UK Patents Court refuses to transfer Unwired Planet competition claims to CAT

Like a 13-week competition trial,
the IPKat initially thought
it was a good idea to tackle
the ball of string....
For anyone keeping tabs, the mammoth patent dispute in Unwired Planet v Huawei & Samsung continues to thunder along at pace.  The latest decision from the Patents Court in the saga addressed the question as to whether the antitrust issues  - arguably the juiciest part of the case - could be transferred to the Competition Appeal Tribunal (CAT)? At the end of April, Mr Justice Birss answered that question, deciding that the issues should remain in the Chancery Division [2016] EWHC 958 (Pat).  Kat friend Eibhlin Vardy (A&O) reports:  
"Background and status of proceedings
The detailed background to the dispute has been reported previously on the IPKat here. In summary, Unwired Planet is asserting a number of patents against Huawei and Samsung, both of whom sell mobile devices and infrastructure equipment. The litigation has been divided into a series of trials to make it more manageable. Trials A to D are technical trials which relate to patents declared essential to various standards including GSM, UMTS and LTE. Trial E involves a non-standard essential patent. The 6th trial is a 'non-technical trial', and forms the basis of the present application.

The patents in trials A and C have been found valid and essential/infringed. The patents in trial B were found invalid for obviousness. Trial D was scheduled to begin last week, but the author notes that it is mysteriously absent from the daily cause list, and may have been vacated. Trial E is still listed for July 2016. The non-technical trial is scheduled for 13 weeks during the autumn of this year.

The non-technical trial and FRAND 

Huawei and Samsung have raised various FRAND and competition issues by way of counterclaim. First, the defendants allege that Unwired Planet's offers to license its patents to Huawei and Samsung are not on FRAND terms. Secondly, the defendants allege that by seeking an injunction, Unwired Planet is in breach of its article 102 TFEU obligations (the abuse of dominant position prohibition). Thirdly, the defendants allege that the contract whereby Ericsson transferred the patents in issue to Unwired Planet breaches article 101 TFEU (the anticompetitive agreement prohibition). The reasoning goes that Ericsson transferred its patent portfolio to a 'hybrid non-practicing entity' or NPE (i.e. Unwired Planet) whilst retaining the right to a substantial share in the licensing revenue generated by Unwired Planet. As a NPE, Unwired Planet does not have the same incentive as Ericsson to seek cross-licences from other market players, such as Samsung and Huawei. In their defence, Unwired Planet and Ericsson maintain that FRAND licences always have been available and hence there is no breach of competition law. 
A further complication in proceedings is 'the Ericsson control defence' raised by Samsung. Samsung holds a patent licence with Ericsson which post-dates the contract which transferred the patents in issue to Unwired Planet. Samsung contends that for various reasons, the patents nominally held by Unwired Planet are in fact in law still held or controlled by Ericsson, and are therefore licensed to Samsung.

The parties' positions on the application
Samsung applied for the competition law issues in the non-technical trial (i.e. everything except the Ericsson control defence) to be transferred to the CAT. Samsung submitted that the CAT benefits from dedicated, specialist expertise to resolve the mixed issues of law and economics which arise in competition cases. Since Oct 2015, the CAT has had jurisdiction to deal with stand alone actions as well as follow-on claims, and it could therefore hear these issues by way of transfer. In terms of the practicalities of transferring a case to the CAT so close to the trial fixture, Samsung was able to ascertain that the CAT would be able to accommodate a trial in the same period in which the non-technical trial is currently listed. They submitted that the same judge (Birss J) could sit as a Chairman of the CAT, alongside an economist, and another antitrust specialist. Birss J dubbed the proposed tribunal "a sort of IP CAT". Therefore, any transfer to the CAT would not disrupt or delay the proceedings.

Ericsson and Unwired Planet resisted the application on various grounds. They submitted that the Patents Court is an appropriate forum given that the issues require the tribunal to determine the correct FRAND royalty rate, which involves patents expertise and understanding of the technological standards in question, and there is no good reason why the Patents Court cannot deal with these issues. Most importantly, Ericsson emphasized that any such transfer would give rise to serious issues because certain other interrelated issues cannot or should not be transferred. In particular, Unwired Planet and Ericsson's FRAND declarations to ETSI (the standards setting body) give rise to a cause of action founded in contract, rather than in competition law.

Huawei remained neutral on the application. 
The law
Paragraph 2(a) of the Enterprise Act 2002 Regulations 2015 (SI 2015 No 1643) provides that where in any proceedings before the court there falls for determination an infringement issue the Court may by order transfer to the CAT "so much of the proceedings as relates to the infringement issue". Infringement is defined as any question relating to whether or not an infringement of a Chapter I or II prohibition, or art 101 or 102 TFEU, has been or is being committed. Transfers to the CAT are governed by CPR PD 30 para 8.10 to 8.13, and may be made on the court's initiative or by application by either side. In making such an assessment, the court must consider all the circumstances, including the wishes of the parties.

Samsung's application is not without precedent. In Sainsbury's v MasterCard, the High Court transferred proceedings to the CAT on the basis that the High Court judge would chair the CAT tribunal, and hear the matter at the same time as it wold otherwise have been heard in the Chancery Division (i.e. the same practical arrangements as Samsung proposed in the present case).

Birss J noted that the decision to transfer is an exercise of the court's discretion to be addressed taking into account all of the circumstances of the case. The overriding objective of the CPR also applies, requiring the court to deal with cases justly and at proportionate cost. The judge explained that a key practical factor will be the extent to which a transfer would create any delay or increase in the costs, and whether the distinguishing features of the CAT would assist in assessing the likely evidence and resolving the issues. When taking all matters into account, the court should not transfer the case without some positive reason to disturb the status quo, given that the jurisdiction of the High Court and CAT is concurrent. The High Court heard that the costs of the proceedings are likely to reach £50 million...

The High Court agreed with Samsung that it is unlikely that competition law would mandate a FRAND royalty rate at a different level from a FRAND royalty rate mandated by ETSI's IPR policy. However, this does not mean that the court can rule out the fact that the FRAND issues fall under both competition law, and also the law of contract. For example, a patentee making an ETSI declaration may not be in a dominant position (e.g. because it may not have sufficient independence of action) and therefore remain outside the scope of Art 102 TFEU. Accordingly, it is at least a "tenable possibility that the settlement of FRAND licence terms at the non-technical trial will take place under the contractual head of the ETSI IPR Policy and not under competition law."

Given the wording of the legislation, only issues which fall to be decided as part of a decision concerning art 101 or 102 can be transferred to the CAT. The relationship between the construction of the patent transfer agreement between Ericsson and Unwired Planet is close to the antitrust prohibitions in art 101 and art 102. However, the contractual FRAND allegations, "although they raise closely related considerations, are legally distinct". The High Court concluded that the wording of the legislation, even when construed purposively, is "not wide enough to transfer for determination a distinct cause of action which is not itself an infringement issue for it to be determined by the CAT"..."The CAT is a specialist tribunal for dealing with infringements of competition law. Nothing in the Act or the Regulation demonstrates any intention by the legislator to broaden the scope of its responsibilities beyond that". Therefore, to transfer the competition issues to the CAT would leave the interrelated contractual claims in the High Court.

Samsung suggested that Birss J could sit in the CAT with two other members and decide on the issues wearing whichever 'hat' was appropriate for whichever issue. This was rejected by the Court, because it would not be practical to divide the decision making this way given the centrality of FRAND to this case, and it could make the situation worse, not better. In summary, "transferring competition law FRAND but not transferring contractual FRAND would be a recipe for confusion".

What next?
The litigation is currently three trials down, but as noted above, the ultimate fate of Trial D and, perhaps, Trial E is unclear.  So perhaps the next time we hear about this saga will be in relation to the 13-week non-technical trial, where the court will hopefully provide some much needed guidance on FRAND royalty rates."  
UK Patents Court refuses to transfer Unwired Planet competition claims to CAT UK Patents Court refuses to transfer Unwired Planet competition claims to CAT Reviewed by Eleonora Rosati on Wednesday, May 11, 2016 Rating: 5

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