UK: Unwired Planet v Huawei: What Are FRAND Licence Terms For Standard Essential Patents?

In this long awaited decision (Unwired Planet v Huawei 2017 EWHC 711 (Pat)), the question of what is a "Fair, Reasonable and Non-Discriminatory" (FRAND) licence to work a Standards Essential Patent (SEP) has been addressed for the first time by a judge in Europe. The English High Court held that it had jurisdiction to determine and enforce the FRAND undertaking in question and, significantly, the Court held that there is only one set of licence terms which are FRAND in a given set of circumstances. In its decision, the Court determined the FRAND royalty rates for a worldwide licence to Unwired's portfolio of SEPs, which in earlier decisions the Court had held were valid, infringed and essential to the GSM (2G), UMTS (3G) and LTE (4G) standards. In doing so, the Court considered the legal effect of the FRAND undertaking and the nature of FRAND as not only characterising the terms of a licence but also the process by which a licence is negotiated. The decision provides useful guidance to both patentees and implementers as to how to deal with the process of FRAND, including using a benchmark rate and comparable licences to determine a FRAND royalty, and competition law concerns.

By way of background, patentees notify the relevant standards body (in this case, the European Telecommunications Standards Institute (ETSI)) of patents they believe are essential to an international telecommunications standard (in this case GSM, UMTS and LTE). In return for registration of a patent on ETSI's SEP database the patentee agrees, in accordance with the ETSI IPR policy, to issue irrevocable licences to the patent on FRAND terms. This obligation is binding on all successors-in-title of the patentee. In this way, ETSI intends to balance the public interest in establishing telecommunications standardisation and the patentee's interest in obtaining a fair reward for their invention. However, ETSI does not examine the essentiality of the patents or define what is FRAND. Therefore, Courts have been called on to rule on essentiality. However, until now, only informal opinions have been available for guidance on what is FRAND in the UK and in Europe more generally. (For example, see Sir Robin Jacob's article FRAND: A legal Analysis, October 2014). Hence the importance of the present decision.

Unwired's business is licensing. Prior to the court proceedings, Huawei, Samsung and Google had each unsuccessfully attempted to negotiate with Unwired to licence the relevant UK patents on FRAND terms. In March 2014, Unwired sued the defendants for infringement. According to Unwired, the defendants' products were compliant with the relevant ETSI standards and therefore infringed Unwired's patents. Unwired sought by way of remedies injunctions, removal from channels of commerce, and delivery up of the allegedly infringing products. In response, the defendants denied infringement and essentiality of the patents and argued that the patents were invalid.

After the commencement of proceedings, Unwired made licence offers to the defendants. The first offer (April 2014) was to license Unwired's full global portfolio comprising both SEPs and non-SEPS, with regard to: cloud and server methods and equipment; mobile devices; and infrastructure. The second offer (July 2014) related only to Unwired's SEPs, and was applicable only to mobile devices and infrastructure. Further offers were made by Unwired during the proceedings, including a worldwide SEP portfolio licence, a UK SEP portfolio licence (pertaining to more patents than only those in suit), and per-patent licences for any of the SEPs in suit. The defendants argued that the offers were not FRAND. Huawei and Samsung also contended that the offers were an abuse of a dominant position in breach of European competition law. There were also points of competition law regarding the terms under which the patents were transferred to Unwired (from Ericsson), bringing into contention Unwired's right to sue.

Due to the number and complexity of the issues, separate "technical trials" were held to consider validity, infringement and essentiality of the respective patents (as referred to above). During the three technical trials (now under appeal; the remaining two postponed indefinitely), two of the patents were found to have valid and essential claims, whereas the other two patents were held invalid. The "non-technical trial" followed, resulting in this decision on FRAND and related issues. (Both Google and Samsung settled with Unwired in relation to the SEPs before the non-technical trial).

The non-technical trial confirmed that the patentee's FRAND undertaking can be determined and enforced in an English court, and held that there is "only one set of licence terms which are FRAND in a given set of circumstances", ie, there will "only be one set of FRAND terms and only one FRAND rate" that will be compliant with the FRAND undertaking (paras 164 and 165).

The legal effect of the FRAND undertaking was emphasised by Birss J's conclusion that:

an implementer who makes an unqualified commitment to take a licence on FRAND terms... cannot be the subject of a final injunction to restrain patent infringement. Whereas an implementer who refuses to take a licence on terms found by the court to be FRAND has chosen to have no licence, and so if they have been found to infringe a valid patent an injunction can be granted against them (para 806(5))

Equally, the Court could use its equitable jurisdiction to refuse to grant an injunction to a patentee that refuses to accept FRAND terms. In this case, Birss J held that neither Unwired (too high) or Huawei (too low) had offered FRAND royalty rates.

The Court held that an appropriate way to determine a FRAND royalty is to determine a benchmark FRAND royalty rate based on the value of the patentee's portfolio. Such benchmark determination is "fair" and further satisfies the "reasonable" and "non-discriminatory" requirement of FRAND, as it depends on "the intrinsic value of the portfolio being licensed... not on the licensee". Smaller entrants to a market are entitled to pay a royalty based on the same benchmark as established large entities (paras 176-177). A further distinct non-discrimination point, a so-called "hard-edged" component to justify the reduction of a royalty rate or adjustment to a licence term that would otherwise be considered FRAND to "take into account the nature of the particular licensee seeking to rely on it" (in this case licensees who are "major players", like Huawei and Samsung) (paras 177 and 481) was considered and rejected.

A further important consideration was the proper geographic scope of any FRAND licence when applied to a multinational like Huawei. The starting point was what a willing licensor, with a patent portfolio of wide geographic scope, and a willing licensee, with more or less global sales, would do. A country-by-country license approach would be "madness". The answer was clear, both parties would agree on the efficiency and economies of scale of a worldwide licence. This did not preclude different royalty rates being agreed for different countries/regions, within reason. The FRAND royalty rates determined by the Court in this case differentiated between China, major markets and other markets (which were the same rates as for China).

In addition to dealing with the nuts and bolts of what constitutes a FRAND agreement, the Court held that a FRAND undertaking is not just a contractual commitment to grant licences on FRAND terms, but also to adopt a FRAND approach to the negotiation of such licences. Likewise, the implementer must take a FRAND approach to the process of negotiating and agreeing the terms of a licence on FRAND terms if it wants to take advantage of the constraint on the patentee's rights imposed by the FRAND undertaking. What constitutes a FRAND approach remains a grey area, but it does not mean that there is no scope for good faith opening offers and counter offers that fall short of FRAND and leave room for further negotiation. What is not a FRAND approach is "making extreme offers and taking an intransigent approach" (para 163) or creating a circumstance in which "it would be too easy for the recipient of an offer to throw up their hands and refuse to negotiate at all" (para 765).

The Court did not agree with Huawei that Unwired's actions, including its approach to the licence negotiations and seeking an injunction from the Court, were an abuse of a dominant position and therefore anti-competitive. For example, although Unwired had not provided its FRAND offer to Huawei before issuing a claim for an injunction, sufficient prior contact had occurred so that the action did not automatically amount to abuse regardless of the circumstances (para 747). However, because Unwired's approach to dealing with Huawei did not comply with all aspects of the scheme set out in Huawei v ZTE, Huawei's conduct from a competition law perspective had to be considered in the light of all the circumstances of the case. The Court also held that in assessing the dominant position of a SEP holder, the practical effect of the FRAND undertaking and the potential for hold out by an implementer are relevant factors and may lead to the conclusion that a SEP holder is not in a dominant position.

The Court held that in the light of its findings that two of Unwired's SEPs were infringed and valid, that Huawei has not accepted a licence on terms found to be FRAND, and there was no breach of competition law by Unwired, a final injunction to restrain infringement of the two SEPs by Huawei should be granted. However, the Court exercised its discretion and a final injunction will be considered at a hearing in a few weeks' time during which time Unwired has undertaken to prepare a detailed global FRAND licence based on the Court's findings and serve this on Huawei. To avoid the injunction, Huawei will need to accept those terms. That FRAND licence includes a term for back royalties to 1 January 2013. If Huawei does not agree to enter into the FRAND licence damages, which are compensatory, will be assessed at the same rate as the benchmarked FRAND royalty rates in the licence (as determined by the Court). In this case, the Court held that this will be on the basis of the major markets rate on UK sales. Unwired had argued that damages should be assessed on the per-patent rate because damages for infringement of a particular patent should not be affected by the discounts available in FRAND licences from taking a licence on several patents at once, but this was rejected by the Court. Unwired also raised the prospect of additional damages pursuant to the Enforcement Directive 2004/48/EC but the Court did not address this and the "interesting questions" which may arise in respect of patent damages pursuant to the Directive in the context of this case.

The English High Court considered an array of fact and expert evidence during the course of this trial that demonstrated, yet again, the ability of UK judges to handle complex patent litigation and provide thorough and reasoned judgments. Unsurprisingly, the judgment in this case is long (running to 166 pages) but the subject matter is well signposted and it will serve as a useful point of reference to parties involved in negotiating a licence to SEPs. It should instil a greater mutual understanding of what terms and conditions are FRAND as well as the need to ensure the process of negotiating the licence is conducted in a FRAND-like manner. We believe that this will facilitate and enhance co-operation and deal-making between companies in the information and communications technologies (ICT) sectors and, ultimately, provide a commercial boost to the industry.

The full Unwired Planet v Huawei decision is available at www.judiciary.gov.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.