UK Supreme Court rules on FRAND approach in Unwired Planet and Conversant

The court dismissed the appeals of Huawei and ZTE.

The Court heard together the appeals from the Court of Appeal judgment in Unwired Planet v Huawei [2018] EWCA Civ 2344 together with the appeal from the Conversant v Huawei and ZTE [2019] EWCA Civ 38 case.

Lord Reed, Lord Hodge, Lady Black, Lord Briggs, Lord Sales considered the following questions raised by the cases on appeal:

1. Does the English court have the power or jurisdiction, or is it a proper exercise of any such power or jurisdiction without the parties’ agreement:

• to grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio;
• to determine the rates/terms for such a licence; and
• to declare that such rates/terms are FRAND?

2. If the answer to (1) is "yes", is England the proper forum for such a claim in the circumstances of the Conversant proceedings (this point had not been taken in the earlier Unwired Planet proceedings)?

3. 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?

4. Does the CJEU’s decision in Huawei v ZTE mean that a SEP owner is entitled to seek an injunction restraining infringement of those SEPs in circumstances such as those of the Unwired case?

5. An additional issue raised before the Supreme Court as to whether the Court should grant damages in lieu of an injunction.

Issue 1:  FRAND injunction pending global licence

Global v National licence

The first instance judge in the Unwired Planet case, Birss J, found that in any given set of circumstances, there was one set of FRAND terms. In these circumstances, a global licence was FRAND.  He determined what rates would be FRAND for a global licence.

He granted an injunction that Huawei may not infringe the UK patents that had been found valid and infringed, but this would not take effect if Huawei agreed to take a global licence on those FRAND terms.  On appeal to the Court of Appeal the rates that the Judge had determined were not challenged. However, the global nature of the FRAND licence was challenged.

The Court of Appeal agreed with the Judge's finding that a global licence was FRAND.  It accepted that global licensing was the industry norm. It may be wholly impractical for a SEP owner to seek to negotiate a licence of its patent rights country by country, and prohibitively expensive for it to seek to enforce those rights by litigating in each country in which they subsist.

The Court of Appeal did not agree that there was only one set of FRAND terms for any given set of circumstances, but found that this had no material effect on the Judge's conclusion.  If more than one set of terms was FRAND, the SEP owner may choose which he offers. Therefore, if both a global and a national licence could be FRAND, then the SEP owner may, if he prefers, offer only the global licence. It would be a matter for the prospective licensee whether or not to accept it.

The Supreme Court found that the English Court had power to grant an injunction in respect of UK national patents unless the implementer enters a global licence of a multinational patent portfolio, and determine the terms of that licence. The court recognises that national courts determine validity and infringement of national patents but the ETSI policy empowers a national court to determine FRAND. The courts below in the UK had not determined validity or infringement of foreign patents, they had determined industry practice. An implementer would remain free to challenge a particularly important national patent and seek a change in royalties should that be successful.

Issue 2: forum conveniens

Is England the proper forum for a claim in Conversant

In the Unwired Planet case Huawei did not at first challenge whether the English Court was the appropriate forum for the dispute, so it was unable to raise this issue at the appeal stages.  In the later Conversant case both defendants (Huawei and ZTE) challenged the jurisdiction of the English Court at the outset on the basis that England was not the most convenient forum to determine the FRAND dispute.  Both parties argued that the UK was a small market: the more appropriate country to resolve the dispute was China, where both defendants were based and most sales were made.  The Court of Appeal answered the issue by focusing on what the dispute before the English Court was: it was a claim for infringement of UK patents and an injunction under those patents. This could not be brought in China.  The determination of what a FRAND licence was part of the defence to the claim for an injunction of those UK patents.

The Supreme Court held that England was the proper forum. It noted that China had not determined that it was the proper forum for determination of the global rate.

Issue 3: meaning of the ND part of FRAND

Huawei argued that the Non-Discriminatory part of FRAND meant that the rates for similarly positioned licensees should be the same across the industry.  In the Unwired Planet case, Co-defendant Samsung settled shortly before trial, when Unwired Planet was cash-strapped. It paid a lower rate. Huawei argued that it would be discriminatory if Huawei had to pay more than Samsung. 

At first instance, Birss J dealt found that the non-discrimination limb of FRAND was not “hard edged”. A licensee who was offered a "fair and reasonable" rate was not discriminated against merely because another licensee had been given lower rate. Non-discrimination might apply if the difference would distort competition between the two licensees, but in this case there was no evidence that Huawei was suffering from a distortion of competition in the market in handsets as against Samsung.

The Court of Appeal agreed with Birss J that the "Non-discrimination" aspect of FRAND was not hard-edged. It accepted Unwired Planet's submission that differential pricing is not per se objectionable, and agreed with Birss J that an effects-based approach to non-discrimination was appropriate. Once the "hold-up" problem inherent in standardisation had been addressed by ensuring that the licence is available at a rate which does not exceed a fair and reasonable rate, it was difficult to see any purpose in preventing the patentee from charging less than the licence is worth if it chooses to do so.

The Court of Appeal also held that a hard-edged non-discrimination rule has the potential to harm the technological development of standards if it has the effect of compelling the SEP owner to accept a level of compensation for the use of its invention which does not reflect the value of the licensed technology.  The Court accepted that whilst a patent owner may prefer to license its technology for a return which is commensurate with the value of the portfolio, such an approach is not always commercially possible.  It felt that the undertaking should be construed in a way which strikes a proper balance between a fair return to the SEP owner and universal access to the technology without threat of injunction.  It found that a hard-edged approach would be excessively strict, and would fail to achieve that balance.

The Supreme Court at paragraph 113 of its judgment stated:

"The choice between regarding the non-discrimination obligation as “general” or “hard-edged” is a matter of interpretation of the FRAND undertaking in clause 6.1 of the IPR Policy. The obligation set out in that provision is that licences should be available “on fair, reasonable and non-discriminatory … terms and conditions”. In our view, the undertaking imports a single unitary obligation. Licence terms should be made available which are “fair, reasonable and non-discriminatory”, reading that phrase as a composite whole. There are not two distinct obligations, that the licence terms should be fair and reasonable and also, separately, that they should be non-discriminatory. Still less are there three distinct obligations, that the licence terms should be fair and, separately, reasonable and, separately, non-discriminatory."

The Court went on to find that the ETSI IPR policy required participants to offer a single price list to all participants based on the market value of the portfolio in question, without adjustments for circumstances of individual licensees. The ETSI policy does not include include a most favourable licensee term, which was a proposal that ETSI had rejected.

Issue 4: Does Huawei v ZTE  [2] prevent Unwired Planet from obtaining injunctive relief?

Unwired Planet had started the litigation before following the steps set out in the CJEU's decision in Huawei v ZTE [3]. Huawei argued that Unwired Planet was therefore not entitled to an injunction.

Birss J found that Huawei v ZTE provides a safe harbour from competition law abuse to a patentee who follows the steps set out in that judgment. It does not follow that any departure from the steps is abusive.  The Court of Appeal had followed Birss J's decision Both courts were at least partly influenced by the fact that this was a transitional case: Unwired Planet had started the litigation before the CJEU's decision in Huawei v ZTE. 

The Supreme Court rejected the argument that Unwired Planet had acted abusively. It held that the argument was based on a misreading of the CJEU decision in Huawei v ZTE. The nature and notice required depends on the facts. Unwired had shown that it was willing to grant SEP licences on FRAND terms.  The Court held that 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

The final issue under this heading was that the Court should not have granted an injunction but instead the Court should award damages based on royalties for the UK patents. The court rejected this as an inadequate substitute for an injunction.  If the patent-holder were confined to a monetary remedy, implementers who were infringing the patents would have an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties. It would not make economic sense for them to enter voluntarily into FRAND licences.  An injunction was found to be necessary in order to do justice.

Comment

This decision has been eagerly awaited since it was heard last October.  The first instance and Court of Appeal judgment have both been widely reported and cited in courts around the world, most recently the German Federal Court of Justice in the Sisvel v Haier case [link https://www.twobirds.com/en/news/articles/2020/global/federal-supreme-court%27s-decision-in-sisvel-v-haier-moves-germany-closer-to-the-uk], putting the English Courts' approach at the cutting edge of judicial intervention to resolve FRAND disputes. 

The Supreme Court's decision brings certainty as to the future direction of the English Courts and will be welcomed by SEP owners worldwide.  

[1] https://www.supremecourt.uk/watch/uksc-2019-0041/judgment.html

[2] Case C-170/13 Huawei v ZTE [2015] Bus LR 1261

[3] https://www.twobirds.com/en/news/articles/2015/global/cjeu-rules-on-huawei-zte