On 5 April 2017, Justice Birss of the English High Court of Justice issued a judgment in a license dispute involving Standard Essential Patents ("SEPs") opposing Unwired Planet, a US based patent assertion entity, against Huawei, a Chinese telecommunications company.

Unwired Planet sued Huawei for infringement of a number of UK patents, which it had acquired from Ericsson as part of a portfolio comprising about 2,000 patents, and which were considered as essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute ("ETSI"). As Ericsson had participated in the development of the standards under ETSI, any SEP patent acquired from it would be encumbered by Fair, Reasonable and Non-Discriminatory ("FRAND") commitments to ETSI. Separate technical trials between the parties had taken place to determine whether the asserted patents were valid, and whether the patents were essential to the standards. The present case related to issues of competition law, FRAND, injunctions and damages.

Justice Birss made the following findings in light of the specific circumstances of the case, including:

  • There is one FRAND rate applicable to any given SEP under a given set of circumstances.
  • The FRAND license is worldwide, rather than country by country. In the present case, Unwired Planet had offered Huawei a worldwide license for the asserted SEPs, which Huawei considered as unreasonable as it had only requested licenses covering the UK. In assessing the reasonableness of Unwired Planet's worldwide license offer, Justice Birss noted that the vast majority of the SEP licenses in the industry were granted on a worldwide level. Justice Birss also pointed out that both parties were global companies active in most jurisdictions. Against this backdrop, Justice Birss concluded that a "licensor and licensee acting reasonably and on a willing basis would agree on a worldwide license" and that country-by-country licensing would be highly inefficient for two large multinational companies. Under these circumstances, Justice Birss concluded that a FRAND license in the present case had to be worldwide.
  • There is no abuse of dominance in the present case. In Huawei v ZTE (See VBB on Competition Law, Volume 2015, No. 7, available at www.vbb.com), the Court of Justice of the European Union ("ECJ") provided a general framework for SEP holders and licensees to follow when negotiating a FRAND license to avoid the SEP holder being found to abuse its dominant position under Article 102 TFEU. In the present case, Justice Birss concluded that a SEP holder would not be abusing its dominance under Article 102 TFEU if it were to offer a rate that is at least somewhat higher than the true FRAND rate, so long as the rate is not excessive.  In order words, Justice Birss considered that an abuse of dominance would not be found unless an offer "is so far above FRAND as to act to disrupt or prejudice the negotiations themselves".

 

  • The SEP holder can directly enforce FRAND royalty rates without having resort to competition law. Justice Birss ruled that a FRAND undertaking to ETSI is a legally enforceable obligation, which any licensee can rely on against the SEP holder. This is because, according to him, FRAND commitments should be viewed as "public, irrevocable and enforceable" on the grounds of public policy. He also considered that the boundaries of FRAND and competition law are not the same: a rate may be above the FRAND level, but not contrary to competition law unless it is clearly excessive.
  • The FRAND royalty rate should be based on the value of the licensed patents, rather than on the size or other characteristics of the licensee. There is a general consensus that, to comply with the non-discrimination prong of a FRAND commitment, an SEP holder must treat similarly situated licensees in a similar manner. Justice Birss did not understand this requirement as meaning that an SEP holder could charge different royalty rates based on the size or market share of the licensee, but rather that "all licensees who need the same kind of license will be charged the same kind of rate", irrespective of the size of other characteristics of the licensee;
  • A licensee cannot challenge a license granted on FRAND terms if it subsequently turns out that a similarly situated licensee negotiated a lower royalty rate, unless the difference was such as to distort competition between the two licensees;
  • Justice Birss offers two possible methods for calculating the FRAND royalty. The first method is based on an analysis of comparable license rates while the second stems from a top-down analysis of the total aggregate royalty that should be attributable to the standards and the SEPs concerned;
  • Injunctive relief should be granted. Justice Birss considered that an injunction to prevent Huawei from infringing Unwired Planet's patents should be granted because: (1) Unwired Planet had established that Huawei infringed valid patents; (2) Huawei was not prepared to accept a license on terms the judge considered as FRAND; and (3) Unwired Planet was not in breach of competition law. A future hearing date has been set to consider the specific issue of the injunction.

The lasting implication of the present judgment on SEPs remains to be seen. However, it has the merit of trying to determine the level of FRAND royalties and assessing the parties' contractual and competition law obligations resulting from FRAND commitments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.