FRAND - A Recap

Jane Lambert

Just before Christmas, I was asked to speak to the Cambridge IP Law Summer School on TMT: A SEP & FRAND which was due to take place this week.  The invitation was offered a few weeks after counsel for the parties in  ZTE Corporation and another v Conversant Wireless Licensing SARL, Huawei Technologies Co Ltd and another v Conversant Wireless Licensing SARL and Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another had presented their cases to the Supreme Court and we had every hope that the Justices would have delivered their judgment by now.  Sadly, coronavirus has delayed the business of the Supreme Court and the Summer School will now take place online rather than in Cambridge.  Fortunately, I can still give my talk as planned.

In FRAND I wrote that those letters stand for "fair, reasonable and non-discriminatory".  Those are the terms upon which an organization that sets a standard (a "standard setting organization" or "SSO") will require the owner of a patent that is essential for compliance with a patent (a "standard essential patent" or "SEP") to license a person who wants to use the patent to implement that standard ("an implementer").  In his judgment in Koninklijke Philips NV v Asustek Computer Inc. and others [2020] EWHC 29 (Ch) (17 January 2020), Mr Justce Marcus Smith said at paragraph [7 (4)]:

"Standard Essential Patents can be of great value to their holders. Holders can expect a substantial revenue stream from their Standard Essential Patents as the standard for which they are essential is implemented in products sold to millions of consumers. This revenue stream is supported by the fact that alternative technologies which do not meet the standard may well disappear from the market."

FRAND licences are intended to balance the rights of holders, implementers and the general public,

Unfortunately, that is not what always happens in practice.  Patentees use the threat of injunctions to force implementers to take licences that they do not want or need or pay royalties that are way too high.  A practice known as "holding up".  Implementers deny that the patent is valid or essential to the standard while they make or sell goods that comply with the standard without paying the patentee a penny.  A practice known as "holding out". Moreover, some of the patent holders have acquired their portfolios by purchase.  It would be surprising if there were not at least a little resentment towards holders that had not actually invented anything.

Disputes between patentees and implementers can take years to resolve.   The usual procedure is for courts to order one or more "technical trials" to determine the validity and essentiality of a patent and whether it has been infringed followed by a "non-technical trial" to determine the terms of the licence.  The cost of this litigation can be astronomical. No less than 5 technical trials between Unwired Planet International Ltd. and Huawei Technologies Ltd were ordered although not all of them took place.  The non-technical trial lasted 7 weeks and is alleged to have cost the claimant £12.4 million (see Unwired Planet International Ltd v Huawei Technologies Co Ltd and another [2017] EWHC 1304 (Pat) (7 June 2017)).  

In my 2017 article, I traced the history of FRAND from the American antitrust cases that Prof Jorge L Contreras mentions in A Brief History of FRAND: Analyzing Current Debates in Standard Setting and Antitrust Through a Historical Lens 80 Antitrust Law Journal 39 (2015), through the German Orange Book case and the Court of Justice's decision in Case C‑170/13 Huawei Technologies Co. Ltd. v ZTE Corp and another [2015] Bus LR 1261 (16 July 2015) to the decision of Mr Justice Birss (as he then was) in Unwired Planet International Ltd v Huawei Technologies Co. Ltd and another [2017] EWHC 711 (Pat) (5 April 2017).  I discussed the judgment in that case but not in sufficient detail   

I did not say that his lordship opined that an obligation to grant or take a FRAND licence can be enforced by the grant or refusal of an injunction, as the case may be, and that it is unnecessary to consider whether an SSO's insistence on the grant or refusal of a licence is specifically enforceable.  In his view, it is unnecessary to rely on competition law because their criteria are not the same.  A royalty rate may be above the FRAND rate but not infringe art 102 of the Treaty on the Functioning of the European Union.  Only one set of terms can be FRAND in given circumstances and those terms must apply to the licensor's worldwide portfolio and not just his patents in the UK. Perhaps most importantly, I omitted to say that the learned judge delivered a further judgment on 7 June 2017 in which he settled the terms of a FRAND licence between Unwired Planet and Huawei and threatened an injunction and inquiry as to damages against the Huawei companies unless they accepted that licence.

After my 2017 article had appeared Huawei appealed against Mr Justice Birss's order on the following grounds:

• The imposition of a global licence on terms set by a national court based on a national finding of infringement is wrong in principle and leads to results which are manifestly unjust. 
• As Samsung was, on the judge's own finding, a company which was similarly situated to Huawei, Huawei ought to have been offered the same rates as those reflected in the Samsung licence because the non-discrimination limb of FRAND prohibits a SEP owner from charging similarly situated licensees substantially different royalty rates for the same SEPs. 
• In the light of the Court of Justice's decision in Case C-170/13 Huawei v ZTE [2015] Bus LR 1261, the owner of a SEP cannot seek an injunction against an alleged infringer without (a) notice or prior consultation and, if the alleged infringer has expressed a willingness to conclude a licensing agreement on FRAND terms, (b) offering to that infringer a licence on such terms.

The Court of Appeal found against Huawei on all three grounds and dismissed its appeal (see Unwired Planet International Ltd & Anor v Huawei Technologies Co Ltd and another (Rev 1) [2018] EWCA Civ 2344 (23 October 2018)).   Huawei has appealed against that decision to the Supreme Court.

One of the points that Huawei took on appeal was that England was not the appropriate forum to decide the terms of a global patent licence on FRAND terms since only a fraction of  Huawei's business is done here.  The Court of Appeal replied at paragraph [113] that it was far too late to take that kind of point. If Huawei preferred another forum then it should have applied for a stay of the FRAND issues at an early stage.  In Conversant Wireless Licensing SARL v Huawei Technologies Co. Ltd and others [2018] EWHC 808 (Pat) (16 April 2018) Huawei and ZTE Corporation objected to the jurisdiction of the English court to hear an action for the infringement of Conversant's British patents even though Huawei and ZTE had undertaken to accept a FRAND licence. They contended inter alia that The English court had no jurisdiction to decide claims that were, in substance and effect, claims for infringement of foreign patents, the validity of which was in dispute.  Alternatively,  the court should decline to exercise jurisdiction to decide the claims, because China was the natural forum.  Mr Justice Henry Carr rejected the application to dismiss these claims on the basis that they were non-justiciable in England and this country was clearly the most appropriate forum.

Huawei and ZTE appealed to the Court of Appeal on the grounds that the claim against them was not justiciable in the English court because the dispute related to the validity of Conversant's foreign patents as well as its UK ones and the validity of foreign patents was not justiciable in an English court. Secondly, they argued that the English court was not the natural or an appropriate forum for the claims against them and that the court ought to stay the proceedings on the ground of forum non conveniens.  In Huawei Technologies Co, Ltd v Conversant Wireless Licensing S.A.R.L. [2019] EWCA Civ 38 (30 Jan 2019) the Court dismissed the appeal.  Even though the parties were in dispute on many other matters, the issue before Mr Justice Henry Carr was the validity of British patents and whether they had been infringed.  Part of the defence to that action was that the defendants were prepared to take a licence on FRAND terms. That was well within the jurisdiction of an English court. In fact,  there was no better tribunal to determine the validity of a British patent and whether it had been infringed. Huawei and ZTE have appealed to the Supreme Court against that judgment and their appeal was heard at the same time as Huawei's appeal against the Court of Appeal's decision in Unwired Planet. We await the Supreme Court's judgment in all three appeals with interest.

It will be recalled that the mechanism by which undertakings to give or take FRAND licences is the withholding or, as the case may require, awarding of an injunction to restrain the infringement of a British patent.   Implementers are therefore put to their election.   Accept a worldwide patent on FRAND terms settled by the court or an injunction.  In TQ Delta, LLC v ZyXEL Communications Ltd and another [2019] EWHC 745 (Pat) (18 March 2019), the defendant companies chose to accept the injunction.  The reason they did so was that the patent that was found to be valid and infringed was due to expire a few months after the judgment and they calculated that an injunction and damages would be less onerous than the FRAND licence that they had previously undertaken to accept.

As in Unwired Planet, there had been an argument between patentee and implementer over validity, essentiality and infringement.  The court had ordered a technical trial which took place early in 2019 to be followed by a non-technical trial over the terms of a FRAND licence which was to take place in September.  The claimant, TQ Delta, accused the ZyXEL defendants of infringing two of its patents.   In the technical trial, Mr Justice Henry Carr found that the patent with the longer term to run was invalid (see TQ Delta, LLC v ZYXEL Communications Ltd and another [2019] EWHC 562 (Pat) (11 March 2019).  TQ Delta responded by bringing fresh proceedings against the ZyXEL defendants.

The ZyXEL companies applied to Mr Justice Birss to strike out the new proceedings on the grounds of abuse of process and to vacate the non-technical trial on the grounds that they had no interest in its outcome.   The judge refused both applications (see TQ Delta, LLC v Zyxel Communications UK Ltd and another [2019] EWHC 1089 (Pat) (17 April 2019)).  The defendants appealed against Mr Justice Birss's refusal to vacate the non-technical trial to the Court of Appeal in TQ Delta, LLC v Zyxel Communications UK Ltd and another  [2019] EWCA Civ 1277 (18 July 2019).  The Court allowed the appeal as the ZyXEL companies had waived any right they might have to a FRAND or other licence to work TQ Delta's patents and had offered to pay the damages sought by that company unconditionally.  There was, therefore, nothing left to argue about in the non-technical trial.

In Koninklijke Philips NV v Asustek Computer Inc. which I mentioned above, Mr Justice Marcus Smith distinguished the Court of Appeal's decision in TQ Delta on the grounds that damages were a live issue in Philips’s case and these could only be determined by a trial on the damages payable pursuant to a FRAND licence.

I shall deliver my overview on FRAND to the IP Law Summer School on Wednesday, 12 Aug 2020 at 15:20.  There is a very good programme with eminent speakers from around the world.  Anyone who wants to attend the course should check here.  I am also happy to discuss this article or FRAND generally with anyone who cares to call me on +44 (0)20 7404 5252 during office hours or send me an email through my contact page.