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18 November 2016

Latest developments in dispute between Unwired planet and Samsung before the English courts

In the last edition of Inside IP, we reported on the ongoing patent dispute between Unwired Planet and Ericsson, on the one hand, and Huawei and Samsung on the other.

The dispute is concerned with a set of standard essential patents (SEPs) in the field of mobile telecommunications that were granted to Ericsson AB and which were subsequently acquired by Unwired Planet, a company active in the licensing field.

In the last edition of Inside IP, we reported on the ongoing patent dispute between Unwired Planet and Ericsson, on the one hand, and Huawei and Samsung on the other.

The dispute is concerned with a set of standard essential patents (SEPs) in the field of mobile telecommunications that were granted to Ericsson AB and which were subsequently acquired by Unwired Planet, a company active in the licensing field.  

The court decided to separate out the various issues and to hear a series of technical trials in relation to the infringement and validity of the SEPs and to hear a further non-technical trial in relation to the licensing dispute upon completion of the technical trials.

So far, judgments have been handed down in three of the technical trials, the High Court having ruled that two of the patents belonging to Unwired Planet are valid and infringed and that another of the patents was invalid. 

As noted in our earlier article, the manner in which Unwired Planet had acquired the patents in question from Ericsson also came under scrutiny in a preliminary judgment issued in July 2015.  Samsung had alleged that Ericsson had been in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU) which relates to agreements which can distort competition in the internal market.  The three alleged breaches that arguably provide a defence to the infringement claim were:

  1. that in transferring patents to Unwired Planet, there was a failure to ensure the transfer of an enforceable FRAND obligation;
  2. that in splitting Ericsson’s SEP portfolio into two parts (Ericsson retained some SEPs itself and transferred some to Unwired Planet) a breach of competition law had taken place since this would lead to unfair higher royalties being earned; and
  3. that certain terms in the Master Sale Agreement (MSA) between Ericsson and Unwired Planet are stand-alone infringements of Article 101.

Ericsson, as the assignor of the patents in question, was made a party to the proceedings and they submitted that Samsung’s allegations did not have a realistic chance of success.  As such, Ericsson requested that the alleged breaches of EU competition law be struck down.

With respect to the first alleged breach, Ericsson argued that what was considered a FRAND term required of Ericsson was not necessarily the same thing as a FRAND term required of Unwired Planet.  Samsung had argued that the FRAND obligation of Ericsson should be transferred directly to Unwired Planet and that the same terms should be required of Unwired Planet as of Ericsson.  Birss J agreed with Ericsson and agreed to strike down the first alleged breach, stating that “it would be unreal and commercially unworkable for competition law to require that the transferor’s own FRAND obligation should somehow be transferred in the manner alleged by Samsung.”

The High Court did however decline to strike down the second and third alleged breaches, thus allowing them to be considered at the full non-technical trial to be heard later this year.

Samsung appealed to the Court of Appeal against the decision to strike down the first alleged breach. Samsung argued that the MSA failed fully to transfer the FRAND undertakings given by Ericsson to the standard setting organisation (SSO) because firstly, the provisions of the MSA concerning the FRAND obligations of Unwired Planet were not enforceable by third parties; and secondly, the MSA fell short of fully transferring Ericsson’s FRAND obligation, in particular the non-discrimination aspect of FRAND terms.

In the judgment handed down by the Court of Appeal, Kitchin LJ referred to various precedents relied upon by the European Commission in dealing with issues surrounding competition law that have arisen in respect of the licensing of SEPs.  The first aspect of Samsung’s appeal, regarding the enforceability by third parties of the FRAND obligations, was rejected.

However, in considering the second aspect of Samsung’s appeal, Kitchin LJ identified “an apect of this arrangement which is arguably just as objectionable [which] is the ability it confers on [Unwired Planet] to charge licence fees which are significantly higher than those which Ericsson itself charged and which would have been discriminatory having regard to Ericsson’s existing licensees had Ericsson sought to charge them directly”.

Kitchin LJ also referred to the decision of the Commission in relation to the acquisition by Google Inc. of Motorola Mobility.   In this case, Google had sent a letter to various SSOs, as well as stating on their website, that Google would honour Motorola Mobility’s pre-existing commitment to license its SEPs on FRAND terms.

As such, the Court of Appeal overturned the decision of the High Court to strike down the first defence, Kitchin LJ again stating that “the [High Court] judge fell into error in finding that this aspect of Samsung’s first defence was unarguable”.  As such, all three alleged breaches of competition law will be considered at the non-technical trial as potential defences to any findings of infringement that emerge from the technical trials.

Given the variety of issues to be considered in the non-technical trial and no sign yet of any settlement, this dispute promises to be something of a test case in the applicability of FRAND terms and competition law to issues surrounding the enforcement of standard essential patents.

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