United States: UK Appellate Court Finds Global License Of SEPS And Non-SEPS As FRAND And Finds That The Framework Under Huawei v. ZTE Provides A Safe Harbor, Rather Than Mandatory Requirements, For SEP Owners Seeking Injunctive Relief

Abstract

A UK appellate court upheld a chancery court's findings that (1) a global license to Huawei for Unwired Planet's SEP and non-SEP portfolio was FRAND; (2) offering a different global rate to Huawei than what was offered to Samsung satisfied the non-discriminatory requirements of Unwired Planet's FRAND obligations; and (3) Unwired Planet did not abuse its dominant position in the market, in part, because compliance with the framework under Huawei v. ZTE was not mandatory, but instead provided a safe harbor for SEP owners seeking injunctive relief.

Background

Unwired Planet's worldwide portfolio included patents declared as essential to the implementation of certain telecommunications standards, such as 2G-GSM, 3G-UMTS, and 4G-LTE, set by the European Telecommunications Standards Institute (ETSI).

Unwired Planet sued Huawei Technologies, Samsung, and Google in the UK's Chancery Division, Patent Court for infringing five of the standard essential patents (SEP). The dispute was divided into a series of trials addressing the validity and essentiality of the SEPs with the final trial concerning whether Unwired Planet's licensing offers were fair, reasonable, and non-discriminatory (FRAND). Before the final trial, Unwired Planet settled with Google and Samsung, resulting in Samsung taking a license for Unwired Planet's global SEP and non-SEP portfolio at a discounted price and leaving Huawei as the only remaining defendant.

Over the course of the proceedings, Unwired Planet made a series of licensing offers:

  • an initial offer to license its worldwide portfolio of SEPs and non-SEPs;
  • a second offer to license only its SEP patents with different rates for devices that met the various technology standards;
  • a third offer to license its worldwide SEP portfolio, its UK SEP portfolio on a per-patent basis, where the global rate was lower than the UK rate; and
  • a fourth offer to license its worldwide SEP portfolio at a lower rate.

Huawei also made a number of licensing proposals:

  • an offer for license on Unwired Planet's UK SEP portfolio only with specific rates for the different technology standards; and
  • a revised offer for the same patents but with higher rates.

The parties were unable to reach an agreement, so the chancery court judge was left to decide whether the licensing terms the parties offered were FRAND, and if not, what terms would be FRAND. The chancery court judge also determined whether Unwired Planet abused its dominant position by not meeting its FRAND obligation and was therefore barred from obtaining injunctive relief.

After a seven-week trial, the chancery court made three determinations:

  • a worldwide license could be FRAND for the type of portfolio held by Unwired Planet;
  • the rates Unwired Planet offered were too high and it was proper for the court to set the appropriate FRAND rates between the parties; and
  • Unwired Planet was in a dominant position in the market, but did not abuse that position.

Huawei appealed each of the three findings to the UK Court of Appeal (Civil Division).

The Unwired Planet Decision

In its opinion, the appellate court set forth the specifics of the FRAND framework under ETSI's policies for intellectual property rights and, for each issue, analyzed decisions from various jurisdictions to determine if the chancery court committed error on any of the grounds for appeal.

Ground 1: Whether a FRAND license can be global in scope?

Huawei argued that it was wrong in principle for the court to require a global license between the parties for the following reasons.

  • A global license would result in the bundling of rights for Unwired Planet's UK and non-UK SEPs, even though the non-UK SEPs would not have been the subject of an action in the UK, which would amount to abuse of a dominant position.
  • A global license would amount to a presumption of infringement of valid SEPs outside of the UK.
  • A global license would not be FRAND because Unwired Planet did not have SEPs in every country and Huawei made a considerable number of sales in countries where Unwired Planet did not hold SEPs.
  • Allowing national courts to impose global licenses would lead to a race between SEP holders and implementers to bring suit in more favorable jurisdictions, resulting in a divided system.

The lower court disagreed with Huawei. In its reasoning, the court found that it was common industry practice and more efficient to have a global license for a global portfolio.  It also found that Unwired Planet's SEP coverage was not very different from that of Huawei's exposure and that Huawei was not so differently situated from Samsung to justify different treatment. The court also rejected a country by country approach in this case and found that, in any one case, a national and a global license cannot both be FRAND.

On appeal, the court found only one point of error with the chancery court: that in any one case, a national and a global license cannot both be FRAND. But the appellate court did not find the error had a material effect on the ultimate conclusion in the chancery court's opinion. 

Regarding the rest of Huawei's arguments, the appellate court accepted without question that a UK SEP was limited in territorial scope, and courts in that jurisdiction would only determine disputes concerning infringement and validity of UK patents and will only grant relief for infringement of UK patents. But the appellate court found that this did not support Huawei's arguments. While FRAND undertakings protect implementers so they can freely use a standardized technology and not be subject to excessive licensing fees, SEP owners also need protection and must be free to engage in constructive FRAND negotiations. In cases like this where SEP owners have large portfolios, FRAND obligations do not justify condemning SEP owners to engage in expensive litigation in every territory in which they seek to recover a royalty. 

The appellate court also found the chancery court judge did not usurp the rights of foreign courts to decide issues of validity or infringement and grant appropriate relief because the chancery court only made a finding as to those issues for UK SEPs.  Moreover, nothing prevented Huawei from challenging the validity or essentiality of Unwired Planet's non-UK SEPs.

After reviewing the relevant cases cited by both Huawei and Unwired Planet, the appellate court ultimately found that the chancery court judge was entitled to find that a global license would satisfy the FRAND requirement in light of all of the circumstances of this case.

Ground 2: Whether the licenses Unwired Planet offered to Huawei were non-discriminatory?

The chancery court found that Samsung and Huawei were similarly situated and the Samsung license was comparable to the offer Unwired Planet provided to Huawei, but did not agree that Unwired Planet acted in a discriminatory manner.

On appeal, Huawei argued that the global royalty rate Unwired Planet offered was not "non-discriminatory," as required under the ETSI intellectual property policy because it was "much higher" than the rate offered to Samsung. Thus, according to Huawei, if the chancery court judge could set a global license, then he should have fixed the royalty rate to be no higher than the rates represented by the Samsung license.

The appellate court began by examining whether the two licenses were comparable. Here, the court noted the importance of focusing on the transactions themselves rather than the circumstances under which the transactions were entered into.  Under this approach, the Huawei and Samsung transactions were comparable because they were for the same portfolio and related to the same acts, despite the different circumstances at issue when the Samsung license was entered into.

Next, the appellate court analyzed whether a hard-edge versus general non-discrimination approach was appropriate. The general approach considers the value of the portfolio being licensed and does not depend on the licenses. The hard-edge approach, however, takes into account the nature of the particular licensee. The chancery court arrived at the general non-discrimination approach, which involved determining a benchmark royalty that would be available to all-comers who are similarly situated.  This approach precludes SEP holders from securing higher rates, but does not prevent SEP holders from granting licenses at lower rates. The appellate court agreed with this approach as the best way to ensure that the benchmark royalty rate was driven by the fair and reasonable rate of the portfolio, while still rewarding the SEP owner for its work in developing the technology.

Ground 3: Whether Unwired Planet had a dominant position and abused it in these proceedings?

Huawei contended that Unwired Planet had a dominant position in the market and abused it by bringing the proceedings prematurely, charging excessive royalty payments, and bundling SEPs and non-SEPs in its offers to license.  The chancery court found that Unwired Planet did have a dominant position but did not agree that it abused it.

The appellate court found no error with the chancery court's findings. Regarding whether or not Unwired Planet had a dominant position, the appellate court explained that:

It is well established that, although the importance of market shares may vary from one market to another, the possession, over a long period, of a very large market share constitutes in itself and save in exceptional circumstances, proof of the existence of a dominant position, and that market shares of more than 50% constitute very large market shares.

As to whether Unwired Planet abused that dominant position, Huawei relied on the framework in which an SEP must comply before seeking injunctive relief set forth in Huawei v. ZTE. The appellate court set forth, in detail, the negotiations between Unwired Planet and Huawei, as well as the Huawei v. ZTE framework and found that Unwired Planet did not abuse its dominant position.

In its reasoning, the appellate court explained that Huawei v. ZTE did not lay down mandatory conditions parties must abide by when seeking injunctive relief such that non-compliance will result in a breach of the Treaty on the Functioning of the European Union (the "TFEU") and finding of abuse.  Instead, the appellate court found that the requirements of Huawei v. ZTE provide a safe harbor, such that if an SEP owner complies with those requirements, the commencement of an action seeking injunctive relief will not, in and of itself, amount to abuse.  On review, the appellate court did not find error with the chancery court's assessment that Unwired Planet's behavior was not an abuse of its dominant position.

Lastly, the appellate court evaluated whether injunctive relief should have been refused in any other bases, and after reviewing the facts of the case, found the answer to be no.   

Strategy and Conclusion

In the standard setting context, at least one court has now found that global licenses that involve both SEPs and non-SEPs may be considered FRAND depending on the circumstances of the particular case at issue. Further, the court found that the Huawei v. ZTE framework does not impose mandatory requirements SEP owners must meet before seeking injunctive relief for SEPs in non-US courts. Instead, the framework provides a safe harbor for SEP owners, such that if the SEP owner complies with the Huawei v. ZTE framework requirements, seeking injunctive relief will not, in and of itself, amount to abuse.  It remains to be seen whether other courts in Europe and the rest of the world will agree with the approach taken in this case.

Further Information 

The Unwired Planet decision can be found here.

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
Events from this Firm
26 Mar 2019, Other, Frankfurt, Germany

Finnegan is a Gold sponsor of the Automotive Legal & IP World Summit, hosted by Encom Global. Finnegan partner Lionel Lavenue will join the panel discussion “Identifying Opportunities to Patent Inventions Arising from Digital and Connected Technologies."

26 Mar 2019, Other, Washington, DC, United States

Finnegan is a Gold sponsor of the Automotive Legal & IP World Summit, hosted by Encom Global.

28 Mar 2019, Conference, New York, United States

Finnegan is an Executive Partner sponsor of the eleventh annual Corporate IP Counsel Forum, hosted by World Congress.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions