English courts may set the terms for global FRAND licences to portfolios of declared standard essential patents.
On 26 August, the Supreme Court of the United Kingdom (UKSC) gave judgment in Unwired Planet v Huawei and Conversant Wireless Licensing v Huawei & ZTE  UKSC 37. The judgment confirms that English courts may set the terms for global FRAND licences to portfolios of declared standard essential patents.
The Unwired case involved the first full judicial determination of the terms of a FRAND portfolio licence with global scope. In Conversant, the defendants challenged the jurisdiction of the English courts to undertake such an exercise. Both cases were appealed, to the Court of Appeal, and then to the UKSC.1
Having first set out the legal and policy background to the disputes, and the commercial importance of the issues raised, the UKSC considered five key questions:
- Does the English court have the jurisdiction to, and can it properly (without the parties' agreement):
- grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio;
- determine the rates and other terms for such a licence; and
- declare that such rates and other terms are FRAND?
2. If "yes", is England the proper forum in the circumstances of the Conversant proceedings?
3. What is the meaning and effect of the 'ND' component of 'FRAND': does it mean that materially the same licence terms as offered to Samsung should have been offered to Huawei in the Unwired case?
4. In which circumstances does an SEP owner's conduct in seeking injunctive relief necessarily infringe Article 102 following the judgment of the Court of Justice of the European Union (CJEU) in Huawei v ZTE?
5. How should English courts exercise their equitable discretion over injunctive relief in SEP cases?
A copy of the full judgment may be found here. In summary, the UKSC dismissed both appeals, affirming the original High Court and Court of Appeal decisions. It did so on a unanimous basis with a strong focus on policy issues.
Jurisdiction: Can the Court set the terms of a global, or multinational, FRAND licence?
Yes: The UKSC held that under ETSI's IPR Policy the court has jurisdiction to determine a global FRAND licence  even without the consent of the parties involved . It noted that it is common industry practice for parties to agree global licences  and echoed the lower courts' view that ETSI's IPR Policy is intended to have international effect . In the UKSC's view, when setting licence terms Courts are "look[ing] to the commercial practice in the industry of agreeing to take a licence of a portfolio of patents [.] and constru[ing] the IPR Policy as promoting that behaviour" .
The UKSC considered the jurisprudence of other jurisdictions and held that the English court's approach was not out of line with the approach of courts in other significant jurisdictions . It noted Birss J's observation that Huawei was before the court without a licence in circumstances when it had the means of obtaining one. Subject to the question of appropriate forum, it concluded that the court in fact had no basis for declining jurisdiction .
In reaching this conclusion, the UKSC made a number of interesting observations: in its view, FRAND extends to the fairness of the process by which parties negotiate a licence; and that it might be fair to include in a licence the right for the licensee to require adjustments to royalty rates to reflect the outcome of challenges to the validity or infringement of patents. It observed that in the circumstances of the Conversant case it "might well be argued by Huawei or ZTE at trial that the obligation of fairness and reasonableness required any global licence . to include provision for Huawei and ZTE to seek to test." Conversant's China patents, with the potential for consequential adjustment of royalty rates. However, the UKSC also suggested that in other cases such reservations might make little sense unless they were likely significantly to alter the royalty burden on the implementer .
Forum: Should the Court hear these FRAND licence disputes (is it the appropriate forum)?
Yes: A key issue in the lower courts had been whether the dispute should be characterised as: (a) a dispute about the terms of a global FRAND licence; or (b) a case about the validity and infringement of English patents, with FRAND issues arising only as a contractual defence . The UKSC held it was not strictly necessary for it to decide the point2 as the forum non conveniens challenge failed "at the first hurdle" . The evidence had not shown that the Chinese courts would have jurisdiction to set the terms of a global FRAND licence. The English courts do have such jurisdiction and, as no alternative forum was available, the court was right to have exercised it .
As it was not necessary to do so, the UKSC did not consider other jurisdictional issues such as the Owusu principle3 and the application of Article 24 of the Brussels 1 Regulation,4 or the UKSC's own recent decision in Lungowe v Vedanta Resources . If it becomes clear that another court will adopt the same approach to global FRAND as the English courts have done, meaning that an alternative forum becomes available, a future jurisdiction challenge may well return to the UKSC on these issues.
What is the meaning of FRAND? How will the English courts interpret the 'ND' limb of FRAND?
Conservatively: The UKSC upheld the findings of the lower courts that the non-discrimination element of FRAND under the ETSI contract was 'general' in nature rather than 'hard-edged' . That is, a SEP holder has to offer a royalty rate reflecting the value of the SEPs being licensed, and that rate does not cease to be FRAND simply because the SEP holder has previously granted a licence on more favourable terms. It followed that Unwired Planet did not have to offer the same royalty rates to Huawei as it had given to Samsung in a 2016 licence.
In rejecting the concept of 'hard-edged' non-discrimination, the UKSC noted that ETSI had previously considered and rejected the inclusion of a 'most favourable licence' obligation as part of the FRAND undertaking . It also noted that differential pricing is common in practice and can be economically rational and that any anti-competitive effects arising from differential pricing would be a matter for competition law rather than FRAND . In reaching its conclusion the UKSC noted that "fair, reasonable and non-discriminatory" is a unitary concept .
CJEU Huawei v ZTE decision: When does Article 102 require specific conduct around injunctive relief?
Rarely: The UKSC agreed with the lower courts that the ETSI IPR policy seeks to achieve a fair balance between the interests of SEP owners and implementers . The possibility for a national court to grant an injunction is a necessary component of this balance, as it ensures that an implementer has a strong incentive to negotiate and accept FRAND terms for the use of an SEP portfolio .
The UKSC upheld the lower courts' interpretation of the CJEU's Judgment, agreeing that the only mandatory condition in the Huawei v ZTE framework is the requirement for the SEP holder to notify or consult with the alleged infringer before bringing a claim for an injunction [146,149]. The nature of the notice / consultation required depends on the circumstances of the case  but there was no requirement, for example, in the Unwired case for the terms ultimately approved by the Court to have been provided pre litigation . The remaining steps in the framework are not a "mandatory protocol" but compliance gives the SEP holder a "safe harbour" against a finding of abuse of dominance under Article 102 TFEU. As the UKSC agreed with Birss J's interpretation of the Huawei v ZTE framework, it did not interfere with his finding that Unwired Planet had not acted abusively in bringing its claim for injunctive relief against Huawei .
Injunctions for SEPs: Is the equitable jurisdiction to award injunctions prohibited by the nature of SEPs?
No: The UKSC also dealt with a fifth issue not considered in the lower courts: whether, given the equitable nature of injunctive relief, it might be inappropriate or disproportionate to grant an injunction for the infringement of an SEP because claimants are interested only in obtaining reasonable royalties, which could be satisfied by damages . The UKSC held that damages in lieu would not be an adequate substitute for an injunction because this would give implementers an incentive to hold out country-by-country until compelled to pay damages in each country .
We will be considering the implications for all of those involved in SEP licensing in more detail over the days and weeks to come. However, a number of key points are immediately apparent:
- The judgment reflects on the commercial uncertainty caused by the requirements of standardised global mobile communications and the national nature of patent enforcement. It has clear policy underpinnings.
- Where no forum for dispute resolution has been chosen by ETSI members, English courts are willing and able to determine global FRAND licences for a multinational SEP portfolio.
- The courts' jurisdiction is based upon the ETSI IPR Policy and other national courts may also now accept jurisdiction. This gives rise to the potential for future races to file first in a favourable jurisdiction.
- As no other court has yet taken the same approach, the UKSC did not consider most of the arguments on appropriate forum; these will surely be fought over in future cases.
- FRAND applies to process as well as outcomes.
- The strength of the portfolio in key jurisdictions where the licensee has most sales or manufactures may be an important factor in determining final royalty rates.
- The Court's focus on the fairness of the negotiation process and the possibility for implementers to reserve the right to royalty adjustments may affect licence negotiations.
- It is possible to offer bespoke licences at lower rates where economically rational and commercially important, e.g. for a first mover advantage.
- As the UKSC indicated that the English courts will set a rate for a portfolio rather than individual licensees, claims against multiple defendants may become less common.
Annex - History of the proceedings
In Unwired, proceedings were brought by Unwired Planet (UP) in 2014 against Huawei, Samsung and Google. UP alleged infringement of five patents declared essential to ETSI standards (SEPs), which it had acquired from Ericsson. After a number of patent trials, and with Samsung and Google both having reached settlements, the High Court held a trial of the FRAND issues as between UP and Huawei. Mr Justice Birss handed down his judgment containing the first full FRAND assessment in Europe on 5 April 2017. Notably, he found that the only licence that UP was required to offer was a global licence. A report can be found here.
Huawei appealed to the Court of Appeal, which handed down its judgment on 23 October 2018. The Court of Appeal upheld Mr Justice Birss' judgment, with the only significant point of disagreement being the Court of Appeal's finding that the FRAND rate for a portfolio may be a range. This overturned the finding of Mr Justice Birss that there was only one true set of FRAND terms for any given set of circumstances. A report can be found here. Huawei appealed again to the Supreme Court.
In Conversant, proceedings were brought by Conversant Wireless Licensing (Conversant) in 2017 against Huawei and ZTE. Conversant alleged infringement of four SEPs, which it had acquired from Nokia. Conversant also claimed declarations that the licensing offers it had made to Huawei and ZTE were FRAND or, in the alternative, a declaration as to what licensing terms would be FRAND.
In response, Huawei and ZTE both issued applications challenging the jurisdiction of the Courts of England & Wales. The applications alleged inter alia that the English Courts could not, or in the alternative should not, exercise jurisdiction over Conversant's claim(s). Mr Justice Henry Carr handed down his judgment on 16 April 2018, determining that the action was properly characterised as a patent infringement claim and that consequently the English Courts should exercise jurisdiction over it.
Huawei and ZTE appealed5 to the Court of Appeal, which handed down its judgment on 30 January 2019. The Court of Appeal upheld Mr Justice Henry Carr's judgment. A report can be found here. Huawei and ZTE appealed again to the Supreme Court, with the appeal being listed to be heard together with the appeal in Unwired.
1 The Annex contains a history of the procedure in both cases.
2 However, the Court noted that it preferred the second characterisation of the case.
3 Whether Huawei's and ZTE's UK subsidiaries had to be sued in the UK (and whether or not they could then serve as anchor defendants for the claims against Huawei China and ZTE China).
4 Article 24 of the Brussels 1 Regulation provides that, in specific circumstances, courts will have exclusive jurisdiction regardless of the domicile of the parties and any agreement by the parties to the contrary.
5 For completeness, Huawei and ZTE were successful in challenging the validity of the service of proceedings on the Chinese entities; the order relating to this aspect of the decision was not appealed.