26 April 2018

High Court rules that it has jurisdiction to hear FRAND dispute

The English High Court has held that it has jurisdiction to determine a global FRAND licence in a dispute concerning a claim for infringement of UK patents where the vast majority of the defendants’ sales occurred overseas.

Background to the dispute

The decision was given in the case of Conversant Wireless v Huawei & ZTE (Conversant Wireless v Huawei & ZTE [2018] EWHC 808 (Pat)) . Conversant Wireless owns a global portfolio of patents which it claims includes standard essential patents (SEPs) in over 40 countries. Conversant brought an action against Huawei and ZTE in July 2017, alleging infringement of the UK designations of four of its European SEPs. Conversant alleged that no meaningful progress had been made with the defendants in taking a licence, and so they also sought a declaration that their offer of a licence had been on terms that were fair, reasonable and non-discriminatory (FRAND), and if they were not, what those FRAND terms should be for its global SEP portfolio. On their part, the defendants had already brought validity actions against the equivalent Chinese patents before the Chinese court, which were ongoing.

The defendants sought to stay the action, arguing that the English court:

  1. has no jurisdiction to decide the claims which are in effect claims for infringement of foreign patents, the validity of which is in dispute; or alternatively
  2. England and Wales is not the proper or appropriate forum (forum non conveniens) and that China would instead be the most suitable forum as that is where the vast majority of the defendants’ sales occur.

The Chinese defendants also argued that they had not been validly served in England and that permission to serve out of the jurisdiction should be refused.

The High Court’s decision

In his judgment, Mr Justice Carr rejected both of the defendants’ arguments concerning jurisdiction, and held that the English court was the appropriate forum to hear the dispute. Mr Justice Carr reasoned that as the English court has jurisdiction to hear a claim concerning the infringement of a UK patent, it is also able to remedy any infringement found by determining the FRAND licence on a global basis. The judge highlighted the need for one court to determine the licence on a global basis; otherwise the purpose of the FRAND regime would be frustrated.

The judge also highlighted how there was nothing to stop the defendants from continuing with their validity challenges before the Chinese court in relation to the Chinese patents and that the English court could take the Chinese decisions into consideration when setting the FRAND terms. Furthermore, similar to the terms of the licence approved in Unwired Planet (Unwired Planet v Huawei [2017] EWHC 2988), a mechanism for dealing with patents held to be invalid after a licence has been settled can be included so that royalties would not be payable. Indeed, Conversant had adopted such a mechanism in its latest FRAND offer made to the defendants.

The judge also rejected the defendants’ application for a stay of proceedings on the grounds of forum non conveniens, as there is no provision in Chinese law enabling Chinese courts to determine FRAND on a global basis and that it had never been done before. The judge went as far as to say that he was not convinced that the Chinese courts would accept jurisdiction, even if both parties agreed to China being an appropriate forum.

Finally, on the service issue Mr Justice Carr agreed that service on UK entities did not represent valid service on the Chinese counterparts and so granted permission to serve out of the jurisdiction so that the claim could continue.

Following the decision last year in Unwired Planet, the English Court has again made it clear that it will accept jurisdiction to determine global FRAND licences in connection with the infringement and validity of UK patents.  In this case, it is particularly interesting to note that the UK accounts for less than 1% of worldwide sales on which royalties are claimed. However, the defendants were unable to convince the court that this was a key consideration and it appears not to be a barrier so long as a UK patent is in dispute.

A further hearing is expected in the coming weeks to determine the consequential orders.