Today's long-awaited UK Supreme Court decision
in Unwired Planet v Huawei (linked here) confirms that, in disputes
concerning infringement of UK Standard Essential Patents (SEPs),
the UK courts will continue to have the ability to determine FRAND
licences that apply worldwide. Those involved in FRAND
disputes have been working on this basis since the initial first
instance decision in 2017. Now that the Supreme Court (the
highest appellate court in the UK) has agreed, this position is
cemented in UK law for the foreseeable future.
This decision has significant implications for the telecoms industry, where FRAND licensing is used widely to ensure standardised mobile services across the industry, and to ensure that intellectual property rights owners are fairly compensated for the use of their IP.
Why can the UK courts assess global FRAND licences?
Many eyes have been on this case since the 2017 first instance decision where the High Court introduced the prospect of global FRAND licence determination, where the UK courts (wielding the threat of an injunction for UK-based infringements) determine the licence terms that should apply to a global patent portfolio regardless of the country of origin of the underlying patents. Since that decision, the UK courts have become the forum of choice for anyone seeking a one-stop shop to resolve FRAND licence disputes (mainly SEP holders).
On the other side, many implementers do not like the prospect of facing UK litigation simply because of the convenience factor for SEP holders – especially where their UK markets may be comparatively small and any UK-determined FRAND licence would cover activities in their other markets. The UK's position has also drawn criticism from the judiciary in various jurisdictions where determination of global FRAND licences is not freely available. They see this as an overstepping of the mark with the UK courts seeking to decide on issues which relate to foreign patent rights.
However, the Supreme Court has agreed with the lower courts in viewing the issue of FRAND licence determination as being completely separate to infringement/validity of SEPs. Issues of infringement and validity of at least one UK SEP must exist for UK proceedings to be brought in the first place. Once this is established, the UK courts are willing to consider the terms of the FRAND licence which would apply to the SEP holder's global portfolio.
Where an implementer does not want to accept the licence terms set by the UK courts, they are free to ignore them, accept the UK injunction and stop their activities in the UK that have been found to infringe those UK SEPs. The UK courts are not seeking to enforce any consequences in other jurisdictions where the global FRAND licence might not accepted by the implementer.
Other points arising from the decision
The Supreme Court decision makes other findings, which, whilst not as significant, will still prove important in how future FRAND licences are determined. SEP holders do not have to offer the same licence terms (including royalty rates) to different licensees who have similar circumstances – other factors will be relevant in the final licence determination for each licensee. Also, a SEP holder has not necessarily abused its dominant position (which, if it had, would deprive it of obtaining a UK injunction) if it fails to follow the well-established Huawei v ZTE protocol for initial FRAND-licence negotiations with an implementer. Instead, the protocol acts as a "safe harbour" such that a SEP holder who follows it has not abused its position. Ultimately, the question of abuse will be answered by considering whether the SEP holder has shown itself to be a "willing licensor" in all the circumstances.
This decision also covered one point from separate joined proceedings (Conversant Wireless Licensing v Huawei & ZTE) regarding whether the UK courts were the proper forum to decide a global FRAND licence where the UK market (relevant to the UK SEPs) represented a very small proportion (0.7%-1%) of the implementers' worldwide sales and, therefore, the SEP holder's claim. Furthermore, SEP proceedings were ongoing in a larger market (in this case, China). The Supreme Court confirmed that the UK courts could still hear the proceedings and determine the relevant global FRAND licence.
Commenting on the judgement, Dafydd Bevan, Head of the High Tech group at Marks & Clerk Law, said:
"The overall feeling between SEP holders and implementers will remain that the UK courts are now pro-SEP holder. We can expect to see of the UK continue its central role in worldwide SEP litigation, even where the UK connection appears comparatively weaker than elsewhere."
On the challenge faced by the Supreme Court (and the lower courts) in arriving at this decision, Dafydd said:
"Courts need to be able to resolve the disputes before them and, with this complex issue, there will always be some criticism with whatever approach the Court has adopted. If the Supreme Court had decided that it could not determine global FRAND licence terms, SEP holders would face the prospect of costly and lengthy litigation in every jurisdiction to decide FRAND terms on a country-by-country basis. This might encourage some implementers to "hold out" during negotiations for a FRAND licence while a SEP holder receives nothing without an unfeasible legal outlay. Standards could suffer while contributors think twice about sharing their lucrative technologies to avoid this problem.
"The UK courts will now determine global FRAND terms knowing that an implementer can still reduce the value of the licence by removing questionable patents through invalidity proceedings in the relevant jurisdictions."
"It is not all bad news for implementers though and there may still be opportunities to avoid the UK courts' reach, depending upon the circumstances of a given case, in particular whether litigation elsewhere exists and how swiftly an implementer acts in response to a UK claim."
Dafydd also notes that, even where UK proceedings continue, implementers should not lose heart.
"The UK courts have a reputation for careful scrutiny of patents, with many judges and legal representatives having technical backgrounds, and a strong reliance on technical experts in assessing infringement and validity issues. Put bluntly, weak patents rarely survive in the UK and the UK courts will not decide on FRAND licence issues where the UK SEPs have all been knocked out of the proceedings."
While UK FRAND litigation may thrive, John de Rohan-Truba is concerned about the potential knock-on effects for UK consumer choice.
"Many implementers with small UK markets or market-entry plans may opt to abandon or avoid the UK market for fear of providing the anchor needed for a UK SEP trial with global FRAND licence determination.
"Ultimately, consumers may find a much-reduced range of products on sale compared with other countries – this would be especially disappointing when considering the potential technologies which could become prevalent with 5G."
John also warns that previously-active implementers should think very carefully before accepting a UK SEP injunction in an effort to avoid the UK courts' involvement:
"These implementers should consider exactly what they are trying to achieve and whether this approach will work in their particular circumstances. Previous decisions show that, while an implementer might think that abandoning the UK market can completely remove the need for UK proceedings, this is not always true.
"Where substantial sales have already taken place, one issue to be decided in a SEP infringement claim will be the payment of damages for past infringement. These damages will need to be determined and the UK courts may choose to refer to a hypothetical global FRAND licence for this purpose – ultimately a UK FRAND trial may take place to determine this and the implementer will be expected to participate.
"There is also a risk that a SEP holder tries to use the implementer's refusal to engage in UK proceedings against them, painting them as an "unwilling licensee" in proceedings in other jurisdictions."
Dafydd and John agree that this decision brings a welcome degree of certainty to how FRAND licensing issues will be determined before the UK courts. While they note that the approach is not perfect, a blanket decision to never consider global terms (when the reality is that licences between the relevant entities are decided on a global basis) would be more unsavoury.
The Supreme Court's approach shows that it is willing to apply a real-world view to how the parties to these various disputes normally negotiate and, with the court offering this remedy in future, we may end up seeing more-concerted efforts during negotiations. This could actually lead to fewer disputes before any court (either in the UK or elsewhere) which can only be good for the parties involved.
Beyond issues with the approach taken by the courts, a bigger issue which should be tackled is the lack of scrutiny applied during the SEP declaration process. It is commonly known that over-declaration practices exist among many SEP holders. If a patent holder had to explain the relevance of a SEP to its standard at the time of declaration, over-declarations would become very difficult. In this scenario, implementers would also have a formal record of SEP relevance so that they could make informed decisions during licence negotiations. If such reforms took place at this level of the process, the UK courts' global FRAND licence determination powers would probably not be needed at all.
Today's Supreme Court judgement has wide-ranging implications for the tech and telecoms sector here in the UK and further afield.
Join experts from Marks & Clerk as they examine the judgement, ask how it was reached and what it will mean for the telecoms sector, FRAND licences and international litigation. In due course we will also be coordinating with international partners and representatives of key industries to provide an international perspective on this crucial judgement.
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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.