UK Supreme Court judgment on SEPs and FRAND licensing

On 26 August 2020, the UK Supreme Court issued a judgment on the Unwired Planet v Huawei and Huawei v Conversant cases. This decision concerns Standard Essential Patents (SEPs) and Fair, Reasonable and Non-Discriminatory (FRAND) licensing practices for the telecommunications industry but could have wider implications for the technology sector as a whole. The UK Supreme Court ruled in favour of the patent holders, finding that the English courts have jurisdiction to determine the terms of a global license of a multi-national patent portfolio because of its interpretation of European Telecommunications Standards Institute (ETSI) IPR Policy.

This judgment was almost a year in the making, with hearings dating back to 21 October 2019. The case docket here includes the full judgment and hearings [1].

Case Background

Two appeals were brought before the UK Supreme Court. Both appeals were in relation to the infringement of UK patents deemed essential to the implementation of international standards of mobile telecommunications (standards for 2G, 3G and 4G). ‘Essential’ here meaning it is not possible to make, sell, use or operate mobile phones and other equipment compliant with the standards without infringing the patents. These kinds of patents are called Standard Essential Patents (SEPs).

These international standards are set by the European Telecommunications Standards Institute (ETSI). The standards unify the market so mobile phones and other equipment can be used internationally.

Since SEP owners could refuse to license their inventions or charge excessively high royalties, ETSI requires patents which might be used in industry standard to be declared. Under IPR policy, ETSI requires the SEP owner to give an irrevocable undertaking to license their patented technology on terms that are “fair, reasonable and non-discriminatory” (FRAND).

Unwired Planet International Ltd licenses patents to companies who make and sell telecom equipment. Unwired commenced proceedings in England on 10 March 2014 against Huawei, Samsung and Google, alleging infringement of the UK designation of six European patents and requesting, among other remedies, an injunction to prevent further infringement. Parallel proceedings began in Germany at the same time.

The first appeal (Unwired appeal) concerns Unwired bringing action against Huawei for infringement of 5 UK patents which Unwired claimed to be SEPs. The SEPs form part of a worldwide patent portfolio which Unwired acquired from Ericsson. Ericsson previously licensed the SEPs to Huawei, but this arrangement expired in 2012.

In England, the first instance judge found that Unwired’s undertaking to license SEPs on FRAND terms were justiciable and enforceable in English courts. As it was found Huawei refused to take a license on terms the court deemed as FRAND, Huawei was exposed to an injunction for infringement. The judge went on to determine royalty rates and other license terms he considered to be FRAND.

The second appeal (Conversant appeal) concerns an action brought by Conversant against Huawei and ZTE for infringing four UK patents. These patents acquired from Nokia in 2011 form a much larger portfolio spanning many countries. Conversant argues that the portfolio includes 28 patent families which are SEPs. Like Unwired, Conversant is an IP licensing company.

Huawei and ZTE argued that the English courts did not have jurisdiction to determine the validity of foreign patents. They further argued that even if the English courts did have jurisdiction, the English courts were not the appropriate forum for trying the case. These arguments were dismissed by the trial judge.

Judgment

The Supreme Court unanimously dismissed both appeals. The Court confirmed that the contractual arrangements ETSI created under its IPR Policy gave the English courts jurisdiction to determine the terms of a global license of a multi-national patent portfolio.

Issues

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?
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. Should the Court grant damages in lieu of an injunction?

Issue 1: Jurisdiction

The Supreme Court found that courts have power to grant an injunction in respect of UK patents unless the defendant enters a global license, and determine the terms of that licence. While national courts determine validity and infringement of national patents, the ETSI policy empowers a national court to determine FRAND. A defendant would remain free to challenge an important national patent and seek changes in royalties if successful.

Issue 2: Proper forum

In the Conversant appeal, Huawei and ZTE argued that China was a more suitable forum for hearing the dispute, as this was where both defendants were based and most sales were made. The Supreme Court disagreed on the reasoning that the global licensing issues needed to be determined to enable the court to deliver an injunction. In other words, the SEP holder must obtain a global FRAND license in some jurisdiction. It was found that Chinese courts do not at present have jurisdiction to determine the terms of a global FRAND licence (at least in the absence of agreement by all parties that they should do so), but English courts do.

It was also argued by Huawei that the English proceedings should be stayed temporarily until the Chinese proceedings challenging the validity of Conversant’s Chinese patents have been concluded. The Court of Appeal rejected this for two reasons. First, the age of Conversant’s patents militated against allowing further delay. Second, the pending proceedings in China sought only to determine the terms of a FRAND licence for Conversant’s Chinese patents and not a global licence extending to the use of its English patents. The Supreme Court could not fault this reasoning.

Issue 3: Non-Discriminatory

Unwired settled with Samsung in July 2016 before trial. Samsung was granted a global licence for its portfolio. The royalty rate under the Samsung license was much lower than the rate which the first instance judge found Huawei needed to pay Unwired. Huawei argued that it would be discriminatory if they were not offered a rate as favourable as the one agreed with Samsung.

The question was if the non-discrimination limb of FRAND was “hard-edged”, meaning like situations must be treated alike. The Supreme Court at paragraph 113 of the judgment says under ETSI IPR Policy, the requirement that licenses should be fair, reasonable and non-discriminatory is a single unitary obligation and not three distinct obligations. The non-discriminatory part of the undertaking indicates that a single royalty price list should be available to all, based on the market value of the patent portfolio and without adjustment for the characteristics of individual licensees.

The UK Supreme Court went on to say that ETSI had previously considered and rejected the imposition of a “most-favourable licence” clause in the undertaking. To interpret the non-discrimination obligation as “hard-edged” would inevitably result in re-introducing a “most-favourable licence” to the benefit of Huawei.

Issue 4: Competition

Huawei argued that Unwired claiming for an injunction was an abuse of its dominant position, contrary to Article 102 of the Treaty on the Functioning of the European Union. As such, Huawei believed Unwired failed to comply with guidance given by the Court of Justice of the European Union in Huawei v ZTE (Case C-170/13) [2] and was not entitled to an injunction. Unwired did not make a FRAND licence offer before issuing proceedings for injunctive relief. Therefore, Huawei argued that Unwired’s remedy should have been limited to damages.

The Supreme Court rejected the argument. The Court held that the nature of the notice required depends on the circumstances of the case and that there is no mandatory requirement to follow the protocol set out in Huawei v ZTE. On the facts of the present case, what mattered was that Unwired had shown to be willing to grant a licence to Huawei on whatever terms the court decided were FRAND.

Issue 5: Remedies

Huawei argued that even if it infringed Unwired and Conversant’s SEPs, the court should not have granted an injunction. Instead, Huawei argued that awarding damages based on royalties for the UK patents was a more appropriate and proportionate remedy. The Supreme Court rejected this too. They reasoned that without an injunction, infringers would be incentivised to continue infringing and would not voluntarily enter FRAND licences. The patent holder would have to bring proceedings against infringers on a patent by patent and country by country basis, which would have an “impossibly high” cost.

Comments

We welcome the judgment in favour of patent proprietors and SEP owners. This case confirms that UK courts have the power to grant injunctions for infringement of a UK SEP unless the defendant enters into a global licence and decide FRAND terms for such a licence. This ensures SEP owners get a fair price for licensing.

This idea of what is ‘fair’ for the patent holder permeates the Supreme Court’s findings. The Court found the global licence offered to Huawei fair. Accordingly, requiring Unwired to offer the same royalty rates to Huawei as it did Samsung was not seen as fair. The Court found that Unwired acted fairly when they had shown to be willing to grant a licence on court terms. Finally, the Court decided that an injunction was a fair remedy.

It is likely this judgment will be supported by the European courts. In Sisvel v Haier [3] the German Federal Court of Justice looked to the UK High Court Unwired Planet v Huawei judgment to determine if the claimant acted as a willing licensee. We can expect Europe to follow the UK courts, who seem to be at present the leaders in SEP licensing law.

With this judgment, more SEP owners facing infringers may consider commencing infringement proceedings in the UK for the courts to grant an injunction and declare FRAND global licence rates.

It is important to note that many particulars of the judgment relied on the Supreme Court’s interpretation of ETSI IPR Policy. For technology areas outside of telecommunications, Standard Setting Organisations with different IP rights policies may change the outcome of cases. Nevertheless, this is a landmark judgment for future SEP and FRAND disputes.

References

[1] https://www.supremecourt.uk/cases/uksc-2018-0214.html

[2] Case C‑170/13 Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH [2015]

[3] Case K ZR 36/17 Sisvel v Haier