The Court of Appeal considers FRAND: Unwired Planet v Huawei

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Jane Lambert

Court of Appeal (Lord Kitchin, Lord Justice Floyd and Lady Justice Asplin) Unwired Planet International Ltd  and Another v Huawei Technologies Co Ltd and Another [2018] EWCA Civ 2344 (23 Oct 2018)

FRAND stands for "fair, reasonable and non-discriminatory".   It is an acronym to describe the terms upon which licences should be granted for standard essential patents ("SEPs").   SEPs are patents for inventions that are crucial for compliance with a technical standard.   I attempted an introduction to FRAND terms and SEPs in FRAND on 8 Oct 2017. Lord Kitchin gave a much better one in the first five paragraphs of his judgment in Unwired Planet International Ltd and Another v Huawei Technologies Co Ltd and Another [2018] EWCA Civ 2344 (23 Oct 2018).

Unwired Planet
In FRAND I discussed Mr Justice Birss's decision in Unwired Planet International Ltd v Huawei Technologies Co Ltd and another [2017] EWHC 1304 (Pat) (7 June 2017) which was the first British case on FRAND. His lordship granted Unwired Planet a UK injunction against Huawei until such time as it entered into a global agreement on terms that he settled but stayed the injunction pending appeal. After the hearing, Huawei undertook to enter into whatever licence might finally be determined to be FRAND.

Grounds of Appeal
Huawei appealed against Mr Justice Birss's judgment on the following grounds;
(1) It was wrong in principle for a court in one country to draw up terms for a global licence while there was still litigation over corresponding patents in other parts of the world and there were some countries that were covered by Mr Justice Birss's licence in which Unwired Planet did not hold any patents at all.
(2)  in order for the licence to be non-discriminatory, Huawei should have been offered a licence on the same terms as had been offered to Samsung as the judge held that Huawei was in the same position as Samsung.
(3)  The judge should have found that Huawei had a defence under art 102 of the Treaty on the Functioning of the European Union as Unwired Planet sued Huawei without prior consultation, specifying the SEPs that were alleged to have been infringed and without first offering a FRAND licence.

The FRAND Framework
The European Telecommunications Standards Institute ("ETSI")  is the standards setting organization ("SSO") for telecommunications in the European Union. There are similar SSOs in other parts of the word such as the USA, China, Japan, South Korea and India. The second, third and fourth generation mobile telephony standards have been developed by a partnership of those SSOs known as The 3rd Generation Partnership Project ("3GPP").

Like its 3GPP partners, ETSI has an intellectual property rights policy ("IPRP"). Art 3 sets out its objectives:

"3.1 It is ETSI's objective to create STANDARDS and TECHNICAL SPECIFICATIONS that are based on solutions which best meet the technical objectives of the European telecommunications sector, as defined by the General Assembly. In order to further this objective the ETSI IPR POLICY seeks to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable. In achieving this objective, the ETSI IPR POLICY seeks a balance between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs.
3.2 IPR holders whether members of ETSI and their AFFILIATES or third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL SPECIFICATIONS. 
3.3 ETSI shall take reasonable measures to ensure, as far as possible, that its activities which relate to the preparation, adoption and application of STANDARDS and TECHNICAL SPECIFICATIONS, enable STANDARDS and TECHNICAL SPECIFICATIONS to be available to potential users in accordance with the general principles of standardization."

Lord Kitchin summarized it as "to create standards and technical specifications which best meet the technical objectives of the European telecommunications sector. It continues that, to further this objective, the ETSI IPR Policy seeks, on the one hand, to reduce the risk to undertakings applying its standards of investment being wasted as a result of the essential intellectual property for that standard not being available; and, on the other hand, to ensure that the owners of an essential intellectual property right are adequately and fairly rewarded for its use."

Art 4.1 of the IPRP requires ETSI members to inform the Institute of any "ESSENTIAL" intellectual property right ("IPR") in a timely fashion. An ESSENTIAL IPR is defined as an IPR which is necessary from a technical perspective for the implementation of a standard. A SEP is necessarily an ESSENTIAL IPR. Once an ESSENTIAL IPR has been declared by its owner to ETSI then, irrespective of whether that owner is a member of ETSI, it will be requested by ETSI to give an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on FRAND terms. 

Clause 6.1 provides:

"When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent:
  • MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE; 
  • sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED; 
  • repair, use, or operate EQUIPMENT; and 
  • use METHODS. 
The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate."

Whether it was wrong for a judge in one country to draw up the terms of a global licence
Huawei argued that it would be unjust and inexpedient for a judge in England to require it to enter a global licence. It submitted that there were some countries such as the UK where Unwired Planet does not hold any SEPs. It would result in forum shopping and anti-suit injunctions.

The Court of Appeal was not persuaded by those arguments.  Lord Kitchin said at para [104]:

"The judge was required to determine the meaning and effect of the FRAND undertaking which UP had given and Huawei was seeking to enforce. That is what he proceeded to do. He found that, having regard to the parties and in all the circumstances of this case, UP's undertaking to ETSI would be met by offering Huawei a global licence in respect of all of its SEPs on the terms he settled. We do not accept that this approach is likely to cause any problems of a kind with which commercial courts around the world are not familiar or which might impact upon the meaning and effect of the undertaking UP has given to ETSI. It is true that a court in one country will decide, as between the parties, whether a global or multi-territorial licence is FRAND but that is inevitable and we see nothing unfair about it, and it most certainly does not deprive a licensee from challenging the validity and essentiality of the SEPs in any jurisdiction where it may choose to do so."

The Court differed from Mr Justice Birss on whether there can be only one set of FRAND terms for any given set of circumstances. In the appeal judges' view patent licences are complex. Having regard to the commercial priorities of the participating undertakings and the experience and preferences of the individuals involved, they concluded that such licences may be structured in different ways. For example, the contracting parties, the rights to be included in the licence, the geographical scope of the licence, the products to be licensed, royalty rates and how they are to be assessed, and payment terms. Also, concepts such as fairness and reasonableness do not sit easily with a rigid approach.  Though the judge below may have erred in that regard, his error had no material effect on the conclusion that Mr Justice Birss was entitled to reach.

Whether the licence was discriminatory
The Court of Appeal decided that the circumstances in which Samsung had been granted a licence were not comparable to those that prevailed when Huawei negotiated a licence. It followed that the licence terms offered to Huawei were not discriminatory. 

Whether the claim against Huawei breached art 102 of the TFEU 
Lord Kitchin agreed that Unwired Planet was in a dominant position but did not believe that it had abused it.  Huawei relied on the decision  of the Court of Justice of the European Union in Case C-170/13 Huawei v ZTE and another [2015] Bus LR 1261 in which it held:

"Article 102 TFEU must be interpreted as meaning that the proprietor of a patent essential to a standard established by a standardisation body, which has given an irrevocable undertaking to that body to grant a licence to third parties on fair, reasonable and non-discriminatory (‘FRAND’) terms, does not abuse its dominant position, within the meaning of that article, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:
  • prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and
  • where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics."
The Court of Appeal analysed the Court of Justice's judgment in Huawei v ZTE and concluded that the Court was not laying down mandatory conditions such that non-compliance would render the proceedings a breach of art 102. They reasoned that the Court of Justice had expressly recognized that account must be taken of the actual circumstances of the case when determining whether a course of conduct such as bringing infringement proceedings without warning is abusive. That view was consistent with the reasoning of the Court of Justice's decision. Also, similar conclusions had been reached in by the courts in other member states.   It followed that art 102 would not automatically afford a defence to Huawei.

Having rejected each of its arguments, the Court of Appeal dismissed Huawei's appeal.

The key to understanding this judgment is to consider the question that the courts had been asked to determine.  They were required to construe clause 6.1 of ETSI's IPRP.  Those were rules by which both sides had agreed to be bound.  There was no reason why an English or any other national court should not decide that point.   The courts had to consider the business efficacy of the clause and a construction that applied only to the UK is unlikely to have been intended by the policy's framers. The jettisoning of Mr Justice BIrss's finding that there could only be one set of FRAND terms at any one time will have made it easier for the Court of Appeal to reject such arguments as the Huawei licence was discriminatory when compared to Samsung's or that issuing infringement proceedings without warning amounted to an abuse of a dominant position.

Further Information
Anyone wishing to discuss this article or FRAND generally should call me on +44 (0)20 7404 5252 during British office hours (remembering that the clocks were put back last night) or send me a message through my contact form.


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