I have the pleasure and the honor of welcoming today Professor Anne-Catherine Chriariny. Professor Chiariny teaches Patent Law and International Private Law at the University of Montpellier. She is notably the author of a famous doctoral thesis on international patent litigation awarded by the Prix Pierre Véron and the Prix Cercle Montesquieu in 2007, published in 2006 (you can order it here), and has kindly accepted to offer us two brief lectures on issues relating to FRAND litigation in a global context: which Judge can fix a global rate (Part 1)? Which Judge can order a cross-border injunction (Part 2)?
This invitation results from passionate discussions we had together with Professor Chiariny and a common observation to which we have come: the hot debates on FRAND litigation in a global context, particularly because of their undeniable “political” color, often lead us to forget what the fundamental legal rules are. It is notably the case when we talk about FRAND royalty rates, especially when addressing the issue of a global royalty rate since the Unwired Planet case (see here), which is now at the heart of many disputes, being notably the source of the anti-suit injunctions and anti-anti-suit injunctions (see here).
The idea of the FRAND lectures will be to remind us the rules that constitute the framework for international patent litigation, and today more especially those that are supposed to frame the choice of the forum for setting a global royalty rate in FRAND litigation.
Let me now leave room for Professor Chiariny’s analysis.
“Our analysis here will be based on the model of standardization in the telecommunications sector, where there is a commitment to grant a FRAND license to ETSI. In this case, the SEP holder undertakes to grant a FRAND license in relation to ETSI. This is a contract between the patentee and the ETSI including a stipulation for a third-party beneficiary (“stipulation pour autrui”). Such a contractual approach is confirmed by the CJEU when it states that the parties must negotiate in good faith.
Could ETSI therefore set the price (i.e. the license rate)? But does it have the capacity to do so? And does it wish to do so? Not only does ETSI not have the competence to intervene and play the role of price regulator, but beyond that it does not seem to want to interfere in this contractual negotiation and be held responsible for the fair and reasonable character of the FRAND license. It only has the power to exclude a member who refuses to fulfil its commitment. Under the principle of contractual freedom, the setting of the price depends on the contract negotiations, as confirmed by the European Commission (see here).
The numerous litigations regarding the setting of the FRAND license rate reveal that negotiation can be long, difficult, and unsuccessful. The intervention of a Judge to set the price in a contract – which by definition is consensual – is debatable. Nevertheless, with regard to FRAND licensing, if negotiations failed, the intervention of a judicial authority will be made necessary to set the license royalty rate in accordance with the FRAND commitment, in order to allow the operator who wishes to use the SEP to be able to do so under fair, reasonable and non-discriminatory conditions. This creates a new difficulty: the appointment of a competent Judge to fix the price of these global licenses between operators established in different States.
Given ETSI’s location on French territory (in Nice), the competence of the French Judge seems natural to set a global royalty rate. However, in a questionable way, the English Judge has already assumed that he could also do so (see here). At any rate, the competition between national jurisdiction leads to a risk of global forum shopping: each of the negotiators with the FRAND license could wish to entrust the mission of fixing the price to their natural Judge, namely the Judge of their domicile or will refer the matter to the judge who according to their quality – holder of SEP or candidate for the FRAND license – will be the most favorable. Moreover, it should be remembered that the defendant’s forum Judge enjoys main jurisdiction, in accordance with most national laws and the Brussels Regulation I Bis (applicable text for litigations into the European Union). Therefore, the most diligent party to the negotiation of the FRAND license could also choose the defendant’s Judge, that should only be able to rule for the defendant’s territory.
Eventually, to guarantee the effectiveness of the FRAND License mechanism, one might imagine ETSI could modify its IPR in order to assume this competence (i.e. fixing the royalty rate) or expressly designate the Judge – the French Judge – who could establish objective criteria for setting a global rate for the FRAND license. Failing that, a conflict rule could be added in the ETSI IPR which would be binding on both the holder of the SEP patent and the candidate for the FRAND license.”
Many thanks to Professor Chiariny for this first enlightening lecture on FRAND.
For my part, my main (and personal) conclusion is that the competent Court should, in principle, be that of the defendant forum if we are talking about a national royalty rate. But the commitment to ETSI could also lead to France being retained either to sue ETSI alone (in order to engage its liability, because essentiality has not been checked, and also to exclude its member that has not respected its FRAND commitment), and/or concomitantly to sue the patentee because his patent is not essential and/or void. On the other hand, if a patentee wants a global royalty rate, given ETSI’s location, the French Judge is the natural Judge.
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The last time I looked there were seven partner organizations in 3GPP. Why does the author consider that ETSI should play a licence rate defining rôle? If the manufacturer is based in Japan, wouldn’t ARIB be best suited to set a rate? Or perhaps each organization should set a rate for its own territory.
Is it really relevant? The FRAND commitment is not undertake with 3GPP, which is not a standardization organization…
By the same author, we just had a blog saying that France should be the only seat of the Central Division of the UPC, now we have the same plea when it comes to setting a FRAND license under ETSI. It is getting tiring.
The problem is that the UKSC has pushed the position of UK forward in matters of setting a global FRAND license.
In view of the upcoming Brexit it was a clever move as it could still insure some revenue for the UK legal profession now it definitely cannot any longer play a role at the UPC.
As far as I know patents have a limited territorial extension, and it should be left to each national jurisdiction to decide upon a FRAND license. Another way could be mutual recognition of judgements, but this is a different story.
But, please do not tell me that for this we need the UPC! It does not ever cover the whole of the EU!
Forum shopping is a problem which is not be belittled, but is barely avoidable in the present case. This is the more so since a lot of SEP is held by NPEs especially in telecom.
SEP cannot be avoided, but the title of SEP could be given more parsimoniously.
Interesting point with ETSI. Why not? One organism is establishing a standard, the idea it should also be responsible for setting the rate is “reasonnable”.
However, I don’t see the point of the Attentive Observer, “UKSC has pushed the position of UK forward in matters of setting a global FRAND license”, UK Courts decisions are legaly unfounded and are at the root of the whole mess with ASI and AASI… Our “Observer” should certainly be british to assert that…
Dear Deadpool,
I never said that the position taken by the whole judicial chain in UK was correct and that I agreed with it.
Taking as pretext that Chinese courts were not prepared to take position in the FRAND dispute between Unwired and Huawei allowed English jurisdictions to take over is going way too far, see para 97 of the UKSC decision. US courts seem to want to go into the same direction. Are we on verge of the extension of extra territoriality of decision of some judicial bodies?
I am still of the opinion that the UKSC was not entitled to take such a decision reaching far beyond its territorial competence. Furthermore, how can such a judgement be enforced? This decision creates indeed a potential big mess. What if tomorrow another court thinks it has the same prerogative? Which decision will then prevail? The first one, or the one which is more favourable to the holder of a SEP or the alleged infringer. Forum shopping can indeed be devastating when it ends up in such a mess, especially when lots of SEP are held by NPEs.
I therefore maintain that the decisions taken by the whole judicial chain were merely taken in order to attract business for the UK legal profession which has lost the possibility to gain revenue from its participation to the UPC.
For the surplus, I invite you to look at the comments published on IP Kat after the decision of the UKSC.
https://ipkitten.blogspot.com/2020/08/breaking-uksc-upholds-decision-in.html
There is another side to all this mess: the proliferation of anti-suit and anti-anti-suit actions. Another big mess!
A side effect of all those problems is that internationally active litigation firms have found a new playground offering also big chances of increased revenues. This should also not be forgotten.
Dear Attentive Observer,
Interesting when you are saying: “I am still of the opinion that the UKSC was not entitled to take such a decision reaching far beyond its territorial competence.” and (important precision): “I therefore maintain that the decisions taken by the whole judicial chain were merely taken in order to attract business for the UK legal profession which has lost the possibility to gain revenue from its participation to the UPC.”. I already read the “comment” published on the British blog IPKat, which is not a real “comment” in my opinion: very descriptive…
So if I understood it well: a UK Judge can render an unfounded decision to help UK business, but trying to localize a place where a Judge could really be competent (according to international Law is wrong)? ETSI is an idea that could also be deduced from the UK Supreme Court decision in Unwired Planet, but maybe you have other ideas (legally based)? Such ideas would be welcomed and it would certainly be more helpful (and constructive) than only supporting British business (wihout real arguments).
Moreover, you forgot the ASIs and AASIs resulted from Unwired Planet (also because the British position is not legally founded).
@ Deadpool
To be clear: ASIs and AASIs are another playground created by lawyers and judges. They are a nuisance and do not really bring doctrine and jurisprudence much further. They also exist because of the competition between jurisdictions, sometimes even within a single country, see the example of Germany.
The notion of SEP is important, but I cannot refrain from thinking that this quality is acknowledged rather easily by standard setting organisations (SSOs).
It would also be interesting to know how many of those SEP are eventually found invalid. That in lots of cases, if not in all, the fact that license fees cannot be refunded should the SEP be declared invalid is also part of the problem. Determining the number of invalid SEP could be a task for SSOs.
A very pragmatic solution would to locate the whole question of SEP within SSOs. SSOs are also in a position to see how essential such patents are, as not all SEP have the same level of essentiality. It is clear that this would bring the burden of SEP to SSOs, but after all, they are at the source of the problem.
I repeat my idea of a kind of clearing house within the SSOs in order to cope with the problem of setting the FRAND fees. One could even think of some kind of arbitration chambers within the SSO in case of disputes about the validity of a SEP or the FRAND level.
The problem of SEP is compounded by the fact that lots of alleged SEP are held by NPEs. This has also to be taken into account.
It is not my aim to short-circuit all legal ways to challenge the validity of patents in general or SEP in particular, but it is to avoid a duplication of actions all having the same finality. If a patent is declared SEP it falls under the responsibility of the SSO having set the standard. And it should take the challenge it so created.
It is clear that those proposals are not necessarily favourable to legal practitioners but the money wasted in all those actions would be better used in another more profitable way for society at large.
Dear attentive observer,
In FRAND litigation, UK judgement in Unwired case is increasing competition between juridictions and is the origin of ASIs and AASIs (in this field I mean)…
And this “global rate” thing in UK was just to attract litigation after the BREXIT.
You are in any case very kind with the British system (very expensive and limited since the BREXIT by the way) 😉
Dear Attentive Observer,
It is of note that the NPEs asserting telecom SEPs and active in FRAND litigation are a special breed. Sisvel and Conversant have been assigned patents originally owned by Nokia, and Unwired Planet has been assigned patents originally owned by Ericsson. This is well known. What is not so public is the content of the assignment agreements. One can think that Nokia resp. Ericsson receive a share of the license revenue collected by the NPEs, and exert a degree of control over aspects of their activities. This is why Roberto Grasso call them “hybrid PAEs” (PAE stands for “patent asserting entity”)
In a post titled “Structuring a privateering agreement” (patently-o website 24 Dec 2012), Dennis Crouch had commented on the decision Suffolk Tech vs Google of a US court which had shed detailed insights into such agreement for the assignment of a telecom patent.