25 October 2018
On 23 October 2018, the Court of Appeal in the UK handed down the decision in the Unwired Planet v Huawei telecoms litigation.
It was an appeal against a decision of Mr Justice Birss in the Patents Court (High Court) in which he had to decide if the terms for licensing patents essential to telecoms standards offered by each side were fair, reasonable and non-discriminatory (“FRAND”) and, if not, to decide the terms that would be FRAND and further to decide if Huawei had a competition law defence.
Mr Justice Birss’ findings which were appealed were: i) that the only licence basis that would be FRAND between the parties was a global licence and not a UK licence (such as offered by Huawei), ii) that Unwired Planet (“UP”) was not discriminating against Huawei by failing to offer it the lower licence fees that were charged to Samsung, and iii) that, although UP was in a dominant position in the relevant market, it had not abused its position by proceeding as it did in the litigation and so Huawei had no defence to an injunction.
The Court of Appeal considered that Huawei had confused and elided two separate but related matters. Namely, the scope of patent infringement proceedings and the undertaking given by UP to the European telecoms standards setting organisation (ETSI) to offer to license its standards essential patents on FRAND terms.
The Court had not made any ruling on validity or essentiality of patents which were not in the relevant jurisdiction. The Court’s jurisdiction to determine a global licence arose because of the nature of the undertaking given to ETSI which concerned patents with no restriction as to their territories (determined by reference to French law).
The only question was whether the offer of a global licence by UP was capable of meeting UP’s obligations to ETSI under its undertaking; that is, whether it was FRAND or not. The Court of Appeal held it was within the Court’s jurisdiction to decide this and agreed with Mr Justice Birss that a global licence would, in the circumstances, be FRAND.
However, interestingly, the Court of Appeal held that Mr Justice Birss was wrong (and it was “unreal”) to conclude that there could only be one set of FRAND rates for a given set of circumstances. It would be possible for there to be, for example, a national and a global licence which were both FRAND and the standards essential patent owner would comply with its obligations by offering either one.
The Court of Appeal also agreed with the trial judge that there had been no discrimination by UP and that licensors were free to grant lower-priced licences without it ‘levelling-down’ the royalty to the point where it no longer represented a fair return for the portfolio.
It further recalled the CJEU position (in Huawei v ZTE) that a refusal to grant licences on FRAND terms may, in principle, amount to an abuse of a dominant position, but found that Mr Justice Birss had interpreted the CJEU judgment correctly in finding that the CJEU was not laying down a number of mandatory conditions for pre-litigation procedures such that non-compliance would be a breach of competition law. Nevertheless, the Court of Appeal agreed that there is one such mandatory requirement which is to notify the alleged infringer before commencing proceedings for an injunction, although the nature and content of the notice will depend on the circumstances.
The Court of Appeal recognised that it might be the case that the approaches of courts around the world used to assess global licence royalties are not at present wholly aligned, but added that this was not surprising given that this was a jurisdiction which was in the process of developing. Huawei envisaged that there would be a race between the patentee and the implementer to choose the most favourable jurisdiction with associated anti-suit injunctions, but the Court of Appeal did not think that this would cause any problems with which commercial courts around the world were not already familiar.
The Court of Appeal also recognised that it was desirable that an internationally accepted approach to determining discrimination should ultimately emerge. However, given the few other cases that exist elsewhere, it would be wrong for the Court of Appeal to look to harmonise on a first-to-decide basis.
Given that the matter of the ETSI undertaking is governed by French law, it will be particularly interesting for the French Courts to rule on this issue as this may have wider effects.