The Vestel Appeal: Vestel Elektronik v Access Advance

Author Wags05  Licence Copyright waived by the Author

 









Jane Lambert

Court of Appeal (Lords Justices Nugee and Birss and Lady Justice Laing) Vestel Elektronik Sanayi Ve Ticaret A.S. and another v Access Advance LLC and another [2021] (26 March 2021) [2021] WLR(D) 178, [2021] EWCA Civ 440

Many of the tellies that are sold in this country under such brands as Toshiba, Hitachi, Telefunken and Panasonic are actually made in Turkey by  Vestel Elektronik Sanayi Ve Ticaret A.S. and distributed by the Vestel group's British company Vestel UK Ltd.  In this article, "Vestel" refers to both Vestel companies. Access Advance LLC administers the HEVC patent pool.  HEVC is a video compression technology which is defined by the International Telecommunication Union H.265 recommendation. One of the members of that pool is Koninklijke Philips NV. 

Vestel's Claim

Vestel applied to Access Advance for a licence to use Philips's patents under Access Advance's Patent Portfolio Licence Agreement.  Access Advance offered a licence at a licence fee of US$1.33 per unit.  Vestel replied that that term was not FRAND because a similar licence was available from another patent pool for 20¢.  Vestel brought proceedings against Access Advance and Philips for abuse of a dominant position under art 102 of the Treaty on the Functioning of the European Union and s.18 of the Competition Act 1998.

Service outside the Jurisdiction

As Philips was domiciled in an EU member state Vestel served process upon it under art 7 (2) of the Jurisdiction and Judgments Regulation (Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters OJ L 351, 20.12.2012, p. 1–32). As Access Advance was a Delaware company Vestlel applied for and was granted permission to serve that company outside the jurisdiction under para 3.1 of Practice Direction 6B.

Application to set aside Service

Access Advance and Philips applied to set aside service on the ground that the English courts had no jurisdiction over them.  The application was heard by Judge Hacon sitting as a judge of the High Court in Vestel Elektronik Sanayi VE Ticaret AS and another v HEVC Advance LLC and another [2019] EWHC 2766 (Ch) (21 Oct 2019). The learned judge granted the application which I discussed in Jurisdiction to hear Abuse of Dominant Position Claims relating to FRAND - Vestel Elektronik Sanayi Ve Ticaret A.Ş. and another v HEVC Advance LLC and another on 25 Oct 2021.

The Appeal

With the leave of Judge Hacon and Lord Justice Floyd, Vestel appealed to the Court of Appeal. However, just before the appeal was due to be heard, those companies applied for far-reaching amendments of their particulars of claim and grounds of appeal.  The appeal came on before Lords Justices Nugess and Birss and Lady Justice Laing on 2 and 3 March 2021. The Court permitted those amendments. By their judgment in Vestel Elektronik Sanayi Ve Ticaret A.S. and another v Access Advance LLC and another [2021] EWCA Civ 440 (26 March 2021), the appeal against Judge Hacon's judgment was dismissed.

The Jurisdiction and Judgments Regulation

Art 4 (1) of that Regulation provides:

"Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State."

However, that rule is certain to a number of exceptions one of which is provided by art 7 (2):

"A person domiciled in a Member State may be sued in another Member State:

(2) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur,"

In Case 189/87 Athanasios Kalfelis v Bankhaus Schroder, Muenchmeyer, Hengst and Co. and others [1988] EUECJ R-189/87, [1988] ECR 5565, [1989] ECC 407, EU:C:1988:459, ECLI:EU:C:1988:459, the European Court of Justice emphasized that it was the general rule that persons should be sued in the courts of their state of domicile. Art 7 (2) was an exception to that rule.  The Court also held that the words "tort, delict or quasi-delict" had a uniform meaning throughout the EU. It added that those words should be construed broadly so as to cover all actions that establish liability on a basis other than contract. There was no doubt that they covered patent infringement.  In Case C-133/11, Fofitec AG v Ritrama SpA [2013] 2 WLR 373, [2014] 1 All ER (Comm) 569, [2013] QB 523, [2012] EUECJ C-133/11, [2012] WLR(D) 292, EU:C:2012:664, [2013] ILPr 1, ECLI:EU:C:2012:664, [2013] CEC 727 the Court further held that the art 7 (2) exception was capable of applying to a claim for a declaration of non-liability in tort

Vestel's Art 7 (2) Ground of Appeal

Vestel appealed against Judge Hacon's decision on the ground that its claim for a declaration in relation to Philips's patents brought it within the art 7 (2) exception. Lord Justice Birss agreed that that might have been the case had Vestel sought merely a declaration of non-infringement but the relief sought was a declaration that Access Advance's Patent Portfolio Licence Agreement was not FRAND.

in Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another [2020] Bus LR 2422, [2020] UKSC 37 the Supreme Court held that its jurisdiction to grant a worldwide licence sprang from Unwired Planet's undertaking to grant such a licence under the terms of the ETSI standard if an infringer of a standard-essential offered to accept one as an alternative to an injunction.  As Lord Justice Birss noted at para [12] of his judgment, this case was different in that it was the implementer, Vestel, that had initiated the proceedings. There was no claim for patent infringement. Nor was there a claim for a declaration of non-infringement or revocation of any SEPs before the court. Vestel agreed that it needed a licence and that the issue in dispute was the fairness and reasonableness of the consideration for such licence.

At paragraph [45], Lord Justice Birss quoted para [14] of the Supreme Court's judgment in Unwired Planet:

"14 It appears from this brief review of the IPR Policy in its context that the following conclusions may be reached.
First, the contractual modifications to the general law of patents are designed to achieve a fair balance between the interests of SEP owners and implementers, by giving implementers access to the technology protected by SEPs and by giving the SEP owners fair rewards through the licence for the use of their monopoly rights.
Secondly, the SEP owner's undertaking, which the implementer can enforce, to grant a licence to an implementer on FRAND terms is a contractual derogation from a SEP owner's right under the general law to obtain an injunction to prevent infringement of its patent. […]"

He also referred to para [58] of the Supreme Court's judgment:

"58 In addressing the submissions set out above, we recognise, as is undisputed, (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. We therefore address first the fourth of Huawei's submissions concerning the interpretation of the IPR Policy."

And to para [90]:

".......... The English courts have jurisdiction to rule upon whether the UK patents in suit are valid and have been infringed, and also have jurisdiction to rule on the contractual defence relied upon by the implementers based upon the true meaning and effect of the irrevocable undertaking the SEP owners have given pursuant to the ETSI regime. …"

Any jurisdiction that the English courts might have to determine the terms of a FRAND licence would be contractual.   That was not the same as the position in Fofitec AG.  The claim fell outside art 7 (2) because the cause of action was contractual and would not be based on tort, delict or quasi-delict.

Civil Procedure Rules

CPR 6.36 provides:

"In any proceedings to which rule 6.32 or 6.33 does not apply, the claimant may serve a claim form out of the jurisdiction with the permission of the court if any of the grounds set out in para 3.1 of Practice Direction 6B apply."

Para 3.1 of PD 6 provides that a claimant may serve a claim form out of the jurisdiction of the court t under CPR 6.36 in a number of circumstances known as "gateways".   

Gateway 9

One of those gateways is provided by para 3.1 (9): 

"Claims in tort
(9) A claim is made in tort where –
(a) damage was sustained, or will be sustained, within the jurisdiction; or
(b) damage which has been or will be sustained results from an act committed, or likely to be committed, within the jurisdiction."

In Fujifilm Kyowa Kirin Biologics Company Ltd v Abbvie Biotechnology Ltd and another  [2017] Bus LR 333, [2016] WLR(D) 511, [2016] EWHC 2204 (Pat) Mr Justice Arnold (as he then was) had held that an action for a declaration of non-infringement of a patent fell within this gateway.   Relying on this case, Vestel contended that its claim for a declaration that Access Advance's licence was not FRAND fell within this gateway.   Lord Justice Birss disagreed.  Mr Justice Arnold had construed gateway (9) to make it consistent with art 7 (2) of the Jurisdiction and Judgments Regulation.  Vestel's contention under para 3.1 (9) failed for the same reason as its contention under art 7 (2) of the Regulation.

Gateway 11

Another gateway is provided by para 3.1 (11):

"Claims about property within the jurisdiction
(11) The subject matter of the claim relates wholly or principally to property within the jurisdiction, provided that nothing under this paragraph shall render justiciable the title to or the right to possession of immovable property outside England and Wales."

Vestel had contended before Judge Hacon that Philips'sd British patents for which Vestel sought a FRABD licence constituted "property" within the jurisdiction.   The judge had rejected that argument on the grounds that Vestel sought a licence for the equivalent patents in other countries and that the British patents amounted to 5% or less of the relevant portfolio.   In that regard, it could not be said that the claim related wholly or principally to property within the jurisdiction.  

On appeal, Vestel confined its claim to a declaration that the licence terms in respect of the British patents were not FRAND.  It contended that the limitation of its claim brought it within the wording of subparagraph (11).  Access Advance and Phillips argued that Vestel could not bring its claim within this gateway because no legal right was involved.  The licence on offer was a worldwide one for the whole patent portfolio and not just the British patents.

Lord Justice Birss was prepared to interpret para 3.1 (11) broadly so as to include a legally enforceable claim but Vestel was actually asking the Court to grant a declaration as an exercise of discretion without claiming a right. Vestel argued that the court had already indicated that it was prepared to do that in Pfizer Ltd v F. Hoffmann-La Roche AG and another [2019] EWHC 1520 (Pat) (20 June 2019). In that case, Mr Justice Birss (as he then was) had said that the court had jurisdiction to make an Arrow declaration where such a declaration would serve a useful purpose even though there were no British patents in issue. Relying on that dicta, Vestel submitted that serving a useful purpose was the only criterion to be satisfied for a declaration and that the absence of a putative legal right does not preclude that jurisdiction. The leamed Lord Justice responded that Vestel's contention was based on a misreading of his decision in Pfizer. That decision had been based on cases that had asserted enforceable rights public or private.   

His lordship said at para [78] of his judgment that a legal standard against which to judge the claimed declaration was important.  It was clear from the Unwired Planet judgment that there was no such thing as freestanding FRAND right.  Para [117] of the Supreme Court's judgment made clear that the court's jurisdiction to offer a licence as an alternative to an injunction sprang from the patentee's promise to grant a licence to work a patent as a condition for the patent's essentiality to an ETSI's standard.  The position was different with ITU standards.  Vestel pointed to the ITU recommendations but these were not the same as enforceable rules. 

The Court dismissed the gateway 11 ground of appeal because no legal claim was involved at all.  Moreover, any action that might exist would be dismissed on the ground that it would have no prospect of success.

Gateway 3 and 4A  

Vestel also relied on para 3.1 (3) and (4A):  

"The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where
.................................
(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and 
.................................
(4A) A claim is made against the defendant in reliance on one or more of paragraphs (2), (6) to (16), (19) or (21) and a further claim is made against the same defendant which arises out of the same or closely connected facts."

As Vestel had not succeeded under para 3.1 (9) or (11) it could not satisfy the requirement of subparagraph (4A).

Forum non Conveniens

Vestel's further ground of appeal was forum non conveniens but it could only rely on that ground if it had succeeded under para 3.1 (9) or (11).

Conclusion

Although this case was fought entirely on procedural grounds it is an important decision on FRAND.  In Unwired Planet the jurisdiction to grant FRAND licences had been used as a shield.  The implementers were infringers who would have been injuncted had it not been for the patentee's undertaking to grant FRAND licences in consideration of the patent's essentiality.  In Vestel, the implementer attempted to use the jurisdiction to grant FRAND licences as a sword.   The attempt failed because there was no freestanding FRAND right.  One difference between the two cases may be that an ETSI undertaking is legally enforceable whereas an ITU recommendation is not.  It may require an infringement action on a patent that is essential to an ITU standard to find out.

Anyone wishing to discuss this article can call me on 020 7404 5252 during office hours or send me a message through my contact form. 

Comments

Popular posts from this blog

Copyright - Ashley Wilde Group Ltd. v BCPL Limited

Copyright in Photographs: Temple Island Collections and Creation Records

What to do about the new Practice Direction - Pre-Action Conduct