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25 October 2018

Unwired Planet: Court of Appeal upholds global FRAND licence

The Court of Appeal has handed down its eagerly awaited judgment in Unwired Planet v Huawei [2018] EWCA Civ 2344. In dismissing all points of Huawei’s appeal, the appellate court has confirmed that the English court has jurisdiction to determine a global FRAND licence in a dispute concerning a claim for infringement of UK standard essential patents (SEPs). The decision confirms the UK as a destination for holders of SEPs who wish to resolve global disputes where the vast majority of the infringer’s sales occurred overseas.

Background to the dispute

In the original proceedings, Unwired Planet sued Huawei and others for infringement of five SEPs in the UK.  The long running dispute was managed by Mr. Justice Birss in a series of trials.  Ultimately, two of the SEPs were found to be valid, essential and infringed.  After various settlements with the other parties to the dispute, Huawei remained as the sole defendant.  Following several rounds of unsuccessful consultations between the parties, Unwired Planet claimed for a Court determination of FRAND licence terms under its global patent portfolio.

In its landmark decision of 2017, the High Court set the terms of a global FRAND licence, and held that should Huawei not agree to such a global licence, then Unwired Planet would be entitled to injunctive relief in the UK (a so called ‘FRAND injunction’).  At subsequent hearings, Mr. Justice Birss granted a FRAND injunction in favour of Unwired Planet, but granted Huawei permission to appeal on the following three main points:

  1. The scope of the FRAND licence: Can it be global?
  2. What is the correct approach to non-discrimination?
  3. Was there an abuse of process following the Court of Justice of the European Union’s (CJEU) finding in Huawei v ZTE?

The FRAND injunction was stayed pending the outcome of the current appeal.

The Court of Appeal’s decision

In its decision given by Lord Justice Kitchin (now Lord Kitchin since his appointment to the Supreme Court), the Court of Appeal dismissed all three of Huawei’s grounds of appeal, and for the most part agreed with the approach taken by Mr. Justice Birss in the High Court.

On the first point of appeal, the Court of Appeal agreed with the lower court’s finding that a global licence was indeed FRAND. The Court of Appeal agreed that it would be nonsensical to negotiate licences on individual national terms and something which “no rational business would do if it could be avoided.” However, the Court of Appeal disagreed with the High Court’s finding that there could only be one set of FRAND terms for any given set of circumstances.  The Court of Appeal held that the complexity and commercial reality of any given situation meant that there could be more than one set of FRAND terms and that it was for the patent holder to decide which set of FRAND terms to offer to the potential licensee.

On the second issue, Huawei had questioned whether the ‘non-discrimination’ obligation prevented Unwired Planet from offering a different rate to different licensees in relation to the same SEPs.  Previously, Unwired Planet had offered Samsung (one of the other defendants to the original action) a much lower rate than now being offered to Huawei.  The Court of Appeal agreed with the interpretation of the High Court: Although Unwired Planet was obliged to offer licences on terms which reflect a proper valuation of the portfolio, and to offer those terms to all parties seeking a licence, this did not mean that a SEP holder could not offer an ever lower rate if it chose to do so.  In other words, once a benchmark rate had been properly set, it was up to the SEP holder to decide if and to whom they wished to offer a lower (but not higher) rate, within the restraints of competition law.

Finally, on the third issue, the Court of Appeal rejected Unwired Planet’s appeal of the High Court’s finding that it was in a dominant position, but it also rejected Huawei’s appeal of the lower court’s finding that Unwired Plant had not abused its dominance in seeking the FRAND injunction.  Huawei had argued that Unwired Plant had abused its dominant position as it had not designated the patents said to be infringed, and despite some limited contact it had not offered a licence on FRAND terms before issuing proceedings.

In considering these issues, the Court of Appeal held that the protocol for SEP owners and implementers set out by the CJEU in Huawei v ZTE [2015] Case C-170/13 (the ‘Huawei v ZTE Protocol’) is not a mandatory framework to be followed before a SEP owner can seek injunctive relief and avoid abusing its dominant position.  Lord Justice Kitchin agreed with Mr. Justice Birss that the only mandatory requirement in the Huawei v ZTE Protocol is that there must be prior notice or consultation with the implementer, but what constitutes sufficient notice or consultation will depend upon the specific circumstances.  However, the court said that if a SEP holder does comply with the requirements of the Huawei v ZTE Protocol it will not be found to have abused its dominant position in seeking an injunction.

Comment

This reaffirms UK courts are able to set a global FRAND rate and licence terms, and the availability of FRAND injunctions in the UK should an infringer refuse to take a licence on such terms.

The English Court will also continue to accept jurisdiction to determine global FRAND licences in connection with the infringement and validity of UK patents in Conversant Wireless v Huawei & ZTE [2018] EWHC 808 (Pat), which we reported on here.

The Court of Appeal’s judgment in Unwired Planet v Huawei should be welcomed by SEP holders as the UK is an attractive jurisdiction to hear global FRAND disputes, even if the vast majority of an infringer’s sales are made in other overseas markets.

The one area we need more guidance on is what constitutes sufficient notice or consultation before an injunction for not entering a FRAND agreement will be granted.

Huawei has indicated that it intends to appeal to the Supreme Court, so perhaps there will be more lessons soon.

The full decision from the Court of Appeal can be read here.

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