Today's long-awaited UK Supreme Court decision
in Unwired Planet v Huawei (linked here) confirms that, in disputes
concerning infringement of UK Standard Essential Patents (SEPs),
the UK courts will continue to have the ability to determine FRAND
licences that apply worldwide. Those involved in FRAND
disputes have been working on this basis since the initial first
instance decision in 2017. Now that the Supreme Court (the
highest appellate court in the UK) has agreed, this position is
cemented in UK law for the foreseeable future.
This decision has significant implications for the telecoms
industry, where FRAND licensing is used widely to ensure
standardised mobile services across the industry, and to ensure
that intellectual property rights owners are fairly compensated for
the use of their IP.
Background
Why can the UK courts assess global FRAND licences?
Many eyes have been on this case since the 2017 first instance
decision where the High Court introduced the prospect of global
FRAND licence determination, where the UK courts (wielding the
threat of an injunction for UK-based infringements) determine the
licence terms that should apply to a global patent portfolio
regardless of the country of origin of the underlying
patents. Since that decision, the UK courts have become the
forum of choice for anyone seeking a one-stop shop to resolve FRAND
licence disputes (mainly SEP holders).
On the other side, many implementers do not like the prospect of
facing UK litigation simply because of the convenience factor for
SEP holders – especially where their UK markets may be
comparatively small and any UK-determined FRAND licence would cover
activities in their other markets. The UK's position has
also drawn criticism from the judiciary in various jurisdictions
where determination of global FRAND licences is not freely
available. They see this as an overstepping of the mark with
the UK courts seeking to decide on issues which relate to foreign
patent rights.
However, the Supreme Court has agreed with the lower courts in
viewing the issue of FRAND licence determination as being
completely separate to infringement/validity of SEPs. Issues
of infringement and validity of at least one UK SEP must exist for
UK proceedings to be brought in the first place. Once this is
established, the UK courts are willing to consider the terms of the
FRAND licence which would apply to the SEP holder's global
portfolio.
Where an implementer does not want to accept the licence terms set
by the UK courts, they are free to ignore them, accept the UK
injunction and stop their activities in the UK that have been found
to infringe those UK SEPs. The UK courts are not seeking to
enforce any consequences in other jurisdictions where the global
FRAND licence might not accepted by the implementer.
Other points arising from the decision
The Supreme Court decision makes other findings, which, whilst not
as significant, will still prove important in how future FRAND
licences are determined. SEP holders do not have to offer the
same licence terms (including royalty rates) to different licensees
who have similar circumstances – other factors will be
relevant in the final licence determination for each
licensee. Also, a SEP holder has not necessarily abused its
dominant position (which, if it had, would deprive it of obtaining
a UK injunction) if it fails to follow the
well-established Huawei v ZTE protocol for
initial FRAND-licence negotiations with an implementer.
Instead, the protocol acts as a "safe harbour" such that
a SEP holder who follows it has not abused its position.
Ultimately, the question of abuse will be answered by considering
whether the SEP holder has shown itself to be a "willing
licensor" in all the circumstances.
This decision also covered one point from separate joined
proceedings (Conversant Wireless Licensing v Huawei &
ZTE) regarding whether the UK courts were the proper forum to
decide a global FRAND licence where the UK market (relevant to the
UK SEPs) represented a very small proportion (0.7%-1%) of the
implementers' worldwide sales and, therefore, the SEP
holder's claim. Furthermore, SEP proceedings were ongoing
in a larger market (in this case, China). The Supreme Court
confirmed that the UK courts could still hear the proceedings and
determine the relevant global FRAND licence.
Commenting on the judgement, Dafydd Bevan, Head of the High Tech
group at Marks & Clerk Law, said:
"The overall feeling between SEP holders and implementers
will remain that the UK courts are now pro-SEP holder. We can
expect to see of the UK continue its central role in worldwide SEP
litigation, even where the UK connection appears comparatively
weaker than elsewhere."
On the challenge faced by the Supreme Court (and the lower courts)
in arriving at this decision, Dafydd said:
"Courts need to be able to resolve the disputes before
them and, with this complex issue, there will always be some
criticism with whatever approach the Court has adopted. If
the Supreme Court had decided that it could not determine global
FRAND licence terms, SEP holders would face the prospect of costly
and lengthy litigation in every jurisdiction to decide FRAND terms
on a country-by-country basis. This might encourage some
implementers to "hold out" during negotiations for a
FRAND licence while a SEP holder receives nothing without an
unfeasible legal outlay. Standards could suffer while
contributors think twice about sharing their lucrative technologies
to avoid this problem.
"The UK courts will now determine global FRAND terms
knowing that an implementer can still reduce the value of the
licence by removing questionable patents through invalidity
proceedings in the relevant
jurisdictions."
"It is not all bad news for implementers though and there
may still be opportunities to avoid the UK courts' reach,
depending upon the circumstances of a given case, in particular
whether litigation elsewhere exists and how swiftly an implementer
acts in response to a UK claim."
Dafydd also notes that, even where UK proceedings continue,
implementers should not lose heart.
"The UK courts have a reputation for careful scrutiny of
patents, with many judges and legal representatives having
technical backgrounds, and a strong reliance on technical experts
in assessing infringement and validity issues. Put bluntly,
weak patents rarely survive in the UK and the UK courts will not
decide on FRAND licence issues where the UK SEPs have all been
knocked out of the proceedings."
While UK FRAND litigation may thrive, John de Rohan-Truba is
concerned about the potential knock-on effects for UK consumer
choice.
"Many implementers with small UK markets or market-entry
plans may opt to abandon or avoid the UK market for fear of
providing the anchor needed for a UK SEP trial with global FRAND
licence determination.
"Ultimately, consumers may find a much-reduced range of
products on sale compared with other countries – this would
be especially disappointing when considering the potential
technologies which could become prevalent with
5G."
John also warns that previously-active implementers should think
very carefully before accepting a UK SEP injunction in an effort to
avoid the UK courts' involvement:
"These implementers should consider exactly what they are
trying to achieve and whether this approach will work in their
particular circumstances. Previous decisions show that, while
an implementer might think that abandoning the UK market can
completely remove the need for UK proceedings, this is not always
true.
"Where substantial sales have already taken place, one
issue to be decided in a SEP infringement claim will be the payment
of damages for past infringement. These damages will need to
be determined and the UK courts may choose to refer to a
hypothetical global FRAND licence for this purpose –
ultimately a UK FRAND trial may take place to determine this and
the implementer will be expected to
participate.
"There is also a risk that a SEP holder tries to use the
implementer's refusal to engage in UK proceedings against them,
painting them as an "unwilling licensee" in proceedings
in other jurisdictions."
Dafydd and John agree that this decision brings a welcome degree of
certainty to how FRAND licensing issues will be determined before
the UK courts. While they note that the approach is not
perfect, a blanket decision to never consider global terms (when
the reality is that licences between the relevant entities are
decided on a global basis) would be more unsavoury.
The Supreme Court's approach shows that it is willing to apply
a real-world view to how the parties to these various disputes
normally negotiate and, with the court offering this remedy in
future, we may end up seeing more-concerted efforts during
negotiations. This could actually lead to fewer disputes before any
court (either in the UK or elsewhere) which can only be good for
the parties involved.
Beyond issues with the approach taken by the courts, a bigger issue
which should be tackled is the lack of scrutiny applied during the
SEP declaration process. It is commonly known that
over-declaration practices exist among many SEP holders. If a
patent holder had to explain the relevance of a SEP to its standard
at the time of declaration, over-declarations would become very
difficult. In this scenario, implementers would also have a
formal record of SEP relevance so that they could make informed
decisions during licence negotiations. If such reforms took
place at this level of the process, the UK courts' global FRAND
licence determination powers would probably not be needed at
all.
Today's Supreme Court judgement has wide-ranging implications
for the tech and telecoms sector here in the UK and further
afield.
Join experts from Marks & Clerk as they examine the judgement,
ask how it was reached and what it will mean for the telecoms
sector, FRAND licences and international litigation. In due course
we will also be coordinating with international partners and
representatives of key industries to provide an international
perspective on this crucial judgement.
If you would like to join one of our online sessions, please register here and
we will contact you with further details.
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.