In August 2020, the UK became the first country where courts have asserted the jurisdiction to set the terms of a global fair, reasonable, and nondiscriminatory (FRAND) license to a standard essential patent (SEP) portfolio. Yet while courts there have since found that implementers can seek such FRAND determinations proactively, rather than in response to an infringement claim, no UK court has yet allowed such a rate-setting claim against a patent pool. The UK High Court has now doubled down on this posture, ruling on July 15 that Tesla could not seek a FRAND determination for the entire 5G pool administered by defendant Avanci, LLC, neither through certain claims against Avanci itself or by treating pool licensor InterDigital, Inc. as a "representative" of the other Avanci SEP owners. However, Justice Timothy Fancourt, writing for the court, expressed "some concern" that the applicable law required this "odd" result.
In filing its case, the court explained, Tesla acknowledged the need for a license covering Avanci's 5G SEPs for upcoming 5G-enabled vehicles but argued that the $32 per vehicle rate provided under its Master License Management Agreement (MLMA)—a rate set by Avanci, based on discussions with the patent owners—is non-FRAND. The company sought a declaration of invalidity, non-essentiality, and revocation (the "patent claims") for three of the UK patents in the Avanci pool, held by codefendant InterDigital, but the "main claim" in its case (as characterized by the court) sought a ruling that Avanci's master license is not FRAND, and a determination of what rates would in fact be FRAND.
The defendants, per the court's summary, contended that the other patent claims are not "real" and are just a "jurisdictional hook" to get the court to hear the claims. To that end, Justice Fancourt identified certain "jurisdictional difficulties" faced by Tesla, including the fact that just an "estimated 7%" of the 5G patents covered by Avanci's license are UK patents and that Tesla, InterDigital, and Avanci are all US companies also based in the US, as a result of which there is "no obvious connection between the licensing claim and the jurisdiction of this Court". Additionally, the court found that the patent claims are "largely irrelevant to the licensing claim, as InterDigital has not threatened to injunct Tesla, and Tesla has undertaken to accept a 5G Platform licence on whatever terms the Court determines to be FRAND".
The High Court also explains that Tesla's jurisdictional arguments as to Avanci shifted over time, the company having dropped its theory based on enforcing a contractual obligation by the pool administrator to grant a FRAND platform license. Rather, the court found that Tesla had then "belatedly" sought to assert a claim based in tort law, "in the event that Avanci as agent did not give bona fide effect to the Patentees' obligations to grant FRAND licences", but that it had not pleaded any "viable claim in tort". The company instead sought to base jurisdiction as to Avanci on the fact that its licensing claim relates to UK property (the patents-in-suit) and because Avanci is allegedly a "necessary or proper party" to the claims against InterDigital. Crucially, since Tesla alleged that the only FRAND license would be one covering the entire Avanci 5G portfolio—including patents held by parties not named in this case—Tesla also sued InterDigital in its "representative capacity . . . on behalf of all the Patentees", apart from one unnamed party with which Tesla already has a bilateral license.
The High Court's Review of Prior Caselaw: Uncharted Territory
This "representative" jurisdiction argument, the court determined, is "one for which there is no precedent". Indeed, the court found that this argument also goes a "significant step further" than the circumstances contemplated in prior cases like Unwired Planet v. Huawei, the world's first court decision setting a global FRAND rate, in which the UK Supreme Court held that the plaintiff has shown that such a license was consistent with commercial practice; and Lenovo v. Ericsson, in which the High Court found that jurisdiction was based on the possibility of mutual cross-licensing. Here, though, Tesla was asking the court to decide a license covering parties who were not parties to the case. Moreover, those nonparties had not been shown to hold any UK or UK-designated patents, which per the court means that there is no claim to enforce any FRAND licensing commitments made to the European Telecommunications Standards Institute (ETSI), the standard-setting organization to which the relevant FRAND declarations were made. Yet Tesla argued that its position amounted to an "incremental development" in the relevant jurisdictional caselaw, the court observed.
The court then proceeded to review that caselaw in determining whether Tesla was correct, explaining that English law does not allow a completely "free standing" claim to a FRAND license—meaning a claim for a license that does not depend on the "assertion or denial" of some other "claimed right". "Traditionally", this meant that claims seeking a FRAND determination were raised in defense to claims of patent infringement brought by a patent owner (as in Unwired Planet), but Justice Fancourt held in 2022, in Kigen v. Thales, that an implementer may proactively bring an action for a declaration of invalidity "and, if not, for the grant of a licence on FRAND terms", and stay the patent claim pending the outcome of the license claim. In another decision issued in one of the Nokia v. Oppo trials in 2022 ("Nokia v. Oppo Trial E"), the High Court ruled that "the combined effect of Unwired Planet and Kigen was that "an implementer can proactively seek to have global FRAND terms set in the UK", the court subsequently following Kigen's approach in 2023 (in InterDigital Technology v. Lenovo) and in 2024 (Lenovo v. InterDigital Technology).
However, Justice Fancourt notes that these cases involved different circumstances: Kigen did not deal with jurisdiction over foreign defendants for such claims; Nokia involved a patent owner's claim for an injunction; and Lenovo, while an implementer's claim, nonetheless did not involve a jurisdictional challenge and did not concern a license to patents other than those held by InterDigital. The High Court also addressed the proper position of a pool administrator in 2021 in Mitsubishi Electric v. Oneplus Technology (Shenzhen), in which the patents of plaintiff Mitsubishi Electric were pooled by Sisvel: Defendant OnePlus had argued that Sisvel was not a proper party and that a proper license would be just to Mitsubishi's patents, but the court denied that motion and held that a pool license would be FRAND, without addressing whether the pool's other patent owners had to be joined. Tesla had argued that this "must also work the other way round, so that an implementer can contend that the FRAND licence that it seeks is a pool or platform licence".
The only case to deal with an implementer's affirmative request for a FRAND determination for a pool license was Vestel v. Access Advance, in which Turkish implementer Vestel sought a declaration as to Access Advance's HEVC Advance pool. The complaint also named patent owner Philips, sued in its own capacity and as a representative of the other licensors in the pool. Vestel originally claimed that it had a right to a license based on the tort of abuse of dominance, through the denial of a FRAND license, and argued that jurisdiction existed based on the fact that the claim related to UK property, insomuch as it concerned the UK or UK-designated patents in that pool. The High Court rejected that claim for relief and also dismissed for lack of jurisdiction—determining that because the requested license covered a portfolio in which 95% of the patents were non-UK assets, the subject matter of the claim related mainly to property outside the jurisdiction. The Court of Appeal reversed as to jurisdiction, holding that if Vestel could show a "legally enforceable right" to a FRAND license under the relevant UK SEPs, the subject matter of the claim would be those SEPs, regardless of whether a FRAND license would also necessarily cover foreign patents. However, the appellate court rejected Vestel's revised claim for relief, which was based on the court's "inherent jurisdiction to grant declaratory relief", determining that the company had not shown under that theory that it had a right to a FRAND license.
Unlike Tesla's case, though, the court never considered Philips' representative capacity, meaning whether the other SEP owners in the pool were properly represented—and, relatedly, whether the court could set the terms of a license including the SEPs of those nonparties. InterDigital argued that Lord Justice Birss's determination as to jurisdiction had been dicta, but the court here found that this analysis formed a key part of his reasoning as to the proper bounds of the jurisdictional "gateway" at issue (gateway 11, allowing service out of the jurisdiction—i.e., serving a claim on a defendant not based in the UK—where the claim's subject matter "relates wholly or principally to property within the jurisdiction").
The High Court's Dismissal Ruling
On July 15, the High Court issued a decision on the defendants' motion to dismiss for lack of jurisdiction, and on InterDigital's request to strike certain claims against it. Here, the High Court notes that Tesla structured its claim to fit within the bounds of Kigen and Vestel, structuring the "principal declarations sought on the licensing claim" in the same manner that Lord Justice Birss determined would satisfy gateway 11 in Vestel. Tesla argues as follows, per the High Court's summary: "Tesla is a beneficiary of InterDigital's and the Patentees' FRAND commitments to ETSI and has a legally enforceable right to a 5G Platform Licence, and that it wishes to enter into such a licence, but the terms of the Avanci Licence at $32 per vehicle are not FRAND. Relief is claimed to enforce Tesla's contractual right to a 5G Platform Licence, notwithstanding the invalidity claims". Tesla asserted that under French law, Avanci—as the agent of the relevant patent owners—is jointly liable for their failure to "effect the good faith performance of the relevant FRAND Commitments", rendering those commitments enforceable against Avanci and each patent owner in the 5G pool.
– No Abuse of Process by Tesla
The court began its analysis with InterDigital's contention that Tesla has committed abuse of process by bringing patent claims (invalidity and revocation) that it seeks to litigate after the license claim and that target a small subset of its portfolio—claims that InterDigital insisted that Tesla allegedly does not intend to pursue, merely bringing them to ground jurisdiction. While acknowledging the "force of these arguments", Justice Fancourt held that the "validity of UK patents and the contingent need for a licence to use them is a real issue that the court will entertain"—concluding that this approach was permissible under Kigen and had, by now, become "a conventional approach for an implementer to take". Moreover, while agreeing that it was unlikely Tesla would actually pursue its patent claims, the court found that it was not impossible; for instance, finding that it might do so if Avanci broke up or was otherwise able to grant the license sought.
– Tesla Has No Viable Claim Against Avanci
The court also held that there is no "serious issue to be tried" against Avanci that does not depend on Tesla's claims against InterDigital: Tesla's argument based on Avanci's failure, as the patentees' alleged agent, to effect good faith performance of the FRAND commitment established "at best . . . [that] there may be a contingent claim for any involvement by Avanci in culpable failures by the Patentees to grant FRAND licences in good faith", the court determined. Justice Fancourt thus found that Tesla had provided no "independent basis" for its claim "that Avanci is 'required' to enter into a 5G Platform licence" on terms to be set by the court—rendering it a "free standing" claim of the type rejected in Vestel.
– Tesla's Claim Against InterDigital Also May Not Stand
Nor, for that matter, was there a "serious issue to be tried" against InterDigital, held Justice Fancourt, under the applicable standards. Tesla did have a "legitimate interest" underpinning its claim against InterDigital, the court found, because to hold otherwise would insulate Avanci's rate from a FRAND determination—and because it would also not be "pointless", since if Avanci were to be bound by a lower court-determined rate, the patentees in its pool would be likely to accept it. However, Justice Fancourt also found that it would not be "fair and just" to grant the declarations sought by Tesla "in the absence of the [other] owners of the 5G SEPs", as those owners would not have the opportunity to offer their own FRAND cases. Moreover, the court agreed with InterDigital that it would not be able to defend the claim on its own, because InterDigital would not have access to the license agreements required to make the court's FRAND determination.
– Treating InterDigital as a "Representative" Defendant Would Not Be Proper
Justice Fancourt also ruled that Tesla may not pursue its case against InterDigital under the "representative parties" procedure established in Civil Procedure Rule 19.8, which gives courts a "means of determining the rights of others who are not parties to a claim". While acknowledging that this procedure would eliminate the objection that the other patentees could not otherwise be bound by Tesla's claim, the court found that it would not "remove the practical difficulty of conducting a FRAND licensing trial without the relevant parties before it": As a practical matter, the other patentees would have to provide the necessary materials willingly, an exceedingly unlikely proposition. Also, the court found it to be significant that InterDigital and the other patentees do not necessarily have the "same interests" as required under the rule: Though they have all contracted with Avanci to grant a platform license including their SEPs and receive certain distributions of licensing revenue as provided under the MLMA, InterDigital claimed that their interests are "in fact very different"—with some licensors making cellular products, competing with one another, and/or having been in disputes with one another, among other factors. As such, the court agreed with InterDigital that there was a possibility that some of the Avanci licensors could have a conflict of interest with one another, though not one that had been shown in the evidence thus far.
For this reason, the court held that if representative proceedings were to continue, each patentee would need to be notified about the proceedings, either to consent to InterDigital representing them or to represent their own interests separately. However, this then raised the issue of whether the court could exercise jurisdiction against those patentees, most of which are based outside the UK and some of which have not been shown to hold UK patents. While the court found that the applicable caselaw does not prevent a defendant from serving as the representative of parties against which the court otherwise lacks jurisdiction, Justice Fancourt determined—answering an apparently unresolved question under this caselaw—that it would be "jurisdictional overreach in most cases for representative proceedings to be used to bind a person who could not have been sued in the courts of this country". Particularly given the possibility of conflicts of interest, "there is a real likelihood of represented persons being put in a position of choosing between having their interests inadequately represented and submitting to the jurisdiction". Nor was the court satisfied that InterDigital could serve as a satisfactory representative defendant given Avanci's absence as a defendant (given the court's ruling above), in light of the aforementioned difficulty InterDigital would face in obtaining the necessary license agreements, and due to the unfairness of "cast[ing] upon IDH the cost and responsibility of conducting such a trial, as representative of 65+ other Patentees, at least in the absence of Avanci".
Justice Fancourt then closed this main portion of his analysis by expressing concerns that Tesla could not bring its claim before the High Court:
It may seem odd that a claim which Tesla has a legitimate interest in pursuing and which would in principle serve a proper purpose cannot be pursued here. The conclusion that it cannot has given me some concern. It would be very odd indeed if Tesla could not obtain a decision on its claim in any jurisdiction that is reasonably suitable.
That said, Justice Fancourt also observed that had he not dismissed the case for the aforementioned reasons, he would have ruled under the circumstances that Tesla had not shown that the UK was the most convenient forum for the dispute in the first place. That distinction belongs to the US, where the parties are all domiciled and in light of the "proper law" of the MLMA. However, Justice Fancourt also found that though the defendants had consented to the jurisdiction of the Delaware Court of Chancery, they had not shown it to be an "available and appropriate forum for the licensing claim"—though he also noted that the defendants had not agreed to that court setting a global FRAND rate, and in fact "will defend" against such a claim by maintaining that the court should not set a worldwide rate.
Among other points made in exploring the viability of the Delaware court, Justice Farcourt observed that while the parties dispute whether that court would set a global FRAND rate, it was accepted that US courts would rule on whether Avanci's $32 rate had been FRAND. In the event the Delaware court found the answer to be no, and in light of the evidence the court would already have to consider to make that determination, Justice Fancourt remarked that "[i]t would be surprising if . . . the Court would not go a step further and say what rate was FRAND"—but found that in any event, it was not certain that the court would do so.
Chinese Court Asserts Power to Set FRAND Rates for Foreign Pools
The UK High Court's decision not to allow Tesla's rate-setting claim against Avanci stands in sharp contrast to the approach recently taken in China. In June 2024, the Supreme People's Court (SPC) ruled that Chinese courts may set the terms of a global FRAND license for an entire foreign patent pool, apparently the first time any court has done so—reaching this conclusion in a case brought by another implementer, TCL, against Access Advance LLC's HEVC Advance pool. While the specific details of the ruling as well as the underlying complaint have not been made public, it seems clear that Chinese courts have asserted much broader jurisdiction over pool rates than UK courts have done thus far.
Moreover, days after SPC's decision was reported publicly, a Chinese agency announced an unprecedented inquiry into Avanci's business model: On June 27, the Anti-Monopoly Division of the State Administration for Market Regulation (SAMR) announced that it had that it had it just initiated a formal dialogue with the pool administrator regarding the compliance of its automotive licensing programs with anti-monopoly laws.
For more on that inquiry and the SPC's TCL v. Access Advance decision, see "Chinese Court Asserts Power to Set Foreign Pools' FRAND Rates as Anti‑Monopoly Agency Scrutinizes Avanci" (June 2024).
Originally published July 21, 2024
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