BREAKING: UKSC upholds decision in Unwired Planet, confirms English courts have jurisdiction to set global FRAND rates (and much more)

This morning, the UK Supreme Court (UKSC) issued its long-awaited opinion in the Unwired Planet/Huawei case [decision here, docket here, neutral citation: [2020] UKSC 37]. A Katpost setting out the procedural history of the case, outlining the issues and referencing previous commentary on this blog can be found here.

This is a landmark decision on the law of Standard Essential Patents (SEPs) and Fair, Reasonable and Non-Discriminary (FRAND) licensing practices. Below is a brief summary of each issue addressed by the UKSC.

Issue 1: Whether the English courts have jurisdiction to set a global FRAND rate [para 50-91]

The UKSC started by setting out the "external context" in which FRAND-licensing takes place: because of the size of telecoms patents portfolios and uncertainty for both patentees and implements as to the validity and infringement of individual patents, the "practical solution … is for the SEP owner to offer to license its portfolio of declared SEPs." [para 60]. Put this way, a portfolio license is a way to purchase access to the standard and uncertainty regarding the validity of individual patents should be discounted in the terms: "By taking out a licence of an international portfolio of generally untested patents the implementer buys access to the new standard. It does so at a price which ought to reflect the untested nature of many patents in the portfolio; in so doing it purchases certainty."

According to the UKSC, it follows that the license must be global in nature to achieve this goal [para 62].

The key paragraphs are 63-65, where the UKSC confirmed that Birss J and the Court of Appeal did not rule beyond their jurisdiction by obliging the implementer to accept a global FRAND license: "Instead, they looked to the commercial practice in the industry of agreeing to take a licence of a portfolio of patents, regardless of whether or not each patent was valid or was infringed by use of the relevant technology in the standard, and construed the IPR Policy as promoting that behaviour." [para 63]

Thus, if some of the portfolio patents turn out to be invalid or not infringed, "it might … be fair and reasonable for the implementer to reserve the right to challenge those patents or a sample of those patents in the relevant foreign court and to require that the licence provide a mechanism to alter the royalty rates as a result." [para 64]. Whether this is a workable solution or in line with real-world practice – the UKSC itself stated that "it appears that [such caveats have] not been usual industry practice" – is not thoroughly addressed in the decision. Rather, the UKSC seemed to think that the possibility to raise such objections means there are no fundamental reasons why it would be unfair or disproportionate for a national court to set a global FRAND license.

Paragraphs 66-84 are devoted to an analysis of foreign case law on the issue. The UKSC concluded from it that, even if foreign courts have not (yet) gone so far as to assume jurisdiction to set a global FRAND license, there appears to be a "willingness in principle" do to so, at least by US courts [para 85].

The UKSC fouond that infringement of a UK patent suffices for the grant of a UK injunction where an implementer refuses to "enter into a worldwide license of untested patents", because by entering into such a license, the implementer is purchasing "not solely access to the UK market but certainty that it has the ability legally to manufacture and sell products which comply with the standard on a worldwide basis." [para 86].

Huawei had argued that it was anomalous that, if the implementer withdraws from the market following the infringement suit, it is liable only for damages suffered in the UK, whereas it must pay a global royalty rate if it agrees to enter into the license. The UKSC considered this incorrect because "the award of damages is not to be equated with the royalties that are paid under a contractual license", the latter of which "will usually contain many important provisions in addition to the fixing of royalties." [para 87].

Huawei had further raised two interesting policy arguments that the UKSC rejected: the threat of Patent Assertion Entities (PAE's) and the risk of forum shopping.

As to PAE's, that UKSC finds as follows [para 89]:

In the exercise of those rights in pursuit of a FRAND licence the assignee PAE, like the assignor patent owner, must act fairly and reasonably as FRAND is an obligation which governs the process of negotiation as well as the outcome of the determination of a FRAND licence. There is no legal basis under the general law for treating PAE owners of SEPs differently from other SEP owners unless they have different interests which merit different remedies. In so far as the risk of the grant of injunctions may be necessary to achieve the balance which the IPR Policy promotes, it is not evident that a PAE should necessarily be treated differently from a SEP owner which manufactures and sells telecommunications equipment.

As to the risk of forum shopping, the UKSC held that in so far as it arises, "it is the result of the policies of the SSOs which various industries have established" [para 90]. Crafting solutions for standardization that encourage an industry practice of global FRAND-licensing in the absence of an international FRAND tribunal means that civil courts should step in to properly adjudicate these types of disputes.

Cosimo was all ears when he heard that Unwired Planet had been decided

Issue 2: Forum non conveniens [para 92-104]

The issue of forum non conveniens arose in the Conversant case, where it was argued that China was a more appropriate forum for the infringement action and that therefore, jurisdiction should be declined as to Chinese defendants and the case permanently stayed as to English defendants [para 92].

Although the issue to an extent hinges on how the dispute is properly characterized – are the proceedings primarily intended to obtain a global FRAND license, or to enforce a national patent? – the UKSC did not resolve the issue, because it found that either way China had not been shown to be a proper alternative to the English courts [para 97]:

After hearing extensive expert evidence, the judge found that the Chinese courts do not, at present, have jurisdiction to determine the terms of a global FRAND licence, at least in the absence of agreement by all parties that they should do so. Even in the event of such an agreement, he described the prospect that the Chinese courts would embark on the exercise as no more than speculative. Notwithstanding the admission of fresh evidence on this issue, the Court of Appeal reached the same conclusion. In sharp contrast, we have decided, for the reasons set out above, that the English court does have such a jurisdiction, even in the absence of consent by the parties, and it has of course exercised that jurisdiction in the Unwired case.

The UKSC's reasoning here is thus premised on the assumption that the SEP-holder must be able to obtain a global FRAND-license in some jurisdiction. At the same time, "if and when other countries decide to exercise jurisdiction to settle global licenses", additional issues may arise which the UKSC declined to address here [para 98].

Issue 3: FRAND and non-discrimination [para 105-127]

The third issue concerned the proper construction of the non-discrimination prong of FRAND. Is it "hard-edged", i.e. requiring the SEP-holder to extend licenses on comparable terms to similarly situated patentees; or is it "general", i.e. requiring the SEP-holder only to license according to market circumstances existing at the time, and allowing e.g. lower rates for licensees that entered into a license earlier.

On a construction of the relevant clause in ETSI's IPR Policy, the UKSC found that it imposes a "general", rather than "hard-edged" non-discrimination obligation [para 112-113]. It held that "fair", "reasonable" and "non-discriminatory" should not be seen as three separate obligations, but rather as a unitary whole, whereby the third prong "provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context." [para 114].

At the same time, the UKSC considered that "there is to be a single royalty price list available to all."

The UKSC then referred to the ETSI's positions on the issue [para 116] and concluded that "[s]ince price discrimination is the norm as a matter of licensing practice and may promote objectives which the ETSI regime is intended to promote (such as innovation and consumer welfare), it would have required far clearer language in the ETSI FRAND undertaking to indicate an intention to impose the more strict, “hard-edged” non-discrimination obligation for which Huawei contends."

Issue 4: HuaweiZTE [para 128-158]

The fourth issued turned on the proper interpretation of the Court of Justice of the EU (CJEU)'s decision in C-170/13 Huawei/ZTE and, in particular, the nature of the patentee's obligation to make a FRAND-offer. Is it mandatory for the SEP-holder to make implementers an offer that is FRAND, failing which it is barred from requesting injunctive relief? Or is it rather a "safe harbor", with a FRAND offer by the SEP-holder precluding a finding of violation of competition law, but with the only real obligation imposed on SEP-holders being the requirement to give notice of the SEPs allegedly infringed by the implementer? Although the UKSC did not go so far as to declare a FRAND-offer a "safe harbor", it did reject the contention that it is a mandatory requirement for obtaining injunctive relief.

The UKSC analyzed the decision in Huawei/ZTE and concluded that the duty for the SEP-holder to make an offer on FRAND terms arises only at the point where "the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms" [para 139].

Ths was analyzed in more detail in paras 151-153, which contain a close reading of the decision's key paragraphs. In sum, the UKSC believed the CJEU was mindful of the fact that "willingness" is so dependent on the factual and legal circumstances that it is not plausible that the CJEU intended to set out steps that apply mandatorily in all cases. The UKSC noted that its interpretation is in line with that of the Commission [para 157].

Issue 5: proportionality in the issuance of an injunction

The fifth and final issue concerned the proportionality of an injunction. Huawei had argued that even if the English courts had jurisdiction to hear the claim and there had been no violation on the part of the SEP holder of its obligations under Huawei/ZTE, an injunction should still not issue because it would be disproportionate. Since the SEP holder's only interest is in an award of royalties, damages would be adequate relief.

The UKSC turned to the US Supreme Court's decision in eBay v. MercExchange, where some of the Justices expressed concern that patentees might be using the threat of injunctive relief to extract exorbitant royalty fees. But the UKSC found that no such risk exists in this case, since the claimants in the present case "cannot enforce their rights unless they have offered to license their patents on terms which the court is satisfied are fair, reasonable and non-discriminatory." [para 164].

Furthermore, if damages were awarded in the place of an injunction in standardization cases, it "would not make economic sense for [implementers] to enter voluntarily into FRAND licences" [para 167]. Rather, they would simply wait until the relevant SEPs were enforced against them patent by patent, county by country. The UKSC held that on the contrary, an injunction would force implementers to take a license, which "ex hypothesi" it considered would be FRAND-compliant.

Conclusion

There is a lot to unpack in this decision and this Kat is sure that patent professionals all over the world will take interest in today's decision and comment on it in the weeks, months, years and – who knows – decades to come. For today, however, it is sufficient to note that Birss J's groundbreaking assumption of international FRAND-jurisdiction is here to stay and is now likely to be followed also by other European courts.