the weeks and months to come. Below are some key practical takeaways:
- This judgment offers SEP holders the means of achieving the complete resolution of a global licensing dispute. Given that no forum for dispute resolution has been chosen by ETSI members, English courts have shown that they are willing and able to determine global FRAND licences for a multinational SEP portfolio. This means that if an SEP holder can prove before an English court that one or more of its SEPs are valid and essential to a standard, and are therefore infringed by an implementer, the implementer will have to choose between accepting a global FRAND licence set by the court or face being injuncted in the UK. SEP holders will still have to demonstrate why a global licence is FRAND with respect, for example, to the size and geographic scope of their portfolio and the operations of each potential licensee.
- The judgment is likely to have an immediate impact upon FRAND licensing negotiations. Some negotiations will have stalled pending the decision on jurisdiction and will no doubt move forward now the UKSC has tried to offer a solution to the commercial uncertainty caused by the requirements of standardised global mobile communications and the national nature of patent enforcement. There may now be an increased emphasis in negotiations upon the strength of the patent portfolio in key jurisdictions as this could be an important factor in determining final royalty rates.
- The finding regarding the non-discrimination limb of FRAND means that not all implementers will be offered the same royalty rates. The judgment offers parties a degree of flexibility in negotiations, even with similarly situated implementers, and may make settlements more likely.
- The judgment could lead to an increase in SEP/FRAND litigation in the UK. It offers certainty as to the UK position and SEP holders can be expected to take advantage of the confirmed route to securing global FRAND licences through the English courts. However, the case is unlikely to be the final word on jurisdiction, as arguments regarding the appropriate forum will resume if and when (as seems likely) other national courts adopt a similar approach to jurisdiction in FRAND cases.
 Bristows represents ZTE in the Conversant action and represented both Samsung and Google in the Unwired Planet action (both parties settled before the first instance non-technical/FRAND trial). Bristows also acts for a number of other companies active in litigation relating to SEPs and FRAND. This report does not reflect or represent the views of any of those parties nor of any other client of the firm, nor does it constitute legal advice.
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Get some pocorn…
So, what happens, if other courts take this stance, too, and a foreign court decides on a global license, where one oft the parties is British? Are the British courts going to accept foreign judgements? Imagine a case where the European Coutt of Justice is part of the proceedings…
Also, are other countries going to accept the British judgments? Think of the USA, China, Russia, …
I would assume, it will take some time until the question of global jurisdiction is settled.
The extra-territorial reach of English jurisdiction brought about by this decision resembles quite a lot to the extra territorial reach of US law and jurisdiction. No wonder the UKSC took a USSC decision as a model, even if it the reservations of some justices were mentioned.
I always thought that patents had a territorial effect and licences as well. It should be left to the parties whether they wanted to negotiate global agreements, being FRAND or not, or if they want to do it country by country.
I consider this decision as a heavy and unjustified intervention in the rights of parties to negotiate agreements. The validity of the patent can only be challenged at national level after the opposition period has lapsed at the EPO.
It should also be observed that the British market is very small compared to the whole market of telecommunication devices. So why can a jurisdiction in this relatively small market decide globally?
In order to establish equality of arms, it should also then be possible to decide that if a SEP is invalid in one jurisdiction, this invalidity extends to all countries in which the SEP is valid. This could also be part of the contract between SEP holder and licensee.
As it stands, UKSC’s decision give the holder of a SEP an undue advantage which is not justified whatsoever. And lots of trolls are holder of SEPs. I not only think of Unwired Planet but also of Conversant, Sisvel and the likes.
Is this decision from UKSC an attempt to encourage forum shopping to English Courts, as now UK has definitely explained that it will not participate to the UPC?
The UKSC has stated that Chinese courts “would not embark on the exercise”, and the corresponding argument was “no more than speculative”. This shows at least a certain arrogance. What if other jurisdictions claim the same? Then the mess will be perfect. See “Fragender”.
There is another point which is of importance: how can a jurisdiction in a country which has left the EU take the right to decide what is happening within the EU? I would not be surprised if the CJEU does not agree. We were told by the former UK PM that Brexit means Brexit. So please dear UK courts, abide by the stance decided by your politicians.
For this reason, I am therefore not convinced that this decision will lead to an increase in SEP/FRAND litigation in the UK.
Last but not least, the whole way patents are declared to be SEPs has to be revised. If this is the case, then the Organisation making up the standard at stake should not only decide about the fact that a patent is a SEP, but take care of all the FRAND negotiation by establishing a kind of clearing house to this effect.
All negotiations should be open and the all license seekers should be entitled to know which terms have been offered as a FRAND license. Without this possibility, it is impossible to decide whether the proposed licence is FRAND or not.
Even if the idea of a global FRAND license seems at a glance to be based on common-sense, I fear that common-sense is misplaced here.
On this topic there are proceedings under way between Philips and Chinese company TCL before UK and French courts. The French court claims jurisdiction over the FRAND dispute based on the location of standard-setting organisation ETSI in France, Philips wants the UK court to decide a global license. See https://www.juve-patent.com/news-and-stories/cases/paris-takes-first-step-towards-becoming-frand-hotspot/
i would like to draw the attention of an article published tody in Lexology: Unwired Planet vs Huawei – is it a victory for SEP holders? by Robert Pocknell of Keystone Law.
What is also of interest is that according the article is that although Huawei is excluded from the UK Telecom market, it appears to be the largest SEP holder of 5G patents.
We have not heard the end of the story.
I very much doubt that the manufacturers of phones who refuse to take licences to SEPs will allow themselves to be constrained by the UK courts forcing them to choose between an injunction or agreeing a worldwide licence. They will simply regulate their business to more clearly separate their UK activities from the ROW, e.g different brands etc.
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