SEPs can obtain global FRAND licence and FRAND injunctions in the English Court

Kitchin, Floyd & Asplin LLJ. Unwired Planet International & or v Huawei Technologies Co. Limited [2018] EWCA Civ 2344 (23 Oct 2018)

October 2018

The Court of Appeal has dismissed Huawei’s appeal of Mr Justice Birss’ FRAND Judgment in the long-running Unwired Planet (UP) litigation.   More than one set of FRAND terms was possible but in this case, Mr Justice Birss’ finding that a global FRAND licence was correct.  

The non-discrimination limb of FRAND was not a separately enforceable right nor did it have the effect of creating a “most favoured licensee” provision.  The correct approach was to assess a fair and reasonable benchmark rate for the SEP’s portfolio.  The CoA found that the CJEU’s 2015 Judgment in Huawei v ZTE imposed a positive obligation on SEPs to notify an alleged infringer of the rights said to be infringed and that it was prepared to licence the infringer on FRAND terms before commencing proceedings.  Although UP was in a dominant position, it had not acted abusively in issuing the proceedings.  Furthermore, there was no reason that the Judge ought to have refused an injunction on the basis it was disproportionate or in some other way inequitable.    

Background

In 2014, UP sued Huawei for infringement of a number of Standard Essential Patents (SEPs) in the UK.  Shortly after proceedings had begun, UP made an open offer to Huawei to licence its entire global portfolio of SEPs and non-SEPs.  Huawei undertook from the outset of the proceedings to take a licence under any of the UK SEPs which were found to be valid and infringed.

In the technical trials, Birss J found two of the SEPs to be both valid and essential and on that basis hear a non-technical trial on the FRAND issues.  This Judgment is the appeal of that FRAND decision, which was the first substantive decision of the English Patents Court on FRAND.  In his Judgment and subsequent hearing on the form of Order, Mr Justice Birss had held that only one set of terms could be FRAND and that on the evidence before him, the appropriate licence was a global FRAND licence of UP’s global SEP portfolio.  He determined the appropriate FRAND rate and the terms of the licence, as well as granting a FRAND injunction, which was stayed pending appeal.       

More than one set of FRAND terms possible

Although the Appeal was dismissed, the CoA did find that the Judge had erred in finding that there was only one set of FRAND terms for any given circumstances, describing this approach as too rigid.  In reality a number of sets of terms could all be fair and reasonable in the circumstances.  Where this was the case an SEP owner would satisfy its ETSI obligations if it offered any one of the sets of terms deemed to be FRAND.  In this action, the Judge had been correct to find that only a global licence would be FRAND. 

The non-discrimination limb of FRAND is general

The Judge had been correct to find that Unwired Planet’s licence with Samsung was a comparable one and that the licence transaction with Huawei was equivalent.  This engaged consideration of the non-discrimination limb of the FRAND undertaking.  The Judge had been correct to hold that the “non-discriminatory” aspect of the FRAND obligation was a general and not hard-edged one.  The correct approach was a unitary one where a fair and reasonable benchmark rate was decided and was on offer to all potential licensees seeking the same kind of licence, without reference to their size or other characteristic.  SEP holders could vary rates below that benchmark (as with the Samsung Licence) but this did not engage the ND limb separately to impose a “most favoured licensee” clause that required the SEP holder to offer that lower rate to all others. (Although competition law could be engaged if there was, in fact, discrimination.)  ETSI had considered and rejected the inclusion of a most favoured licensee clause and it would have the effect of potentially delaying development of technical standards if SEP holders were compelled to accept compensation that did not reflect the true value of their portfolio.

UP had not abused its dominant position

On the evidence before him, the Judge had correctly held that UP was in a dominant position.  It was common ground that the relevant market was the market for licensing each SEP, meaning that the SEP owner had 100% of each such market.  This market power was constrained by the FRAND undertaking, which the Judge had held was justiciable and enforceable by third parties, and there was potential for hold-out by the prospective licensee.  UP had not advanced a positive case that it was not in a dominant position and the Judge had made no error of principle in reaching his conclusion that it was dominant.  

In considering whether UP had abused its dominant position, the CoA considered the CJEU’s Judgment in Huawei v ZTE.  The CoA’s firm conclusion was that the Judge was correct that the CJEU had not laid down a set mandatory conditions for an SEP holder, which if not complied with would be a breach of competition law.  Whether a course of conduct was abusive is considered in the context of the actual circumstances of each case.  A refusal to licence on FRAND terms may, in principle, constitute an abuse of dominant position but the CJEU had envisaged a case where the parties were not in agreement as to what terms were FRAND.  In that situation, the SEP owner must comply with conditions which secured a fair balance between the competing interests. 

The SEP holder had a positive obligation to give notice to or consult with the alleged infringer before commencement of proceedings.  Failure to do so would be abusive.  Compliance with that requirement, however, affords the SEP owner with safe harbour protection against a finding of breach of a dominant position if it commences proceedings seeking an injunction.     

There was no other basis upon which the Judge ought to have refused an injunction.  A global licence was FRAND and UP had not engaged in abusive behaviour.  Huawei had infringed two SEPs and UP was entitled to an injunction to restrain further infringement unless Huawei chose to take the licence the Judge had settled.

Conclusion

UP have pursued this series of actions over the course of several years and this is the first time the CoA has considered FRAND principles substantively.  While it is an important Judgment for SEP holders, getting to this stage has taken a significant amount of time and cost millions.  Despite this, the Judgment stakes a claim for the English Patents Court as the jurisdiction of choice for SEP holders to litigate and enforce their global SEP patent portfolio.   

This update was prepared by HGF Partner Rachel Fetches and IP Solicitor Maherunesa Khandaker. If you would like further advice on this or any other matter please contact Rachel or your usual HGF representative, alternatively visit our Contact Page to get in touch with your nearest HGF office.