England “clearly the most appropriate forum” for FRAND dispute: Carr J in Conversant v ZTE

The Defendants had sought to challenge jurisdiction, arguing that the case should be convened in China and that the UK was an inappropriate forum. They had also argued that the court was wrong to find that there was an arguable case for Conversant to claim an injunction – but on the facts before him, the judge found there was a good arguable case. 

The judge also considered the conduct of parties in negotiations, providing useful guidance for how the conduct of FRAND negotiations will be viewed by the English courts.

Background

This decision comes one year after Mr Justice Birss delivered his judgment in Unwired Planet v Huawei [2017] EWHC 2988. He found that the English High Court did have jurisdiction not only to award a licence rate for a global patent portfolio, but also to order an injunction in respect of unlicensed infringements for standard-essential patents. Awarding Unwired Planet a global royalty rate for its portfolio of 4G, 3G and 2G patents, he paved the way for other patent owners to settle their disputes before the UK courts.

Weeks later, in July 2017 Luxembourg company Conversant Wireless took advantage of the favourable landscape, and issued proceedings against two Chinese Defendants – ZTE and Huawei – for infringement of four standard-essential patents. These four patents represent a selection from a global portfolio, and Conversant later amended its claim to add an Unwired-Planet-style request for injunction.

Jurisdiction challenge

The Defendants challenged jurisdiction on two main heads: that the English Courts did not have jurisdiction; and that the UK was forum non conveniens (i.e. an inappropriate place to hear the case). Both of these challenges were rejected.

Importantly, both Defendants are “China-centric” businesses; that is, they are Chinese companies, and that’s also their major sales market and where they manufacture. Since most profits are generated in China, they said that the Chinese patents in Conversant’s global portfolio are disproportionately significant in value compared to the UK elements. They argued that in asking for a licence fee for a global portfolio, Conversant’s claim amounted to an allegation of infringement of a wide range of foreign patents, and a request for relief in respect of those. But since the jurisdiction of the English courts is limited to deciding on validity and infringement of UK patents, they said that there was no jurisdiction to hear such a claim.

Carr J applied the “simple and compelling” analysis of Birss J at [567] of the Unwired Planet decision, where a similar issue was considered and dispensed with. Moreover, since legal justice is jurisdictional by nature, he considered the same arguments of the Defendants could in practice be raised in any court in the world, which would require Conversant to seek per-country licences in each worldwide market – a consequence that would not be FRAND.

In addressing the jurisdiction challenges, Carr J remarked on the way that the Defendants had presented their arguments. Their applications characterised Conversant’s case as a claim for infringement of foreign patents (and worldwide royalty claims), which the judge found to be inaccurate. He said: 

“In my judgment, the characterisation of these claims as foreign portfolio infringement claims, or worldwide royalty claims, is inaccurate. They are claims for infringement of four United Kingdom patents, and the English court is clearly the appropriate forum in which these cases should be tried. … As in Unwired Planet, the global FRAND licence sought by Conversant sets different royalty rates for different territories, and it makes no difference where the bulk of the sales occur.”

As to the forum non conveniens challenge, the two UK Defendants have also responded to Conversant with proceedings of their own in China. They said that the proceedings before the Chinese courts dealt with identical or similar issues, and the Chinese courts were therefore more competent than the English courts to adjudicate on the dispute between the parties.

The response from Conversant was (and the judge agreed) that there was no clear evidence that the Chinese court would accept jurisdiction over the determination of a global licence. He found that the totality of the evidence established that the Chinese courts do not have jurisdiction to determine essentiality or infringement of non-Chinese patents, nor do they have jurisdiction to determine FRAND rates in respect of non-Chinese patents without agreement from both parties. In summary, China “plainly is not the natural forum” for the case.

FRAND Conduct and service out

There was an additional dispute about service on the facts of the case. Conversant had served on two UK companies of the Defendants’ groups, on the basis that they were acting as UK offices for the main head company. Both Defendants submitted evidence to dispute this; and in both cases, the judge accepted Conversant’s criticisms that the evidence submitted was deficient in some ways. However, absent cross-examination, he was not prepared to dismiss the evidence and therefore accepted it, finding that service on the UK companies was not valid service on the Chinese counterparts.

In considering whether to allow Conversant permission to serve out of the jurisdiction, the judge looked at the parties’ negotiation history. The defining issue for this purpose was Conversant’s claim to an injunction, which (if accepted) would draw into it all the surrounding issues as being closely related to the main substance, for the purposes of CPR 6B PD 3.1(4)(a). He assessed the conduct of negotiations and highlighted key issues that, he said, supported Conversant’s case for an injunction. In particular he referred to the following points, which will provide further guidance from the courts about how negotiations might be handled in a FRANDly manner:

• the length of negotiations (several years) had not led to much progress;
• the fact that no interim royalty payments had been made;
• Huawei’s position that they would not take a global portfolio licence; and
• that the Defendants did not acknowledge (when requested) that they were willing to take a licence, or that their willingness was unconditional. 

Accepting that the story was not one-sided, the judge nevertheless considered that on the facts there was a good arguable basis for injunction. He therefore gave permission to serve out within CPR 6B PD 3.1(2).

Summary

The Patents Court has made clear that it will accept jurisdiction of patent portfolio disputes where it is tied to justiciable issues in the UK, such as the infringement of UK patents; and that once charged with a case it will not relinquish jurisdiction lightly without very clear indications that another forum is more appropriate. Finally, it has also provided helpful guidance for the proper conduct of FRAND negotiations.