Practce - Koninklijke Philips NV v Asustek Computer Inc. and others

Author Basher Eyre# Lixnxw CC BY-SA 2.0

Jane Lambert

Patents Court (Mt Justice Marcus Smith) Koninklijke Philips NV v Asustek Computer Inc and others  [2020] EWHC 29 (Ch) (17 Jan 2020)

This was an application by Asustek Computer Inc. and its subsidiaries, Asustek (UK) Ltd. and Asus Technology Pte Limited. for an order that they cease to be parties to proceedings to determine the terms upon which Koninklijke Philips NV ("Philips") should offer licences to use its patents that are essential for compliance with standards set by the European Telecommunications Standards Institute ("ETSI"}. The application first came before Mr Justice Marcus Smith on 27 Nov 2019.  In Koninklijke Philips NV v Asustek Computer Inc. and others [2019] EWHC 3463 (Pat) (27 Nov 2019) he decided to hear the application on 13 Dec 2019.  He dismissed the application on 17 Jan 2020 in Koninklijke Philips NV v Asustek Computer Inc. and others [2020] EWHC 29 (Ch) (17 Jan 2020).

The reason for the application was that the Asustek companies had a limited market in the UK for products requiring licences to use Philips's portfolio,   Those companies were prepared to withdraw from that market altogether and accept injunctions against infringing Philips's patents om the UK rather than continue in proceedings to determine terms for the use of such patents.  The trial of that action is likely to last 5 weeks and is ex[ected to cost each party a lot of money.  The Asustek companies argued that their removal from the litigation would shorten the proceedings and reduce the costs of the parties that wished to continue the litigation.

According to the judge, Philips's patent portfolio consists of nearly 80 patent families, covering a range of technologies relating to the 3G/UMTS and 4G/LTE telecommunications standards in more than 50 countries around the world. Because compliance with those standards required the use of those patents, Philips had promised to offer licences on fair, reasonable and non-discriminatory ("FRAND") terms but there was no agreement on what those terms were or on whether a court in England could determine them,  That will be determined as far as the UK is concerned in the proceedings from which Asustek and its subsidiaries wished to withdraw.

In support of their application, the Asustek companies relied on the decision of the Court of Appeal in TQ Delta, LLC v Zyxel Communications UK Ltd and another [2019] EWCA Civ 1277 (18 July 2019).  In that appeal, the defendant companies waived their rights to a licence on reasonable and non-discriminatory ("RAND") terms thereby accepting injunctions against future infringement in the UK and agreeing to pay damages for past infringements.  The Court of Appeal held that the defendants' participation in the proceedings served no useful purpose and that it was not part of the senior courts' duty to determine issues that no longer served a useful purpose.  The Asustek companies amended their defence to waive their right to FRAND terms, consented to injunctions against further infringements and agreed to pay damages for past infringements.

Philips opposed the application contending that the amount of damages due to it was still in issue.  It amended its particulars of claim contending that it was entitled to the royalties that would be payable under a FRAND licence and not just damages for infringing sales in the UK.   The Asustek companies opposed Philips's amendment on the basis that it was bad in law and applied for it to be struck out.

Mr Justice Marcus Smith noted than an important difference between the TQ Delta case and the proceedings before him was that damages were not an issue in TQ whereas in the case before him they were.  Starting from s.61 (1) of the Patents Act 1977 and referring to  Clerk & Lindsell, Livingstone v. The Rawyards Coal Company (1880) 5 App Cas 25 at 39 and Lord Justice Fletcher Moulton's judgment on Meters Limited v. Metropolitan Gas Meters Limited, 1911) 28 RPC 157 at 164-165, he considered how to assess damages in a case where:

"(1) The Holder of UK intellectual property rights has undertaken to licence those rights on FRAND terms, but only on FRAND terms.
(2) FRAND terms, in this case, require a willing licensee to take a worldwide, portfolio licence to the Philips Portfolio. Such a licence would obviously be forward-looking (i.e. it would licence future sales) but, to the extent necessary, would also be backward-looking (i.e. it would resolve past infringements).
(3) The Implementer, here ASUS, is not obliged to take such a licence if it does not wish to do so. In such a case, the Implementer must pay appropriate compensatory damages for past infringements (and, obviously, not infringe in the future)."

The learned judge directed himself as follows:

"[41] The key issue is the extent to which the FRAND terms that are declared by the court are to be 'read across' into the assessment of the appropriate compensatory damages for past infringements which are calculated by reference to the Counterfactual Licence.
[42] It is important to appreciate that there is a critical distinction between the FRAND licence whose terms are declared by the court for the purposes of a FRAND dispute such as Trial D (the 'Declared Licence') and the Counterfactual Licence used for the purposes of assessing damages. The Declared Licence settles the terms of the FRAND licence which the Holder must offer and which the Implementer can choose, at its discretion, to accept or refuse. The Counterfactual Licence is merely a construct intended to assist in the calculation of damages for past infringements by the Implementer. There is no question of a licence being entered into by the Implementer: the Implementer simply pays damages calculated by reference to the licence it should have entered into in order to render its past unlawful infringements lawful."

In his lordship's view, both sides had misapplied the authorities.  The Asustek companies' measure of damages was too low whereas Philips's was too high and ran the risk of trespassing on the jurisdiction of courts outside the UK. He concluded:

"[48] The process whereby damages for infringement of UK patents are assessed is heavily fact based. In my judgment, any automatic linkage between the terms of the Declared Licence and the terms of the Counterfactual Licence is wrong in principle and a claim based on such automatic linkage ought to be struck out.
[49] That is not to say that the terms of the Declared Licence are irrelevant. To the contrary, it would equally be wrong to disregard the terms the Declared Licence when quantifying a Holder's loss in relation to a past infringement of its patents. In short, the extent to which the terms of the Declared Licence inform the assessment of damages is a question of fact. Whilst I consider a measure based upon an automatic linkage between the Declared Licence and the Counterfactual Licence to be unarguable, it may be that in this specific case either the measure proposed by ASUS or the measure proposed by Philips is the appropriate one, or it may be that the true measure lies somewhere in-between.
[50] The short answer to ASUS' application is that the extent to which the terms of the Declared Licence are relevant to the assessment of damages is itself a question of fact to be determined at trial. That question is in no way susceptible of summary determination. It follows that the dispute between ASUS and Philips as to the damages payable for ASUS' past infringement of the Philips UK Patents is one that has to be determined at a trial. Given that the terms of the Declared Licence are relevant to that question, it follows that this issue must be determined as part of Trial D.

Though it arose in the course of a simple interlocutory application, this case addresses an important principle on the computation of damages for patent infringement in the UK where the claimant offers a worldwide licence on specified terms.  The terms, in this case, were FRAND but the principle would apply to RAND or any other licence. Should amplification or clarification of any part of this article be required, call me on 020 7404 5252 during normal office hours or send me a message through my contact page.