FRAND - Panasonic Holdings Corporation v Xiaomi Technology UK Ltd.
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Court of Appeal (Lords Justices Moylan, Arnold and Phillips) Panasonic Holdings Corporation v Xiaomi Technology UK Ltd and others [2024] EWCA Civ 1143 (3 Oct 2024)
On 31 July 2023, Panasonic Holdings Corporation ("Panasonic") issued proceedings against Xiaomi Technology UK Ltd., its holding and two associated companies (Xiaomi) for declarations that certain of its patents were essential to one or more ETSI telecommunications standards, that they had been infringed by Xiaomi, that the terms on which it was willing to license patents were fair, reasonable and non-discriminatory ("FRAND") or could become FRAND after some adjustments and injunctions against Xianomi if those companies rejected those terms.
On 8 Nov 2024 after a hearing before Mr Justice Meade his lordship ordered a 10 to 15-day trial to be listed in October 2024 limited to the determination of the terms of the court-determined licence and stayed the technical issues between Panasonic and Xiaomi Defendants. He also accepted the following undertakings from the parties:
"AND UPON the Claimant giving the following undertakings to the Court (the "Panasonic Undertakings"): 1. The Claimant, on behalf of itself and its affiliates, hereby unconditionally undertakes to the Court that: (a) it will (i) offer a licence agreement to the Xiaomi Defendants covering the Panasonic Portfolio (as defined in paragraph 2 of the Particulars of Claim) in the form that is determined to be FRAND by the High Court at the FRAND Trial (defined in paragraph 1 of this Order) in these proceedings (the "Court-Determined Licence") (including for the avoidance of doubt such terms the Court considers it appropriate to make conditional pending any appeal), and (ii) upon acceptance by Xiaomi, enter into the Court-Determined Licence by expiry of the time period specified by the High Court within which the Xiaomi Defendants and Claimant must enter into the Court-Determined Licence; and (b) to the extent that there are any appeals of the judgment (including any consequentials judgments) affecting the form of the Court-Determined Licence, it will perform such steps as are required to (i) amend the form of the executed Court-Determined Licence to incorporate any amendments to the Court-Determined Licence that are finally determined to be FRAND on appeal in these proceedings, and (ii) incorporate any such amendments into the Court- Determined Licence by expiry of the time period specified by the relevant appeal court within which the Xiaomi Defendants and Claimant must incorporate such amendments.
AND UPON the Xiaomi Defendants giving the following undertaking to the Court (the "Xiaomi Undertakings"): The Xiaomi Defendants, on behalf of themselves and their affiliates, hereby unconditionally undertake to the Court that: 1. they will accept and enter into the licence agreement offered by the Claimant pursuant to the Claimant's undertaking 1(a) above by expiry of the time period specified by the High Court within which the Xiaomi Defendants and Claimant must enter into the Court-Determined Licence; and 2. to the extent that there are any appeals of the judgment (including any consequentials judgments) affecting the form of the Court-Determined Licence, they will perform such steps as are required to (i) amend the form of the executed Court-Determined Licence to incorporate any amendments to the Court- Determined Licence that are finally determined to be FRAND on appeal in these proceedings, and (ii) incorporate any such amendments into the Court-Determined Licence by expiry of the time period specified by the relevant appeal court within which the Xiaomi Defendants and Claimant must incorporate such amendments."
On the day Panasonic issued proceedings against Xiaomi in England, it brought infringement proceedings o respect of the corresponding German and unitary patents in the Mannheim and Munich district courts and the Mannheim local division of the Unidied Patents Court. Xiaomi responded to the proceedings in the German courts by seeking revocation of the German patents in the German Patent and Trade Mark Office and counterclaiming for revocation of the unitary patent in the UPC. Lord Justice Arnold commented thus at para [45] of his judgment in Panasonic Holdings Corporation v Xiaomi Technology UK Ltd and others [2024] EWCA Civ 1143 (3 Oct 2024)
"It can be seen from this that a prodigious amount of time, effort and money is being expended by the parties, and a substantial amount of time and effort is being expended by the respective courts, in the German Proceedings. A key question on this appeal is what the point of this is when it is certain that, in the relatively near future, the parties will enter into a global licence on the terms determined by the English Patents Court to be FRAND, with the effect that all Xiaomi's acts complained of in the German Proceedings will become retrospectively licensed and thus non-infringing."
"It can be seen from this that a prodigious amount of time, effort and money is being expended by the parties, and a substantial amount of time and effort is being expended by the respective courts, in the German Proceedings. A key question on this appeal is what the point of this is when it is certain that, in the relatively near future, the parties will enter into a global licence on the terms determined by the English Patents Court to be FRAND, with the effect that all Xiaomi's acts complained of in the German Proceedings will become retrospectively licensed and thus non-infringing."
Lord Justice Arnold answered his own question at para [82] of his judgment:
"As the judge noted at [95], Panasonic is candid that its objective is to obtain injunctions in order to achieve a negotiated settlement with Xiaomi rather than await the determination of the Patents Court. What purpose is served by this given that (i) Panasonic is assured of getting FRAND terms anyway as a result of the Patents Court's decision and (ii) nothing in the English proceedings prevents the parties from negotiating an earlier settlement of their dispute? As counsel for Panasonic had to accept during the course of argument in this Court, Panasonic seeks to achieve better terms than those determined by the Patents Court. Put bluntly, Panasonic wishes to use the exclusionary power of injunctions granted by the German courts and/or the UPC to try to force Xiaomi to pay more than the English courts would order. Panasonic must think that there is some prospect of the German Proceedings achieving this, otherwise it would not be wasting a large amount of time and money on them. Contrary to Panasonic's submission, it is no answer to this that a range of terms may be FRAND, because that will be taken into account by the Patents Court in its determination."
"As the judge noted at [95], Panasonic is candid that its objective is to obtain injunctions in order to achieve a negotiated settlement with Xiaomi rather than await the determination of the Patents Court. What purpose is served by this given that (i) Panasonic is assured of getting FRAND terms anyway as a result of the Patents Court's decision and (ii) nothing in the English proceedings prevents the parties from negotiating an earlier settlement of their dispute? As counsel for Panasonic had to accept during the course of argument in this Court, Panasonic seeks to achieve better terms than those determined by the Patents Court. Put bluntly, Panasonic wishes to use the exclusionary power of injunctions granted by the German courts and/or the UPC to try to force Xiaomi to pay more than the English courts would order. Panasonic must think that there is some prospect of the German Proceedings achieving this, otherwise it would not be wasting a large amount of time and money on them. Contrary to Panasonic's submission, it is no answer to this that a range of terms may be FRAND, because that will be taken into account by the Patents Court in its determination."
"i) Did performance of its FRAND commitment in good faith require Panasonic to agree to enter into an interim licence on appropriate terms?
ii) Were the terms of the interim licence proposed by Xiaomi appropriate or was Panasonic's Non-Enforcement Proposal appropriate and sufficient to discharge its FRAND commitment?
iii) Would declaratory relief serve a legitimate useful purpose?"
His lordship dismissed Xiaomi's application for the reasons set out in paras [62] to [64] of Lord Justice Arnold's judgment:
"[62] On the first issue, as explained in more detail below, Xiaomi put their case in two alternative ways, referred to by the judge as Submission A and Submission B. Submission A was, in short, that Panasonic's continued pursuit of the German Proceedings was in breach of its obligation of good faith. Submission B was, in short, that Panasonic was subject to an implied obligation to grant Xiaomi an interim licence. The judge rejected both submissions:
i) He rejected Submission A because he was not satisfied to a 'high degree of assurance' that 'viewed objectively' 'the effect of Panasonic continuing to pursue its infringement claims in the German Courts' 'is to frustrate its FRAND Commitment' ([101]). He might have been prepared to take a different view if he had been persuaded that Panasonic had been holding out for terms which were obviously un-FRAND or supra-FRAND, but that was not the case ([102]).
ii) As for Submission B, the judge accepted that it would 'in theory be possible to imply an obligation to grant an Interim Licence' based on the obligation to act in good faith ([103(1)]). He did not find it possible to imply such obligation from the words of clause 6.1, however ([103(3)-(5)]). He accepted that the French law doctrine of good faith in the performance of a contract imposed a duty on Panasonic 'not to frustrate its FRAND Commitment, but he did not accept that the exercise by Panasonic of its legal rights in a court of competent jurisdiction could be characterised as 'an attempt to frustrate its FRAND Commitment' ([103(6)]).
[63] The second issue did not arise given the judge's conclusion on the first issue ([105]). He nevertheless observed that the making of the declarations sought would require the court to assess both (i) whether Xiaomi's proposed interim licence terms were both FRAND and reasonable, and (ii) whether Panasonic's proposed terms were unFRAND and unreasonable ([105(3)]). The judge considered that he was not in a position to decide question (i) because that was an issue for the FRAND trial ([105(4)]). The judge did not express any view on question (ii) either.
[64] On the third issue, the judge held that, even if he had concluded that Panasonic has a French law obligation to grant Xiaomi an interim licence, he would have declined to make the declarations sought by Xiaomi because "not only would it serve no useful purpose to do so, it would also be an exercise in jurisdictional imperialism" ([111]). His reasoning can be summarised as follows:
i) As regards the absence of a useful purpose, the learned Judge concluded that there is "no need to clarify the parties' respective rights and obligations in this jurisdiction or take steps to preserve the integrity of these proceedings ahead of the FRAND Trial" because Panasonic has undertaken to accept the Patents Court's determination and is not seeking injunctive relief here ([111(1)]). Accordingly, the 'only real purpose" of the declarations would be ''to influence the outcome of the German Proceedings'', which would not be a legitimate purpose in the light of Teva v Novartis ([111(2)]).
ii) Further, the 'obvious place' to raise arguments about an interim licence was in the German Proceedings where Xiaomi sought to rely on such a licence as a defence. Comity, therefore, 'requires an English Court to leave it to the German Courts to assess the validity of that defence' ([111(6)])."
"[62] On the first issue, as explained in more detail below, Xiaomi put their case in two alternative ways, referred to by the judge as Submission A and Submission B. Submission A was, in short, that Panasonic's continued pursuit of the German Proceedings was in breach of its obligation of good faith. Submission B was, in short, that Panasonic was subject to an implied obligation to grant Xiaomi an interim licence. The judge rejected both submissions:
i) He rejected Submission A because he was not satisfied to a 'high degree of assurance' that 'viewed objectively' 'the effect of Panasonic continuing to pursue its infringement claims in the German Courts' 'is to frustrate its FRAND Commitment' ([101]). He might have been prepared to take a different view if he had been persuaded that Panasonic had been holding out for terms which were obviously un-FRAND or supra-FRAND, but that was not the case ([102]).
ii) As for Submission B, the judge accepted that it would 'in theory be possible to imply an obligation to grant an Interim Licence' based on the obligation to act in good faith ([103(1)]). He did not find it possible to imply such obligation from the words of clause 6.1, however ([103(3)-(5)]). He accepted that the French law doctrine of good faith in the performance of a contract imposed a duty on Panasonic 'not to frustrate its FRAND Commitment, but he did not accept that the exercise by Panasonic of its legal rights in a court of competent jurisdiction could be characterised as 'an attempt to frustrate its FRAND Commitment' ([103(6)]).
[63] The second issue did not arise given the judge's conclusion on the first issue ([105]). He nevertheless observed that the making of the declarations sought would require the court to assess both (i) whether Xiaomi's proposed interim licence terms were both FRAND and reasonable, and (ii) whether Panasonic's proposed terms were unFRAND and unreasonable ([105(3)]). The judge considered that he was not in a position to decide question (i) because that was an issue for the FRAND trial ([105(4)]). The judge did not express any view on question (ii) either.
[64] On the third issue, the judge held that, even if he had concluded that Panasonic has a French law obligation to grant Xiaomi an interim licence, he would have declined to make the declarations sought by Xiaomi because "not only would it serve no useful purpose to do so, it would also be an exercise in jurisdictional imperialism" ([111]). His reasoning can be summarised as follows:
i) As regards the absence of a useful purpose, the learned Judge concluded that there is "no need to clarify the parties' respective rights and obligations in this jurisdiction or take steps to preserve the integrity of these proceedings ahead of the FRAND Trial" because Panasonic has undertaken to accept the Patents Court's determination and is not seeking injunctive relief here ([111(1)]). Accordingly, the 'only real purpose" of the declarations would be ''to influence the outcome of the German Proceedings'', which would not be a legitimate purpose in the light of Teva v Novartis ([111(2)]).
ii) Further, the 'obvious place' to raise arguments about an interim licence was in the German Proceedings where Xiaomi sought to rely on such a licence as a defence. Comity, therefore, 'requires an English Court to leave it to the German Courts to assess the validity of that defence' ([111(6)])."
Mr Justice Leech delivered his judgment on 5 July 2024 (see Panasonic Holdings Corporation v Xiaomi Technology UK Ltd and others [2024] EWHC 1733 (Pat) (5 July 2024)). Lord Justice Arnold gave Xiaomi permission to appeal and expedited the appeal because of the urgency of the case. He noted at para [1] that this was the first time that the courts of England and Wales had been asked to decide whether to make such a declaration. His lordship set out Xiaomi's grounds of appeal in para [65]:
"Ground 1 is that the judge was wrong to apply the standard of a "high degree of assurance" to the assessment of the evidence before him, and should have applied the ordinary standard of proof on the balance of probabilities. Ground 2 is that the judge was wrong to conclude that Panasonic's obligation of good faith did not require it to enter into an interim licence on any terms. Ground 3 is that the judge was wrong to conclude that the declaration sought by Xiaomi would serve no legitimate purpose. Ground 4 is that the judge was wrong to conclude that making of the declaration would be contrary to the principle of comity. Ground 5 is that, to the extent that the judge found that Panasonic's Revised Non-Enforcement Proposal was arguably sufficient to discharge its obligation, he was wrong to do so."
"Ground 1 is that the judge was wrong to apply the standard of a "high degree of assurance" to the assessment of the evidence before him, and should have applied the ordinary standard of proof on the balance of probabilities. Ground 2 is that the judge was wrong to conclude that Panasonic's obligation of good faith did not require it to enter into an interim licence on any terms. Ground 3 is that the judge was wrong to conclude that the declaration sought by Xiaomi would serve no legitimate purpose. Ground 4 is that the judge was wrong to conclude that making of the declaration would be contrary to the principle of comity. Ground 5 is that, to the extent that the judge found that Panasonic's Revised Non-Enforcement Proposal was arguably sufficient to discharge its obligation, he was wrong to do so."
Lord Justice Arnold and Lord Justice Moylan allowed the appeal. Lord Justice Phillips would have dismissed it even though he agreed that Panasonic's conduct had been indefensible. He thought that an anti-suit injunction was a more appropriate remedy. It is perhaps because of Lord Phillips's dissenting judgment that Lord Justice Arnold discussed anti-suit relief between paras [66] and [68]. He concluded at [68]:
"It is convenient at this stage, however, to note that the declarations sought by Xiaomi do not differ from an ASI merely in the negative sense that they would not prevent Panasonic from pursuing the German Proceedings, but also in the positive sense that they are intended to help to regulate the commercial position of the parties pending the determination by the Patents Court. No ASI would ever result in the restrained party receiving substantial royalties from the applicant party. Thus, as counsel for Xiaomi submitted, the relief sought by Xiaomi is not merely much less intrusive than an ASI, but also designed to promote the overall resolution of the dispute."
"It is convenient at this stage, however, to note that the declarations sought by Xiaomi do not differ from an ASI merely in the negative sense that they would not prevent Panasonic from pursuing the German Proceedings, but also in the positive sense that they are intended to help to regulate the commercial position of the parties pending the determination by the Patents Court. No ASI would ever result in the restrained party receiving substantial royalties from the applicant party. Thus, as counsel for Xiaomi submitted, the relief sought by Xiaomi is not merely much less intrusive than an ASI, but also designed to promote the overall resolution of the dispute."
He discussed Xiaomi's first ground that the judge had been wrong to require a "high degree of assurance" between [69] and [73]. While he agreed that Xiaomi had been correct that the standard of proof in civil proceedings such as these was the balance of probabilities the "high degree of assurance" test was not concerned with the standard of proof. It was concerned with the extent to which a court dealing with an interim application should take the merits of the parties' substantive cases into account as opposed to considerations such as the balance of the risk of injustice. In the present case, it was appropriate for a high degree of assurance to be required and for that reason the test was satisfied.
Lord Justice Arnold and Lord Justice Moyland were with Xiaomi on the second of their grounds of appeal which Lord Justice Arnold discussed between [74] and [87]. He dealt with the judge's reasons for refusing relief at [87]:
"Finally, I should address the reasons the judge gave for his contrary conclusion (at [101]). The first was that Xiaomi do not contend that Panasonic is in breach of its undertakings to the Patents Court. This is beside the point: Panasonic is acting inconsistently with those undertakings and with those given by Xiaomi. The second reason was that Panasonic had made it clear to Meade J that it intended to pursue the German Proceedings. This is also irrelevant: the question is what legitimate purpose Panasonic can have for taking that stance. The third reason was that, in the absence of an implied contractual undertaking to take an interim licence, the judge could see no reason why it would be illegitimate for Panasonic to enforce its legal rights to prevent infringements of its SEPs in the territories covered by the German courts and the UPC with the aim of a negotiated settlement. I have explained above why, in the circumstances of this is case, it is illegitimate. The fourth reason was that, although the judge accepted that Panasonic intended to put commercial pressure on Xiaomi to accept its offer, the judge did not consider that this would necessarily result in supra-FRAND rates or even that there was a significant risk that it would do so. I have explained above that the key point is that it is plain that Panasonic is attempting to coerce Xiaomi into paying more than the Patents Court determines to be FRAND, despite Panasonic having both invoked that jurisdiction and both parties having undertaken to enter into a licence on those terms. In fairness to the judge, the effect of Panasonic's conduct may be a little clearer now as a result of its 13 September 2024 revised offer. The fifth reason is that the judge was not satisfied that the German courts' approach led to implementers being forced to accept supra-FRAND offers. As I have explained, this is not the right question. The sixth reason was essentially the same as the fifth reason. The last reason was that there was nothing to prevent Xiaomi from relying upon their undertakings to the Patents Court in the German Proceedings to demonstrate that Xiaomi was a willing licensee and therefore no injunction should be granted, and it was for the German courts and the UPC to decide that question. I agree with this, but for the reasons I have explained this is no answer to Xiaomi's case on the present application."
Lord Justice Arnold discussed Mr Justice Leech's conclusion that the award of a declaration would serve no useful purpose between [88] and [93]. He said at [90]:
"In my judgment, making the declarations sought by Xiaomi would serve a useful purpose in forcing Panasonic to reconsider its position. It would not force Panasonic to change its mind, but in my judgment, there is a realistic prospect that it will do so. Panasonic may not presently intend to change its position, but as counsel for Panasonic had to accept, parties' intentions can change. Panasonic's intentions have already changed in this very dispute, as demonstrated by its revised offer of 13 September 2024. Faced with a decision by this Court that Panasonic is in breach of its obligation of good faith and a formal declaration that a willing licensor would enter into an interim licence, would Panasonic really persist in conduct that this Court has unequivocally and publicly condemned? I not only hope that Panasonic will see the error of its ways, but consider that there is a real prospect of it doing so."
"Finally, I should address the reasons the judge gave for his contrary conclusion (at [101]). The first was that Xiaomi do not contend that Panasonic is in breach of its undertakings to the Patents Court. This is beside the point: Panasonic is acting inconsistently with those undertakings and with those given by Xiaomi. The second reason was that Panasonic had made it clear to Meade J that it intended to pursue the German Proceedings. This is also irrelevant: the question is what legitimate purpose Panasonic can have for taking that stance. The third reason was that, in the absence of an implied contractual undertaking to take an interim licence, the judge could see no reason why it would be illegitimate for Panasonic to enforce its legal rights to prevent infringements of its SEPs in the territories covered by the German courts and the UPC with the aim of a negotiated settlement. I have explained above why, in the circumstances of this is case, it is illegitimate. The fourth reason was that, although the judge accepted that Panasonic intended to put commercial pressure on Xiaomi to accept its offer, the judge did not consider that this would necessarily result in supra-FRAND rates or even that there was a significant risk that it would do so. I have explained above that the key point is that it is plain that Panasonic is attempting to coerce Xiaomi into paying more than the Patents Court determines to be FRAND, despite Panasonic having both invoked that jurisdiction and both parties having undertaken to enter into a licence on those terms. In fairness to the judge, the effect of Panasonic's conduct may be a little clearer now as a result of its 13 September 2024 revised offer. The fifth reason is that the judge was not satisfied that the German courts' approach led to implementers being forced to accept supra-FRAND offers. As I have explained, this is not the right question. The sixth reason was essentially the same as the fifth reason. The last reason was that there was nothing to prevent Xiaomi from relying upon their undertakings to the Patents Court in the German Proceedings to demonstrate that Xiaomi was a willing licensee and therefore no injunction should be granted, and it was for the German courts and the UPC to decide that question. I agree with this, but for the reasons I have explained this is no answer to Xiaomi's case on the present application."
Lord Justice Arnold discussed Mr Justice Leech's conclusion that the award of a declaration would serve no useful purpose between [88] and [93]. He said at [90]:
"In my judgment, making the declarations sought by Xiaomi would serve a useful purpose in forcing Panasonic to reconsider its position. It would not force Panasonic to change its mind, but in my judgment, there is a realistic prospect that it will do so. Panasonic may not presently intend to change its position, but as counsel for Panasonic had to accept, parties' intentions can change. Panasonic's intentions have already changed in this very dispute, as demonstrated by its revised offer of 13 September 2024. Faced with a decision by this Court that Panasonic is in breach of its obligation of good faith and a formal declaration that a willing licensor would enter into an interim licence, would Panasonic really persist in conduct that this Court has unequivocally and publicly condemned? I not only hope that Panasonic will see the error of its ways, but consider that there is a real prospect of it doing so."
Mr Justice Leech had held that the only useful purpose of making the declarations would be to influence the outcome of the German proceedings and that was not a legitimate purpose because it would be contrary to comity. Lord Justice Arnold said that if that premise had been correct, he would have agreed with the judge's conclusion for the reasons given in Teva v Novartis. However, he disagreed with the premise because if the declarations induced Panasonic to reconsider its position and grant Xiaomi an interim licence, it would promote comity because it would relieve the German courts and the UPC of a great deal of burdensome and wasteful litigation.
Lord Justice Arnold summarized his reasoning at [101]:
"(1) Panasonic is in breach of its obligation of good faith under clause 6.1 of the ETSI IPR Policy by pursuing claims for injunctions in foreign courts despite having invoked the jurisdiction of the English courts to determine FRAND terms for a global licence and despite both parties having undertaken to enter into a licence on the terms determined by the Patents Court to be FRAND; (2) a willing licensor in the position of Panasonic would enter into an interim licence with Xiaomi, and FRAND terms of that licence would be those set out in the preceding paragraph; (3) making the declarations sought by Xiaomi would serve a useful purpose; and (4) the declarations should not be refused on the grounds of comity."
"(1) Panasonic is in breach of its obligation of good faith under clause 6.1 of the ETSI IPR Policy by pursuing claims for injunctions in foreign courts despite having invoked the jurisdiction of the English courts to determine FRAND terms for a global licence and despite both parties having undertaken to enter into a licence on the terms determined by the Patents Court to be FRAND; (2) a willing licensor in the position of Panasonic would enter into an interim licence with Xiaomi, and FRAND terms of that licence would be those set out in the preceding paragraph; (3) making the declarations sought by Xiaomi would serve a useful purpose; and (4) the declarations should not be refused on the grounds of comity."
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