UK Supreme Court upholds jurisdiction of English courts to determine global FRAND licences
In a unanimous decision, the UK Supreme Court (UKSC) has upheld the findings that English courts do have jurisdiction to settle the terms of a global FRAND licence and to grant an injunction against infringers of Standard Essential Patents (SEPs). The UKSC’s judgment confirms English courts will answer your global FRAND problems.
The UKSC has dismissed the appeals brought by both ZTE and Huawei and has confirmed that the Courts of England and Wales are an appropriate forum for deciding FRAND disputes and for setting global royalty rates. The UKSC has also confirmed that English courts are able to issue an injunction to restrain SEP infringers.
Background to the dispute
The decision addresses a truly global set of disputes involving Unwired Planet, Huawei, Conversant and ZTE, and there were interventions from Ericsson, Qualcomm and Apple.
The litigation concerned the correct approach to licensing of FRAND SEPs, and where those disputes should be addressed. The UKSC looked at decisions in China, the US, Germany, Japan and the UK and supported the UK (England) as a suitable venue.
Unwired Planet’s SEPs were held to be essential and infringed by the High Court. The Court of Appeal subsequently dismissed the appeals of the High Court’s decision. The two appeals before the UKSC raised issues that are of the upmost importance to the telecommunications industry and in particular in relation to the roll-out of 5G and the further implementation of the Internet of Things relying on these technologies.
The decision of the UKSC
The UKSC’s main determination was whether the English courts have jurisdiction and may properly exercise a power, without both parties’ agreement to: (a) grant an injunction to restrain the infringement of a UK patent that is a SEP unless the implementer of the patented invention enters into a global licence of a multinational patent portfolio; and (b) determine the royalty rates and other terms of such a licence [Judgment 49].
The UKSC found that English courts have jurisdiction and may properly exercise these powers. Though the UKSC was clear that questions as to the validity and infringement of a national patent fall to be determined by the courts of the state which has granted the patent, the UKSC confirmed that the contractual arrangements that the European Telecommunications Standards Institute (ETSI) has created under its IPR Policy give the English courts jurisdiction to determine the terms of a licence of a portfolio of patents which includes foreign patents [Judgment 58].
In dismissing the appeals, the UKSC considered four issues previously considered by the lower courts and a fifth issue raised by Huawei for the first time in the UKSC.
Arguably the most interesting and important issue concerns the jurisdiction of the English courts. We briefly consider these issues and the UKSC’s decision below:
Issue 1: Jurisdiction
This issue arose in both Huawei and ZTE’s appeals. At first instance, the High Court found that there is only one set of FRAND terms for any given set of circumstances. In doing so, the High Court determined the global rates for the FRAND licence. The Court of Appeal agreed with the High Court’s finding that the global licence was FRAND.
The UKSC held that under ETSI’s IPR policy, it is common industry practice for companies to agree global licences. The UKSC also confirmed that the licence terms and royalty rate could be amended in the future should a national court invalidate a patent in the portfolio.
Issue 2: A suitable forum?
This issue arose in the Conversant appeal only, in which the lower courts had to grapple with whether the dispute concerned not only the terms of a global FRAND licence, but also whether the UK patents were valid and infringed.
The UKSC dismissed this point of appeal and found that the forum non conveniens (i.e. whether the Court of England and Wales is a suitable forum) challenge had failed. The UKSC agreed with the Court of Appeal that as the Chinese courts do not currently have jurisdiction to determine the terms of a global FRAND licence without the parties’ agreement, but the English courts do have such jurisdiction, the English court was right in hearing the FRAND licensing dispute.
Issue 3: The non-discrimination issue
The UKSC rejected Huawei’s submission that an SEP owner must grant the same or similar terms to all licensees, unless it can be shown that there are objective reasons for treating them differently. The UKSC noted that ETSI’s IPR policy required SEP owners to make licences available “[O]n fair, reasonable and non-discriminatory….terms and conditions,” and it held that FRAND is a unitary term and not three separate and distinct obligation. The UKSC held that SEP owners are not required to grant licences on terms equivalent to the most favourable licence terms to all similarly situated licensees.
Issue 4: The competition issue
The UKSC rejected the argument that Unwired Planet had breached its dominant position under Article 102 TFEU by bringing proceedings prematurely. The UKSC found on the facts that Unwired Planet had shown itself to be willing to grant a licence on whatever terms the court decided were FRAND and so it had not breached Article 102 TFEU.
Issue 5: Is an injunction appropriate and proportionate?
Huawei argued for the first time in these proceedings that even if it had infringed the SEPs, an injunction should not have been granted, as damages would have been the most suitable remedy.
The UKSC disagreed that damages would have been a more appropriate and proportionate remedy as there is no basis on which the Court could properly substitute an award of damages for the injunction upheld by the Court of Appeal. The Court held that damages would not be an adequate remedy as it would be impracticable for the SEP holder to sue for damages in every jurisdiction.
Following the UKSC’s decision, Huawei will be required to enter into a licence with Unwired Planet on terms which the UK Patents Court have previously decided were fair and reasonable.
The decision of the UKSC has confirmed the willingness of English courts to help parties settle global disputes. The English court will not stray into making determinations of infringement or validity on foreign patents, but the English courts can determine global FRAND licences, based on their jurisdiction to determine the infringement and validity of UK patents, even in circumstances where UK sales represent only a small fraction of the worldwide sales on which royalties are claimed.
The UKSC also confirms that English courts are prepared to set a royalty rate for a patent portfolio rather than individual licensees, so that disputes involving multiple SEP implementers may become less common in the future. The UKSC reviewed the determinations below and the approach of courts around the world, finding that while English courts went further than some other courts in the willingness to determine the terms of a FRAND licence which the parties could not agree, it did not involve any difference in principle from the approach of courts in other jurisdictions.
This review of foreign law is most helpful to see where English courts sit in the global battle of litigation. The UKSC’s summary was that the US case law showed (i) a recognition that the court in determining a FRAND licence in such cases is being asked to enforce a contractual obligation which limits the exercise of the patent owner’s IP rights including its IP rights under foreign law; (ii) a willingness in principle to grant an injunction against the infringement of a national patent which is a SEP, if an implementer refuses a licence on FRAND terms; (iii) a willingness in principle to determine the FRAND terms of a worldwide licence; (iv) a practice of looking to examples of real life commercial negotiation of licences by parties engaged in the relevant industry when fixing the FRAND terms of a licence; and (v) a recognition that the determination of a FRAND licence by one national court does not prevent an implementer from challenging foreign patents on the grounds of invalidity or non-infringement in other relevant national courts.
The view of Germany was that (i) there is a recognition that a: worldwide licence might be FRAND and an implementer’s counter-offer of a national licence confined to Germany might not be FRAND; (ii) it assists to have regard to the usual practices of parties in the relevant industry when the court determines the FRAND terms of a licence; and (iii) there is a willingness to grant an injunction against infringement of a national patent if the court holds that an SEP owner’s offer of a licence is FRAND and the implementer refuses to enter into it.
The courts in China have not rejected the proposition that a worldwide licence might be FRAND nor have the courts ruled that they do not have jurisdiction to determine the FRAND terms of a worldwide licence with the consent of the parties, although it remains a matter of speculation whether they would or would not accept jurisdiction.
Consequently, the UKSC concluded that the English willingness to determine the FRAND licence globally and to issue injunctions in suitable cases, was not out of line with the approach of courts in these significant jurisdictions. It will be fascinating to see the reaction from those jurisdictions and whether they will take a similar view in future to the English courts.
We will be returning to our coverage of FRAND again soon with more in-depth commentary on the global reaction. Please watch out for our further updates and commentary in relation to SEP licensing.