UK FRAND – home or away?

Another Country

Jurisdictional challenges before the Patents Court are not common – IP rights are inherently national by nature and the issue doesn’t usually arise. But May 2018 saw two such decisions, which reached different results within a few days of each other. Both cases concern telecoms standard-essential patents (SEPs) for the 4G (LTE) standard; both concern global licensing disputes; and the ETSI FRAND obligation is at the heart of both cases.

In Conversant v Huawei, ZTE, Carr J found that England was clearly the most appropriate jurisdiction for the claim and allowed the action to continue. But in Apple v Qualcomm, Morgan J found jurisdictional deficiencies in the claim, and granted summary judgment in favour of the anchor defendant. 

So why the difference? Are the results inconsistent – and if not, what lessons can be learned?

FRAND and the global perspective 

The background to both cases is the FRAND promise. SEPs will normally arise out of the standard-setting process conducted in technical standard-setting organisations like ETSI. To take part in the process, SEP owners make declarations that anyone who wants to implement the standard can have a licence to those essential patents on “Fair, Reasonable and Non-Discriminatory” terms – or ‘FRAND’ terms. 

This limits the scope for normal enforcement. For example, unlike a normal patent, a SEP owner cannot simply exclude his competitors. To obtain an injunction he may need to establish a FRAND record: to demonstrate that he has offered a FRAND licence. Also, appropriate licensing rates balance the reward to the inventor against the right of third parties to access the standard technology. 

Today both standards and companies are international, and when litigation in relation to a company headquartered overseas it is necessary to consider how to make sure they are properly served. English procedure (Practice Direction 6B of the CPR) provides various ‘gateways’ through which service can be achieved. The following are relevant:

Gateway 3: the "necessary and proper party"

This gateway applies where a claim is made against a person within the jurisdiction (an "anchor defendant") and –

(a) there is between the claimant and the anchor defendant a real issue which it is reasonable for the court to try; and

(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.

Gateway 4A: "similar facts".

This gateway applies where one claim is validly made against a defendant who is outside the jurisdiction in reliance on certain other gateways. A further claim may be made against the same defendant if it arises out of the same or closely connected facts.

Gateway 9: "damage within the jurisdiction".

This gateway applies where a claim is made in tort against a person outside the jurisdiction, where  –

(a) damage was sustained, or will be sustained, within the UK¹; or

(b) damage which has been or will be sustained results from an act committed, or likely to be committed, within the UK.

Gateway 11: property within the jurisdiction. 

Property includes patents. So a foreign owner of a UK patent can be sued in relation to that patent in the UK, and the court will give permission for the claim to be served outside the jurisdiction.

There is another way to serve a foreign patent owner. Every owner of a UK patent must give an address for service in the UK. That is usually his patent agent. Under CPR 63.14 proceedings in relation to that patent may be served at that address. Keep that in mind: it becomes relevant shortly.

Conversant v ZTE

Conversant is the simpler of the two cases because it started as a simple patent action. Conversant, the patentee, brought patent infringement claims against the two defendants who were selling mobile phones within the UK. Because these were standards-essential patents, Conversant requested that a global FRAND rate be determined; and an injunction granted if the patents were infringed but the infringer refused a global license at that rate. 

This follows the same approach as Unwired Planet – which awarded a global licence rate for infringement of a patent portfolio, based on more limited infringement findings that concerned only UK patents. The Defendants in Conversant challenged jurisdiction, chiefly on the basis that the overwhelming majority of their business (72% in the case of Huawei) was in China, whereas the UK accounted for a much smaller proportion of the business (approximately 2%). Accordingly, the defendants said, the UK Court would effectively be awarding damages that were mostly related to patents of other countries and sales in other countries.  

Carr J had no trouble in rejecting the jurisdiction challenge and allowing the claims to proceed. He agreed with the view of Mr Justice Birss: this was not a claim for damages under foreign patents. This was a claim for an injunction in the UK, under UK patents. 

Carr J did however hand down permission to appeal that point (18 May: [2018] EWHC 1216 (Ch)), noting that although appeals on forum conveniens should be rare, there were grounds on which the Court of Appeal may disagree with the exercise of his discretion; and that the Unwired Planet appeal was underway at the same time.  

Bird & Bird has reported the details of the Conversant decision in detail here and of the underlying Unwired Planet decision here.

Apple v Qualcomm – the issues 

Apple v Qualcomm has some facts in common. Apple brought a UK action against Qualcomm UK and Qualcomm Inc (USA). The heart of the matter concerned UK-designated SEPs and the patent owner's  FRAND conduct. But the action was brought by the implementer Apple, and not the patentee Qualcomm. It was not a claim for patent infringement. The claim has multiple elements:

• Apple selected five EP(UK)s  from Qualcomm Inc’s SEP portfolio, and requested:
  • a declaration that the patents were invalid and/or should be revoked
  • a declaration that the patents were not essential to the standard; and
  • a declaration those patents were exhausted on the facts, by operation of commercial dealings between the parties.

• Apple also claimed
  • that Qualcomm Inc’s behaviour was anticompetitive (contrary to Art 102 TFEU);
  • that Qualcomm Inc had breached its FRAND promise; and 
  • that Qualcomm UK was also bound by the FRAND promise, and it too was in breach. 

Importantly, only the last of these points was directed against the anchor defendant Qualcomm UK.

Upsetting the cart

Morgan J considered justicability, service outside the jurisdiction and forum conveniens in a detailed judgment spanning over 40 pages ([2018] EWHC 1188 (Pat)). His findings were as follows.

• The ETSI contract does not bind Qualcomm UK in respect of Qualcomm US's patents. This is a substantive finding, albeit at a preliminary stage of proceedings. Apple argued that Qualcomm Inc's declarations were made in respect of itself and its affiliates. It argues that as an ETSI member, Qualcomm UK also had an obligation to license on FRAND terms. Morgan J disagreed. He found that Qualcomm UK had no contractual obligation to procure a FRAND licence to Qualcomm Inc's patents. 
• The claim against the anchor defendant falls away. As a result of the substantive finding above, Qualcomm UK was awarded summary judgment in respect of the allegation of breach of contract. Since that was the only claim against Qualcomm UK, it is therefore out of the claim as anchor defendant. 
• The specific patent claims can continue: These relate to UK designations of European patents and are therefore properly within the jurisdiction. The questions of essentiality and exhaustion are connected to the same subject matter.
• Qualcomm Inc was properly served in relation to the patent-specific claims, under CPR 63.14, and without the need for permission to be granted.
• The Article 102 case might still proceed: If Apple could make out a case on service (which remains to be heard – see below) then the case on abuse of dominant position may still proceed.
• Bad service on the other issues:  Despite the fact that a claim has properly been advanced in respect of certain patents, Apple had not yet made out its case on any of the service gateways (see below).

Far from the tree

Since Qualcomm Inc is an overseas entity and therefore falls outside UK jurisdiction, Apple would have to have permission for service outside the jurisdiction via an appropriate gateway for the FRAND and competition claims. 

Apple relied on the three gateways listed above – 3, 4A, and 9. Morgan J explored each of them and found as follows:

• Gateway 3 "necessary and proper party": this requires presence of an anchor defendant, but Qualcomm UK had succeeded on its application and was out of the case.
• Gateway 4A "similar facts": Not here.
  • the facts were not sufficiently closely connected. To explore issues of dominance or FRANDly conduct, the court would need to hear extensive commercial evidence over and above the technical evidence of the patent-specific claims.
  • Also, this gateway does not stand alone, but requires an underlying activation of another gateway.  The problem was that Apple had served its claims against Qualcomm's patents using  CPR 63.14 and not Gateway 11. Acknowledging that point is a legal technicality, Morgan J refused to grant permission under this gateway because to do so would require an impermissibly broad reading of the rule. 
• Gateway 9 "damage within the jurisdiction": Held over.
  • This gateway is limited to tort. Thus breach of FRAND could not be made out, because it was founded in contract.
  • In respect of the competition case, Apple would have to show loss within the jurisdiction. The case on this point remains to be decided pending further evidence. Although the judge described the case previously advanced by Apple as ‘distinctly unimpressive’, it could still go either way.

Spotting the difference

In summary, Conversant gives the Court full jurisdiction to hear all FRAND issues in the case, but Apple did not secure that. 

The central issue seems to be the status of the claimant parties. The principle may be connected to the succinct observation of Kitchin LJ (during a judicial intervention in the course of the Unwired Planet appeal last week). He observed that the Unwired Planet FRAND issues seemed not to be as intricately linked to the injunction in that case as might be first expected: there was a simple claim for patent infringement, which led (in principle) to an award of injunction and an assessment of damages. It was only then that the Defendants’ arguments came into play to defray the damage. They plead the FRAND contract as being a relevant factor in the setting of an appropriate licence rate; and associated case law is used to assess whether an injunction is available to the patentee.

Conversant follows very much the same approach: a claim of patent infringement, defended by reference to FRAND.

By contrast, Apple has things the other way around. Their patent claim is not for infringement, but validity, essentiality, and exhaustion of Qualcomm’s patents. Damages and injunctions are not available remedies for these claims, and the issues of FRAND are not therefore inherent to the claim. Without consent by the other party, therefore, there is no direct or indirect necessity for the court to hear evidence of conduct, comparable licences or other FRAND-related issues.

In ordinary patent actions, both sides take the position of claimants: the patentee claims for infringement and the implementer claims for validity. Which side started the action does not much matter. But in the case of a SEP action, we may be beginning to see that who goes first is a very important question. 

^{1  In this article we incorrectly use UK to mean both the territory covered by a "GB" or EP(UK) patent, and/or the jurisdiction of the courts of England and Wales. They are not same thing. Although both GB and EP(UK) patents cover Scotland, Scotland has its own courts, procedures and rules for service.  Northern Ireland (as you might expect being in the UK) is covered by an EP(UK) patent, but is also covered by GB patents even though it is not part of Great Britain. It also has its own courts. GB or EP(UK) patents both cover the Isle of Man, even though that's not part of either GB or the UK, and has its own courts. We apologise to everyone we offend, or confuse.}