AIPPI Event Report: Will the Unwired Planet v Huawei FRAND judgment lead to fewer NPEs?

With the AmeriKat spending much of her life in airport terminals at the moment, she has not been able to make it to the series of exciting events organized by the UK Chapter of AIPPI.  But, attendees are never in short supply, and for the latest Rapid response event following the handing down of the latest judgment in the Unwired Planet cases (see IPKat summary here) patent litigator and new AIPPI member, Rachael Cartwright (Bristows), took to expertly reporting for the IPKat.  The event was under Chatham House rules but included Sir Robin Jacob (UCL) and Richard Vary (Bird& Bird) (neither of whom are terribly shy about expressing their views!).  Rachael reports:

"Hot on the heels of the decision's hand down, AIPPI held a Rapid Response event to discuss the implications of Mr Justice Birss' decision for industry.  The panel of Professor Sir Robin Jacob and Richard Vary lead a lively debate on the judgment and the potential consequences of the decision on SEP litigation in the future.   First up on the list of topics addressed was the distinction drawn in the judgment between the two different limbs to consider for FRAND - contractual and competition. Birss J held that the FRAND declaration given by UP to ETSI was binding under French law (despite UP not being a member of ETSI), creating a contractual FRAND undertaking.  This undertaking is enforceable under the French law construct of stipulation pour autrui. It was suggested that Birss J was effectively making a decision about specific performance of the undertaking in the English court (although he never actually used that phrase). However, Mr Justice Birss had not addressed the issue of whether, despite the fact that French law governs the ETSI undertaking, the undertaking is itself enforceable in the English court.

The next point of discussion was whether FRAND is a single point or a range.  Birss J’s somewhat surprising decision that a FRAND rate is a single point appears to go against conventional wisdom of those in the industry. It was noted that any FRAND determination is inherently imprecise; it will always be based on crude estimations. Additionally, it was felt that Birss J had failed to follow his initial arguments that the decision here was being made on contractual FRAND principles. If the FRAND obligation is made as a result of the licensor’s undertaking and is binding in a contractual sense, it follows that once the licensor has made its FRAND offer, the offer put forward by the licensee is irrelevant. The licensor has fulfilled its obligation by making a FRAND offer; the licensee can either take it or leave it. For this reason, it was suggested that the Vringo conundrum that appears to trouble Birss J should not exist and therefore there was no need to hold that there is only one FRAND rate in any given circumstance.

A brief discussion was had as to whether the SEP owner could claim some value from the fact that the patented technology had been included in a standard. Potentially controversially, it was suggested that the ongoing debate about ex-ante patent value is theoretical and unhelpful since a patent is only valuable if its technology is used – in this field that use is through its inclusion in the standard.  However, it was agreed that Birss J had circumvented this issue well since there is no discussion in the judgment of the value of a patent before the technology is incorporated into the standard.

On the determination of the FRAND rate, in the decision Birss J used a comparable approach for the assessment of FRAND but conducted a cross-check using the top-down approach. On the suitability of using the comparable approach, it was suggested that there were a number of things that Birss J had failed to take into account. In particular, he failed to take into account that the telecoms industry is inherently dynamic and even the standards themselves are under constant revision with the result that the number of relevant patents changes over time. Additionally, he did not appear to appreciate the fact that the historic royalty rates in this market are heavily reduced due to the negotiations occurring primarily between manufacturers and that the recent rise of the NPEs has affected this balance.

Traditionally, parties would have been aware that they needed to take patent licences, as well as offer them; as such there was no point in negotiating a very high royalty rate in relation to one of your own patents if it meant having to pay a higher rate in relation to one you needed to licence.  This logic does not hold with NPEs who do not have to concern themselves with obtaining licences to essential technology.  Additionally, Birss J did not consider the many different types of licences concluded in the industry and the different ways required to analyse and unpack each to enable them to be compared. For example, a licence involving a lump sum balancing payment will not tell you about the actual valuation of the patents in each parties portfolio and the fact that a lump sum is being made will often come with a considerable discount.  Therefore, a direct comparison of such a licence with, for example, a licence with an ongoing royalty rate is inappropriate. That said, it was felt that the judge was correct in using comparable licences as the basis for his FRAND determination.

On a practical note, the point was made that it now seems advisable for parties to a negotiation to start making open offers as soon as it appears that negotiations are failing. Such offers can then be placed in front of a court during a FRAND determination. Additionally, it was a suggested that prematurely issuing proceedings is a common tactic in the UK in order to encourage discussion between the parties, and therefore is unlikely, on its own, to lead to a finding of an abuse of dominance.  Finally it was felt that this new method for global portfolio determination will be a positive thing for the mobile phone industry potentially incentivising manufacturers to maintain their patent portfolios instead of selling them to non-practicing entities. "