Patents: Supreme Court upholds Court of Appeal and Sir Colin Birss on FRAND

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Jane Lambert

Supreme Court (Lord Reed, Lord Hodge, Lady Black. Lord Briggs and Lord Sales) Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another [2020] UKSC 37 (26 August 2020)

This was the judgment in the conjoined appeals from the decisions of the Court of Appeal in Unwired Planet International Ltd and another v Huawei Technologies Co Ltd and another [2018] RPC 20, [2018] EWCA Civ 2344 and Huawei Technologies Co, Ltd v Conversant Wireless Licensing S.A.R.L [2019] RPC 6, [2019] EWCA Civ 38.  I have discussed the litigation in the High Court and Court of Appeal in FRAND - A Recap on 8 Aug 2020 and FRAND on 8 Oct 2017.  I shall discuss the Supreme Court's judgment on FRAND in a talk over Zoom on 8 Sept 2020 at 14:00. There will be no charge for the talk but participants must register through Eventbrite in good time.

The Issues
The issues in this appeal were set out in paragraph [1] of the Court's judgment to which all justices contributed:

"The first (in all three appeals) is whether a court in the United Kingdom (“UK”) has jurisdiction and may properly exercise a power, without the agreement of both parties, to (a) grant an injunction to restrain the infringement of a UK patent where the patented invention is an essential component in an international standard of telecommunications equipment, which is marketed, sold and used worldwide unless the implementer of the patented invention enters into a global licence of a multinational patent portfolio, and (b) determine royalty rates and other disputed terms of such a global licence. Secondly, there is a dispute (in the Conversant appeals: ........) whether England is the appropriate forum to determine those matters. Thirdly, (in the Unwired appeal: ........) there is a question as to the nature of the requirement that the licence, which the owner of a Standard Essential Patent (“SEP”) must offer to an implementer, be non-discriminatory. Fourthly, (again in the Unwired appeal) there is a question whether the court should refuse to grant the owner of such a SEP an injunction on the ground that it has breached EU competition law because it has not complied with the guidance given in the judgment of the Court of Justice of the European Union (“CJEU”) in Huawei v ZTE (Case C-170/13) EU:C:2015:477; [2015] 5 CMLR 14; [2016] RPC 4. Fifthly, the appeals raise a more general question as to the circumstances in which it is appropriate for an English court to grant a prohibitory injunction or to award damages instead."

A summary of the judgment was delivered in a video by Lord Hodge at 09:45 yesterday morning. The Court heard argument between 21 and 24 Oct 2019 and videos of counsels' submissions are on the Supreme Court's website.

Structure of the Judgment
After setting out the issues in the appeal, the Court discussed patenting generally in paragraph [2] and patentees' entitlement to injunctive relief if their patents are infringed in paragraph [3]. It also discussed the need for equipment manufacturers to use patented technology to comply with technical standards and the problems of "holding up" and "holding out" [4]. "Holding up" is driving a hard bargain for the use of a patent that is essential for compliance with a standard ("a standard-essential patent" or "SEP").  "Holding out" is using the technology without paying for such use for as long as possible on the ground that the patent is not valid, not essential for compliance with the standard or simply not infringed. 

Between paragraphs [5] and [14], the Court considered standard-setting organizations ("SSO") in general and the European Telecommunications Standards Institute ("ETSI") in particular. It summarized the arrangements by which ETSI includes patents in its standards as SEPs on condition that the patentees grant licences to those who want to implement a standard ("implementers") on fair, reasonable and non-discriminatory ("FRAND") terms. At paragraph [15] the Court discussed industry practices in negotiating FRAND licences.

From [16] to [18] the Court described the parties to the appeal and their respective interests.  It referred to the Unwired Planet and Conversant Wireless as "patent assertion entities" which is not a term that I had ever encountered before reading this appeal transcript.  I am more used to the term "non-practising entities" (see Daniel Papst NPEs and Patent Aggregators— New, Complementary Business Models for Modern IP Markets (Licensing Executives Society International)).  Between [19] and [29] the Court discussed the Unwired Planet proceedings in the courts below.  It considered the Conversant Wireless proceedings between [30] and [35].  It described the commercial context in which the litigation was taking place between [36] and [41] and Mr Justice Birss's approach to the issues from [42] to [49].

In the rest of the judgment, the Court addressed, in turn, the issues set out in paragraph [1] that I mentioned above.


"Issue 1: Whether the English courts have jurisdiction and may properly exercise a power without the agreement of both parties (a) to grant an injunction restraining the infringement of a UK SEP unless the defendant enters into a global licence on FRAND terms of a multinational patent portfolio and (b) to determine royalty rates and other disputed items for a settled global licence and to declare that such terms are FRAND." (paragraphs [50] - [91])
The Court listed Huawei's objections to the lower courts' finding that an implementer must take a worldwide licence on FRAND terms to avoid an injunction against infringing a SEP designating the UK:
  1. It is unfair to deprive an implementer of the right to challenge the validity, essentiality and infringement of a foreign patent.
  2. English courts fix terms for licensing foreign patents which the courts of the countries concerned might not necessarily set.
  3. English courts are out of step with the decisions of courts in  other 
  4. The policy limits the remedies available to the patentee because the consideration for a FRAND licence is in lieu of all other remedies including injunctions and heavier damages.
  5. The remedy of an injunction excluding an implementer's goods from the UK market is disproportionate.
ZTE supported Huawei's submissions but added that purporting to offer worldwide terms for the licensing of foreign patents usurped foreign courts' jurisdiction.

At paragraph [58] the Court acknowledged:

"(a) that questions as to the validity and infringement of a national patent are within the exclusive jurisdiction of the courts of the state which has granted the patent and (b) that in the absence of the IPR Policy an English court could not determine a FRAND licence of a portfolio of patents which included foreign patents. It is the contractual arrangement which ETSI has created in its IPR Policy which gives the court jurisdiction to determine a FRAND licence and which lies at the heart of these appeals."

The Court rejected Huawei and ZTE's argument as unbalanced. It was too favourable to implementers and did not take full account of the rights of patentees. Confining the jurisdiction of the English courts to the licensing of UK or European patents designating the UK would contradict the policy of ETSI which is to make the patented technology available to every implementer while ensuring every patentee a reasonable return.    The English courts are not usurping the jurisdiction of foreign courts because they are enforcing a contract and making no finding of the validity of the foreign patents or whether they have been infringed.  The Supreme Court reviewed the judgments of foreign courts and found no disparity between the approach of those courts and the approach of Mr Justice Birss and the Court of Appeal.

Huawei had criticized the involvement of patent assertion entities that exploit vast patent portfolios for inventions that they did not create for products that they do manufacture,  The European Commission had expressed concern over such entitles as had the US courts.  The Court said ar paragraph [90] that it was aware of the possibility of abuse.   However, it added:

"In our view, however, the rights which PAEs acquire through the transfer by assignment of patents are the same as those which the assignor patent owners had held: assignatus utitur iure auctoris - that which is assigned possesses for its use the rights of the assignor or cedent. In some cases, the assignment of rights to a PAE and the reservation of a share of the royalties which it negotiates or obtains through litigation may be the most straightforward means by which a SEP owner can obtain value from its intellectual property which is the fruit of its research and innovation, and if the rights are treated as qualified in the hands of the PAE the consequence will be that the SEP owner will not receive the reward which its investment merits. In the exercise of those rights in pursuit of a FRAND licence the assignee PAE, like the assignor patent owner, must act fairly and reasonably as FRAND is an obligation which governs the process of negotiation as well as the outcome of the determination of a FRAND licence. There is no legal basis under the general law for treating PAE owners of SEPs differently from other SEP owners unless they have different interests which merit different remedies. In so far as the risk of the grant of injunctions may be necessary to achieve the balance which the IPR Policy promotes, it is not evident that a PAE should necessarily be treated differently from a SEP owner which manufactures and sells telecommunications equipment. SEP owners have an interest in making sure that the ETSI regime is enforced."

In any event, the point was irrelevant to the question of jurisdiction.

Issue 2: Whether England is the appropriate forum to determine those matters (paragraphs [92] - [105])
Huawei and ZTE contended that even if the English courts had jurisdiction to determine a worldwide FRAND licence the proceedings should be stayed on the grounds that China was a more appropriate forum.  Alternatively, they argued that an English court should not grant an injunction in the English proceedings until a Chinese court had ruled on the issues in dispute.

The Court rejected both contentions.  The litigation was essentially about the enforcement of UK patents to which acceptance of a licence on FRAND terms was a possible defence. The terms of a licence might conceivably fall within the jurisdiction of the Chinese courts but the validity of a UK patent and whether it had been infringed certainly could not.  Furthermore, Mr Justice Henry Carr could find no evidence that the Chinese courts had jurisdiction to determine the terms of a global licence without the agreement of all parties. English courts, on the other hand, did have jurisdiction to determine that issue. 

The question over the injunction fell within the trial judge's discretion, It could not be interfered with if it was wrong.    The Supreme Court at [103] said that the Court of Appeal's approach on the question (and by implication the court below) could not be faulted.

Issue 3: FRAND and non-discrimination (paragraphs [106] - [127])
This issue is better explained by the Supreme Court's website:

"What is the meaning and effect of the non-discrimination component of the FRAND undertaking and does it mean that materially the same licence terms as offered to Samsung must be offered to Huawei in the circumstances of the Unwired case?"

On 28 July 2016, Samsung was offered a licence at a lower royalty than Mt Justice Birss had set in the draft agreement at the end of his judgment of 7 June 2017 (see Unwired Planet International Ltd v Huawei Technologies Co Ltd and another [2017] EWHC 1304 (Pat), [2017] RPC 20).  Huawei argued that a licence at a higher royalty than Samsung could not, by definition, be non-discriminatory.

The Supreme Court rejected that contention.  They agreed with Mr Justice Birss and the Court of Appeal that a duty not to discriminate should not be viewed in isolation. The principles of fairness, reasonableness and non-discrimination had to be considered together.  It was possible for an agreement to be less favourable than a previous one in a particular regard such as royalty rates but still be FRAND. There was evidence that ETSI had contemplated a requirement that licences should be offered on "the most favourable terms" but that idea was dropped.

Issue 4: Competition law and the CJEU’s judgment in Huawei v ZTE (paragraphs [128] - [158])
In Case C-170/13, Huawei Technologies Co. Ltd v ZTE Corp EU:C:2015:477, [2015] EUECJ C-170/13, [2016] RPC 4, [2015] 5 CMLR 14, ECLI:EU:C:2015:477, the Court of Justice of the European Union had ruled:

"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."
Huawei argued that Unwired Planet had not complied with the pre-conditions and that the courts below had no jurisdiction to grant an injunction.

There had been negotiations between Unwired Planet and Huawei on the terms of a possible licence in accordance with ETSI's policy before Unwired Planet launched proceedings against Huawei but Huawei objected to the validity of several of Unwired Planet's patents and questioned whether they were essential to ETSI's standard and whether they had been infringed. Huawei also objected to the terms of the licence that it had been offered.

In Unwired Planet International Ltd v Huawei Technologies Co. Ltd and another [2017] EWHC 711 (Pat) Mr Justice Birss held that the Court of Justice's conditions had been complied with and that Unwired Planet's action was not an abuse of a dominant position. The Court of Appeal agreed with him.  The Supreme Court held at [149] that the courts below had interpreted the Court of Justice's ruling correctly.

In reaching their decision, the Supreme Court acknowledged at [150] that:

"Bringing “an action for a prohibitory injunction … without notice or prior consultation with the alleged infringer” will amount to an infringement of article 102, as para 60 of the CJEU’s judgment sets out. In that paragraph, the language used is absolute: the SEP owner “cannot” bring the action without infringing the article."

However, "the nature of the notice/consultation that is required must depend upon the circumstances of the case."

Such an approach was consistent with the Court's decision in Case C-209/10, Post Danmark A/S v Konkurrencerådet EU:C:2012:172, ECLI:EU:C:2012:172, [2012] EUECJ C-209/10 and the Commission's decision in Motorola (Summary of Commission Decision of 29 April 2014 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement (Case AT.39985 — Motorola — Enforcement of GPRS standard essential patents) (notified under document number C(2014) 2892 final) OJ C 344, 2.10.2014, p. 6–8.  The Supreme Court concluded at paragraph [158]:

"Given that we share Birss J’s interpretation of the CJEU’s judgment, we see no reason to interfere with his assessment that Unwired had not behaved abusively. He found that sufficient notice was given to Huawei before the injunction application was made. He properly evaluated the course of the negotiations between the parties in light of what the CJEU had said. There was no mandatory requirement that Unwired itself make an offer of terms which coincided with those that were ultimately determined by the court to be FRAND. Apart from the more general points that we have made earlier, in rejecting the argument that the CJEU’s scheme was mandatory, such an absolute requirement to hit the target precisely with an offer could not sit easily alongside para 68 of the CJEU’s judgment, which contemplates determination of the amount of the royalty by an independent third party. What mattered on the facts of this case was that Unwired had shown itself willing to license Huawei on whatever terms the court determined were FRAND, whereas Huawei, in contrast, had only been prepared to take a licence with a scope determined by it."

Issue 5: The equitable jurisdiction to award a prohibitory injunction (paragraphs [159] - [169])
The fifth issue was whether it was appropriate in all the circumstances of the case to award an injunction. It was an argument that was raised for the first time before the Supreme Court. Huawei contended that Unwired Planet and Converant Wireless were patent assertion entities whose primary interest is maximizing the revenue from their portfolio.  An award of damages based on the appropriate patent licence fee could satisfy that need far better than a patent which would disrupt Huawei's business in the UK.  The Supreme Court rejected that argument.  Although discretionary, an injunction is the usual remedy for patent infringement.  In a FRAND case, it is the only tool by which a court may leverage an implementer into accepting a licence and this refrain from holding out.

Conclusion  (paragraphs [170] to [171])
For all these reasons the Court dismissed the appeals.

Comment
The commercial importance of this issue cannot be overstated but the legal significance of the Supreme Court's decision may be a different matter. 

As for the commercial importance of the issue, the ease with which implementers can use other companies' patents is vital to the development and deployment of the next generation of communication technologies upon which many all sorts of other advances from autonomous vehicles to processing of very large data sets will depend.  Whether it is desirable for key technologies to be held by patent assertion agencies, non-practising entities or whatever one wishes to call businesses that acquire large patent portfolios otherwise than through research and development and manufacturing arose in several issues.  It is clear from the appellants' counsel's opening remarks on 21 Oct 2019 and the recurring discussion of the issue that this factor contributed some of the needle in this case.

Turning to the case's legal significance, it has to be remembered that the UK is a medium-size market and that quitting the UK altogether may be a lesser evil than accepting a court imposed licence agreement.  That seems to have been the conclusion of the defendants in TQ Delta LlC v Zyxel Communications Ltd and another [2019] EWHC 745 (Pat) (18 March 2019) whowithdrew their undertaking to accept a FRAND licence and even agreed to pay the damages demanded by the claimant as the price for avoiding a non-technical trial on the terms of a icence (see TQ Delta, LLC v Zyxel Communications UK Ltd and another [2019] EWCA Civ 1277 (18 July 2019). The same reasoning appears to have been in the mind of the defendants in Koninklijke Philips NV v Asustek Computer Inorporation and others [2020] EWHC 29 (Ch) (17 Jan 2020).

It would have been possible for the Supreme Court to refer the question  of whether Unwired Planet had complied with its conditions in Huawei v ZTE and other matters such as whether the same rules apply when the claimant is a patent assertion entity under art 267 of the Treaty of European Union in Oct 2019. Then we were still full members of the EU. Obviously it is not possible now that we are approaching the end of the transition period.  Interestingly, the Mannheim Landgericht appears to have been invited to make a reference to the Court earlier this month in infringement proceedings that Nokia had brought against Daimler but chose not to do so (see Dr. Joachim Bock's press release of 18 Aug 2020 on Nokia ./. Daimler (2 O 34/19)).

Anyone wishing to discuss this article or any of the issues mentioned in it can call me on +44 (0)207 404 5252 or send me a message through my contact form. They can, of course, also attend my talk on 3 Sept 2020.

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