This is the third issue of WilmerHale's FRAND Quarterly: Navigating the Global SEP Landscape, a bulletin that highlights developments about the licensing, litigation, and regulation of patents that are or are claimed to be essential to industry standards (SEPs) and are subject to commitments to be licensed on fair, reasonable and non-discriminatory (FRAND) terms. Each quarter, we will cover important developments spanning the globe that impact SEP litigation and FRAND licensing.
We are halfway through 2024 and the world of SEP licensing and litigation saw two overarching trends in FRAND litigation this past quarter:
- Patent pools are taking center stage in various proceedings around the world. China is now the first country set to determine a global FRAND rate for a patent pool in TCL v Access Advance. The UK has refused to be the second country to do so as Tesla's case against Avanci did not overcome InterDigital and Avanci's jurisdictional challenge. Staying in Europe, Access Advance was granted permission to intervene in infringement proceedings Dolby brought against HP and Asus at the UPC. In another development in China, Avanci has been officially reminded not to breach any antitrust laws in the licensing of SEPs to automobile manufacturers.
- In a continuing trend, the interplay between proceedings to set global FRAND terms and foreign infringement proceedings are keeping courts busy, particularly in the UK. A UK court refused Xiaomi's request for an interim license as protection against injunctions Panasonic sought in Germany and the UPC. A UK court also denied Lenovo's request for an injunction against Ericsson after Ericsson obtained injunctions in two of Lenovo's significant markets.
United States
Delaware court allows breach of FRAND obligation claim to proceed while dismissing antitrust claim for lack of a clearly defined antitrust market. On April 29, 2004, Judge Gregory B. Williams of the District of Delaware denied Nokia Technologies' motion to dismiss HP Inc.'s contract counterclaim alleging that Nokia breached its obligation to offer FRAND rates to HP for its asserted SEPs. HP alleged that Nokia had failed to meet its obligation by first offering a supra-FRAND rate and then pursuing an injunction to enforce that rate. The court found that "[w]hile HP does not identify language in the ITU-T Guidelines prohibiting injunctive relief, HP has adequately pled that Nokia breached its FRAND obligations by refusing to grant a license on reasonable terms and conditions, and that the injunction which Nokia seeks is part of that breach." Further, the court found that HP's reliance on Nokia's allegations of essentiality for the asserted patents was sufficient, rejecting Nokia's argument that HP had to plead the asserted patents were actually essential to proceed. The court separately granted Nokia's motion to dismiss HP's monopolization counterclaim in which HP alleged that Nokia had advocated for inclusion of its technology in ITU-T standards without informing the ITU-T that Nokia had patents covering its technology that it did not intend to license on FRAND terms. The court dismissed the claim because of HP's broad definition of the relevant market as "products that implement or support the functionality described in the Asserted Standards," noting that the definition did not enable the court to draw the boundary lines of the relevant market. However, the court declined to adopt Nokia's reasoning that HP should have pled a specific alternative technology that would have been included in the standard in place of Nokia's technology but for Nokia's deception, stating that the prevailing pleading standard in the Third Circuit (under Broadcom v. Qualcomm, 501 F.3d 297 (3d Cir. 2007)) requires only an allegation that Nokia falsely promised to license SEPs on FRAND terms and that the standard-setting organization relied on that promise in incorporating the technology into the standard.
Europe
Approval of automotive SEP licensing negotiating group by the German Federal Cartel Office (FCO). In June 2024, the FCO approved a project between BMW, Mercedes-Benz, Thyssenkrupp and VW as initial members, aimed at jointly negotiating conditions for the acquisition of SEP licenses. The FCO approved the project subject to the following conditions: a) that the project be restricted to the licensing of general mobile telecommunications standards and other standards that are not highly automotive-specific, such as Wi-Fi or H.265; b) that the project remain open to other automotive companies; c) that negotiations with the group remain voluntary for licensors (patent holders and patent pools); d) that only information that is necessary for the collective licensing negotiations will be exchanged by group members; and e) that the group will notify to the FCO any plans to extend its activities to other technologies or any other significant changes in its organisation, before implementing such plans.
EU Commission submits written observations in 4G patent dispute in Germany. In April 2024, the EU Commission ("Commission") submitted written observations as an amicus curiae in a dispute between VoiceAge EVS and HMD Global, pending on appeal before the Munich Higher Regional Court (case reference number: 6 U 3824/22). HMD Global, which is the exclusive licensee for Nokia-branded phones, has alleged that VoiceAge EVS does not comply with EU law, as interpreted by the Court of Justice of the EU in Huawei v. ZTE (Case C-170/13). In that case, the Court of Justice set out the requirements a SEP holder needs to comply with in order to avoid an injunction application being regarded as an abuse of dominance.
The Commission's intervention aims to "help ensure the coherent application of the existing 'Huawei' framework, in particular by ensuring uniformity in the way this framework is interpreted and applied by national courts," according to a Commission spokesperson. Should the Munich court have any doubts regarding the application of the Huawei framework, the Commission has reportedly asked that it submit a request for a preliminary ruling to the Court of Justice.
Proposed EU SEP Regulation: state of play and next steps. After the approval of a version of the SEP Regulation by the European Parliament in February 2024, the Council of the EU (Council) will need to adopt its own version of the Regulation. This will be followed by the "trilogue" process, during which the EU Commission, the Council, and the European Parliament will negotiate a provisional political agreement on the text. As noted in the previous issue of our newsletter, this procedure has been delayed due to the European Parliament elections, which took place on June 6–9, 2024. Given the negotiations between EU Member States that are expected to take place in the Council, there will likely be some delay before the Regulation comes into full force.
United Kingdom
Court of appeal increases InterDigital v Lenovo rates by 28.5% and ignores limitation periods for past sales. On July 12, the UK Court of Appeal delivered its judgment in InterDigital v Lenovo. It is the first time the Court of Appeal reviewed the global FRAND rates set by the Patents Court and set some principles as to the treatment of past sales by implementers. At the first instance, Mr Justice Mellor used a derived rate of $0.24 from only one comparable license - that between LG and InterDigital. Although the first instance judge acknowledged the LG-InterDigital comparable was "tainted with a non-FRAND factor to some extent" because of InterDigital granting heavy discounts for past sales, he did not adjust the calculation to exclude those non-FRAND factors. The Court of Appeal therefore decided to adjust the derived rate to $0.30, increasing the final lump sum from $138.7 million to $178.3 million. This represents a 28.5% increase - around 2x less than InterDigital's offer and 3x more than Lenovo's offer. The Court of Appeal upheld Mr Justice Mellor's decision that limitation periods have no part to play in the assessment of FRAND terms. The Court held that a willing licensee would pay for a license from the first day it implements a standard. Even in the scenario where a license is not concluded because of the SEP holder's "truly egregious" conduct, the implementer should still pay from the first use. This is because in case of delay caused by the SEP holder, "the court has other sanctions at its disposal such as denying or reducing interest and costs sanctions." The Court of Appeal also referred to the ETSI Guide and FAQs which, the Court held, "make it clear that a willing licensee would not sit back and wait for demands from SEP owners, but would pro-actively contact SEP owners (whose identities can readily be ascertained from ETSI), and would put money aside for payment of royalties." Further, the Court of Appeal emphasized that FRAND is a range, and a SEP holder is only required to license its portfolio on the FRAND terms that are most favorable to them.
Interim license denied in Panasonic v Xiaomi & Oppo. In December 2023, Xiaomi applied for an interim license after Panasonic, which is seeking a global FRAND determination in the UK, continued to pursue injunction requests against Xiaomi in Germany and the UPC. The purpose of the interim license was to protect Xiaomi from injunction requests during the period until the UK court set the terms of a global FRAND license. Because both Panasonic and Xiaomi had undertaken to accept the UK court-determined license, Xiaomi argued that if Panasonic refused to grant such an interim license, Panasonic would be in breach of its FRAND commitment and its duty to act in good faith. Mr Justice Leech disagreed. On July 5, he handed down a judgment finding that it was legitimate for Panasonic to exercise its legal rights in foreign courts and by doing so Panasonic was not putting undue pressure on Xiaomi. Further, the judge concluded that even if seeking injunctions applied some undue pressure, it would not necessarily result in supra-FRAND rates. While Mr Justice Leech did accept that French law imposes a duty on Panasonic to act in good faith and not frustrate its FRAND commitments, he did not accept that Panasonic's exercise of its legal rights in a court of competent jurisdiction, such as Germany, could be characterized as an attempt to frustrate its FRAND commitments. The judge also reasoned that granting interim licenses could encourage licensees to "hold out" and affect the parties' motivation to negotiate in a meaningful way.
No UK jurisdiction to hear Tesla's patent pool FRAND determination claim, following Avanci and InterDigital's argument that Avanci's platform sits outside the FRAND system. On July 15, Mr Justice Fancourt dismissed Tesla's FRAND determination claim against Avanci and InterDigital. Avanci is a licensing pool that offers licenses to SEPs that are subject to FRAND commitments. InterDigital is a member of the Avanci licensing pool. Tesla filed a claim against InterDigital seeking declarations of invalidity and/or non-essentiality of three of InterDigital's UK SEPS, and against Avanci seeking a declaration that Avanci's $32 5G program rate for connected vehicles are not FRAND. Tesla also sought a global determination of Avanci's 5G program rate. Tesla argued that Avanci, as an appointed agent of the pool's members, was jointly liable for any failure to effect the good faith performance of members' FRAND commitment. Mr Justice Fancourt agreed with Avanci and InterDigital that the UK did not have jurisdiction to set a global FRAND rate for the Avanci licensing pool. Tesla's patent revocation challenge survived and is allowed to continue.
In his decision, Mr Justice Fancourt endorsed Lord Justice Birss' obiter statements in Vestel v Access Advance & Philips that prospective licensees can bring a claim in the UK for a global FRAND rate based on their contractual right to be offered a FRAND license to a SEP holder's UK patents. However, this did not apply against Avanci. Tesla did not argue that Avanci was liable for any failure or absence of good faith in the commission of the Avanci members FRAND obligations, nor that Telsa had an independent legal right against Avanci.
Further, Mr Justice Fancourt held that England and Wales was not the most convenient forum for Tesla's case. The residence and business centers of all the parties, the administration of the Avanci 5G Platform (including the regulatory connection with U.S. federal antitrust authorities) and the proper law of the Avanci licensing agreement were all in the US. InterDigital and Avanci agreed that the Delaware Court of Chancery was a suitable court for the dispute but did not agree to that court conducting a global rate-setting exercise.
Notably, during the three-day hearing before Mr Justice Fancourt (held on May 23-34 and June 4), InterDigital and Avanci made various statements about how Avanci is not bound by the FRAND commitments of its members to ETSI in licensing their SEPs. InterDigital stated that its "underlying position is that [InterDigital's] FRAND obligation does not feed through into the pool." InterDigital branded Avanci simply a "convenient commercial alternative to bilateral licensing." Avanci also declared that its platform "sits entirely outside of the ETSI/FRAND system" and that it has not given a promise to anyone "to license on strict ETSI/FRAND terms." Avanci further noted that "whether or to what extent offering an Avanci platform licence satisfies a particular SEP-holder's ETSI/FRAND obligation in respect of a specific implementer is not something which Avanci can ever ensure."
No UK injunction for Lenovo. The global litigation between Lenovo and Ericsson continues in the UK with a new infringement action. Lenovo applied for an interim injunction against Ericsson for its alleged infringement of a Motorola UK 5G SEP. Lenovo asked for the injunction to be suspended if Ericsson abandoned its own SEP injunction requests in Colombia and Brazil. Ericsson acknowledged in the UK proceedings that it sought the Colombian and Brazilian injunctions to exert commercial pressure on Lenovo to reach an agreement. Similarly, Lenovo conceded that it knew it would be "commercially irrational" for Ericsson to submit to an injunction in the UK and acknowledged that it sought the UK injunction to stop Ericsson from enforcing injunctions in Colombia and Brazil. On May 23, Mrs Justice Bacon refused Lenovo's injunction request. While the judge recognized that the Colombian and Brazilian injunctions are highly disruptive and do enable Ericsson to exert commercial leverage on Lenovo, she concluded an injunction "in relation to one patent right cannot be used purely as a threat in order to induce [Ericsson] to conduct itself differently in respect of a different patent right in another jurisdiction."
Unified Patent Court (UPC)
Patent pool allowed to intervene in UPC SEP disputes. The Dusseldorf Local Division allowed the patent pool - Access Advance - to intervene in Dolby International v. HP International & Ors (UPC_CFI_457/2023). Dolby asserted one of its HEVC patents against HP and Asus in the UPC. In response, HP has argued that the terms on which Access Advance licenses the asserted patent through its pool are not FRAND. On June 26, Access Advance was given permission to intervene as the court concluded it has a direct interest in the case in responding to HP's contention that its pool licensing terms are not FRAND.
Disclosure requests for comparables cannot be too vague. On May 16, the Mannheim Local Division dismissed Oppo's application for disclosure of several Panasonic agreements. Oppo had requested that Panasonic be required to turn over all licensing agreements concerning 3G and/or 4G SEPs that extend to mobile devices between Panasonic and Oppo's suppliers. Oppo also asked for submissions of sales transactions by Panasonic and future licensing agreements concerning 3G and/or 4G SEPs. The Judge-Rapporteur found Oppo's requests were too vague and too broad. Furthermore, there was no basis for disclosure because there was no support that the additional Panasonic licenses would serve a useful basis for a comparable analysis and, in any event, their production would be disproportionate. The Judge-Rapporteur held that the two comparative license agreements that Panasonic had already disclosed to justify its offer as being FRAND were sufficient.
China
China becomes the first country willing to set a global FRAND rate for a patent pool. On June 24, the Supreme People's Court of China ruled that China has jurisdiction to hear TCL's FRAND determination case against Access Advance. In 2022, TCL sued Access Advance before the Guangzhou Intermediate People's Court. TCL argues that Access Advance has abused its dominant position for the HEVC SEPs that it licenses and the rates it offers are not FRAND. Access Advance claims to license 76% of HEVC global assets, and its rates for HEVC are, according to TCL's submissions, six times higher than the rates for the AVC standard. HEVC is the successor of AVC. China is already a major FRAND litigation hub, but with this decision, China positions itself as the first country to adjudicate global rates for a patent pool.
Avanci receives a reminder not to breach antitrust laws from China's top competition authority. On June 27, China's State Administration for Market Regulation (SAMR) held a meeting with Avanci's executives. During that meeting, SAMR issued Avanci a "reminder urgent letter" that warned Avanci about the risks of breaching antitrust laws while licensing SEPs to automobile manufacturers. Reminder urgent letters are part of the soft and ex-ante tools for antitrust enforcement used by SAMR since December 2023. These letters set out steps that need to be taken to rectify or prevent antitrust violations. If such steps are not fully implemented, SAMR will issue a notice of interview and notice of investigation. Following its meeting with SAMR, Avanci stated that it had been "provided [with] valuable guidance for [its] licensing programs."
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