Patent Licensing: ASSIA Inc v BT Plc

A Huawei Digital Subscriber Line Access Multiplexer ("DSLAM")
Author Jnnis Walter Licence CC BY-SA 4.0 Source Wikimedia Commons

 Jane Lambert

Court of Appeal (Lords Justices Arnold, Nugee and Birss) Adaptive Spectrum and Signal Alignment Inc v British Telecommunications Plc [2023] EWCA Civ 451 (26 April 2023)

This was an appeal by Adaptive Spectrum and Signal Alignment, Incorporated ("ASSIA") against the judgment of Mrs Justice Falk in Adaptive Spectrum and Signal Alignment Inc v British Telecommunications Plc [2022] EWHC 1707 (Ch) (6 July 2022). Her ladyship dismissed ASSIA's claim for declarations on the construction of a patent licence granted by ASSIA to British Telecommunications Plc ("BT").  ASSIA's appeal came on before Lords Justices Arnold, Nugee and Birss on 29 March 2023.  By their judgment which was handed down on 26 April 2022, their lordships unanimously dismissed the appeal (see Adaptive Spectrum and Signal Alignment Inc v British Telecommunications Plc [2023] EWCA Civ 451 (26 April 2023)).

ASSIA

ASSIA is a public company incorporated with limited liability in California. It was founded by Prof John Cioffi who is chairman and chief executive officer of the company.  ASSIA holds patents for several inventions in the field of digital subscriber line ("DSL") technology which it has licensed to various telecommunications networks.

BT

BT's Openreach division controls most of the UK's telecommunications network infrastructure. It provides internet services to its own subscribers over that network.  It also allows other internet service providers ("ISPs") such as Sky and Talk-Talk to use the network to supply their subscribers. 

The Licence

The parties entered the licence as part of a settlement of a number of claims that each of the parties had made against the other.  These included a patent infringement claim that ASSIA had brought against BT in England, opposition proceedings in the European Patent Office that each party had brought against the other and a patent infringement claim that BT had brought against ASSIA in the US District Court for Delaware.  In consideration of each side discontinuing its claims against the other, each party granted the other a royalty-free licence. BT also agreed to make certain payments to ASSIA and ASSIA agreed to supply services to BT.

The Dispute

As stated above, one of the users of BT's network services was Sky.  ASSIA discovered that Sky was providing a broadband service to its subscribers that appeared to use its patented technology.  ASSIA drew its patents to Sky's attention and offered it a licence. Sky replied that it did not believe that it needed a licence because it was reselling BT's network services which it understood to have been licensed already.  ASSIA complained to BT that allowing a third party to use its technology to supply services to its own customers exceeded the terms of the licence.  BT disagreed prompting ASSIA to seek declarations as to the meaning and effect of the licence agreement.  ASSIA's action came on for trial before Mrs Justice Falk on 15 and 16 June 2022. 

VULA Services

BT had provided Virtual Unbundled Local Access ("VULA") services to Sky. At para [8] of his judgment in the appeal, Lord Justice Birss described VULA as a data connection which included 

(1) a fibre connection between the BT exchange and the street cabinet from which internet services are distributed to end users;
(2) a modem at the exchange or in the cabinet which is known as a Digital Subscriber Line Access Multiplexer ("DSLAM"); and 
(3) the copper wires between the cabinet and the end user's premises. 

It did not include a modem for the customer. That would usually come from Sky 

The Issue

The trial turned on the construction of the following clause of the licence:

"10. CLARIFICATION REGARDING PATENT LAUNDERING
10.1 The Parties understand and acknowledge that the licenses and covenants not to sue granted hereunder are intended to cover only the products or services or networks of the two Parties to this Agreement, and are not intended to cover manufacturing activities that either Party may undertake on behalf of third parties (patent laundering activities). Similarly, the licenses granted under this Agreement are not intended to cover products or services provided by the Parties to the extent that such products or services are provided on behalf of a third party and then to the extent that such products or services are provided using materials provided by or on behalf of the third party. For the avoidance of doubt, this section does not apply to those products or services that fall within the ASSIA Field of Use or the BT Field of Use that are modified, supplemented, or customized for customers in the normal course of business of ASSIA or BT or any of their Group and sold or distributed under a trademark or brand of ASSIA or BT or any of their Group.
10.2 The Parties agree that a purchase of a product or service from a supplier and resale of such product or service in substantially the same form back to the same supplier is not licensed or immune from suit under this Agreement."

ASSIA contended that the VULA services BT provided to Sky were prohibited by the second sentence of clause 10.1.

Mrs Justice Falk's Finding

The learned trial judge found that BT's VULA services fell outside the second sentence of clause 10.1 between paras [66] and [68] of her judgment::

"[66] In the FTTC scenario relevant to this case, the product that BT provides is self-evidently the VULA product, that is a data connection which incorporates (1) the fibre connection between the exchange and the street cabinet; (2) the DSLAM; and (3) copper wires between the cabinet and the end user's premises. It also incorporates a connection at the ethernet "layer".
[67] BT does not, for example, provide a DLM [dynamic line management] service. Instead, it provides access to a data connection between two points on the NGA [next generation access] network that includes an element of copper wiring, the quality of which may be enhanced by DLM as well as being affected by other matters, such as the length of the copper portion of the line.
[68] BT also does not provide an internet access service. The provision of VULA would not, by itself, allow an end user to access the internet. It is clear from the evidence that considerably more is required to be done to allow that to occur. However, without the data connection provided by VULA it would be impossible for the end user to access the internet. It is therefore an essential element or feature. Further, the section of the line covered by VULA is in BT's sole control."

She reasoned that the service provided by BT was not being provided to Sky's customer "on behalf of" the Service Provider and so the sentence in clause 10.1 did not carve VULA out of the patent licence.  For that reason, ASSIA's claim failed.

The Appeal

Lord Justice Birss summarized ASSIA's grounds of appeal at para [29] of his judgment:

"On appeal ASSIA argued that the approach below involved wrongly construing the relevant clause from the perspective of an uninformed end user, in place of the informed reasonable reader (Ground 1); that the conclusion that the VULA service was not provided to end users was wrong (Ground 2); and that the judgment considered and applied considerations of commercial common sense in the absence of any ambiguity in the wording of the clause (Grounds 3 and 4). There had also been a fifth ground of appeal concerning a declaration the court did grant about the scope of BT 'Field of Use' but ASSIA accepted that this point stood or fell with the main appeal and so did not need to be considered."

BT supported Mrs Justice Falk,  It argued that she had been right to reject ASSIA's construction in the light of the settlement as a whole, the relevant background and commercial common sense. It also submitted that the finding that the services were not provided to the end user was a finding of fact, open to the judge on the evidence with which an appellate court could not interfere. BT also argued that if VULA was unlicensed, the settlement would have been pointless. Finally, BT also contended the source of the modem that was supplied to an end user should not affect the scope of the licence.

Lord Justice Birss

Lord Justice Birss rejected BT's submission that the implications of business common sense could be taken into account in the absence of rival meanings of the relevant terms of the contract,  He also rejected its contention that the judge's finding that VULA services were not provided to the end user was a finding of fact with which the Court of Appeal could not interfere. On the other hand, he rejected ASSIA's contention that it had been wrong for the judge to construe the contract from the point of view of the end user.

His lordship said in para [39] that it was clear from the second sentence of clause 10.1 that certain activity was unlicensed. Such unlicensed activity was the provision of services by the licensee which satisfied two conditions:
(1) The services in question must be provided on behalf of a third party; and

(2) The services must be provided using materials provided by or on behalf of that same third party.
Only if both conditions are satisfied is the provision of the relevant services by the licensee unlicensed and then only "to the extent that" those two conditions are satisfied.
In this case, BT contracted to provide and did provide, VULA services to Sky.

However, Lord Justice Birss expressed some sympathy with ASSIA's contention that in providing VULA services to Sky BT was in fact also supplying services to Sky's subscribers albeit indirectly.  His response was to consider what was meant by the words "on behalf of" in the second sentence of clause 10.1.  His lordship concluded that those words could support either party's argument.  In view of that ambiguity, it was possible to take account of the context in which the licence was entered.   As that object had been to settle litigation the lord justice favoured a construction that did not include VULA within the second sentence of 10.1.

Lord Justice Nugee

In a short concurring judgment, Lord Justice Nugese upheld Mrs Justice Falk's conclusions and agreed that the appeal should be dismissed for the reasons given by Lord Justice Birss.

Lord Justice Arnold

Lord Justice Arnold agreed with the judgements of both Lord Justice Birss and Lord Justice Nugee.

Comment

The Court of Appeal affirmed that the law on contractual interpretation had been definitively established by Rainy Sky SA v Kookmin Bank  [2011] WLR 2900, [2011] CILL 3105, [2012] 1 All ER 1137[2012] 1 Lloyd's Rep 34, [2012] BLR 132, [2012] ICR 1, [2011] 1 WLR 2900, [2011] UKSC 50, [2011] 2 CLC 923, [2012] Bus LR 313, [2012] 1 All ER (Comm) 1, 138 Con LR 1, Arnold v Britton and others  [2015] WLR(D) 247, [2015] 2 WLR 1593, [2016] 1 All ER 1, [2015] HLR 31, [2015] AC 1619, [2015] UKSC 3 and Wood v Capita Insurance Services Ltd  171 Con LR 1, [2017] UKSC 24, [2017] WLR(D) 220, [2017] 4 All ER 615, [2017] CILL 3971, [2017] 2 WLR 1095, [2017] AC 1173.  The one point of law that can be drawn from this case is that the court can take account of the context in which an agreement was made where its language can support more than one reasonable construction but not otherwise.

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