The UK Supreme Court has handed down its long-awaited judgment in Unwired Planet. Its decision has profound implications for patent owners and implementers alike and is likely to lead to heavily contested jurisdictional disputes going forward.
These joined appeals concern Standard Essential Patents, or “SEPs”: a patent which the owner has declared to be essential to the implementation of certain telecommunications standards, such as 3G. In practical terms such a patent, if essential as declared and if it is valid, is necessarily infringed by technology implementing the relevant standard, notably mobile phones. The appellants, Huawei and ZTE, manufacture smartphones and other telecommunications equipment, and implement such technical standards. They were defendants in two sets of patent infringement proceedings. The patent owners, Unwired Planet and Conversant, each had a multinational portfolio said to include SEPs in the UK and elsewhere. They had declared SEPs essential to practising technical standards set by the European Telecommunications Standards Institute (“ETSI”), and given an undertaking to ETSI that they were willing to license SEPs to implementers on “FRAND” terms: Fair, Reasonable and Non-Discriminatory.
The Supreme Court decided as follows:
- Jurisdiction: The English courts have the power to declare that, as the price for avoiding an injunction restraining infringement of a UK SEP, the implementer has to enter into a global licence; and can determine the rates and terms of such a licence and declare them to be FRAND. (§49-91). The contract created by the ETSI policy confers this jurisdiction: it envisages that national courts will assess whether the terms of an offer are FRAND, looking at ‘real world’ commercial practice. (§58, 62). The Court was also not persuaded that damages, rather than an injunction, were the appropriate remedy (§163-169).
- Forum non conveniens: in the Conversant claim, the implementers contended that England is not the appropriate forum for this dispute. The Supreme Court upheld the lower court’s rejection of China as a suitable alternative forum as, on the evidence, Chinese courts cannot currently determine terms of a global licence unless the parties agree. (§96-97).
- Discrimination: Unwired did not discriminate against Huawei by failing to offer the same worldwide royalty rates that it had previously agreed with Samsung. The non-discriminatory limb of FRAND means that a single royalty price list should be available to all market participants based on the portfolio’s market value. (§112-114).
- Competition law: Huawei had not abused a dominant position contrary to Article 102 TFEU and to the CJEU’s decision in Case C-170/13 Huawei v ZTE. Seeking a prohibitory injunction without notice will infringe Article 102 TFEU, but what is required by way of ‘notice’ is fact sensitive. Unwired had not acted abusively: it had shown that it was willing to grant Huawei a licence on whatever terms that the court deemed FRAND. (§150-158)
First, it is now clear that the UK courts have jurisdiction to rule on the terms of global licences. This could lead to a “race to sue”: implementers may opt to commence declaratory proceedings in their preferred jurisdiction (such as China) as soon as licence negotiations start to break down, so as to prevent the English court being seised of the entire portfolio if the SEP owner sues in this jurisdiction. This “race to sue” effect is compounded by the Court’s decision on Issue (4), i.e. its interpretation of the CJEU’s Huawei v ZTE. The factors therein are guidance, not “mandatory requirements” or “prescriptive rules” (§151-152; 158), and Unwired did not need to propose a licence on the specific terms which the English court later determined were FRAND. (§158) This may reduce the consultation carried out by patent owners in future, before choosing to sue an implementer in the UK.
Moreover, now that the UK and German courts (§75-78) have empowered themselves to settle the terms of global licences, other jurisdictions may well follow suit: notably, China and the USA. We should expect to see some hotly contested jurisdiction disputes in the next few years, centred on:
- Forum non conveniens: The ratio of the Supreme Court’s decision on this point was narrow, focussing on the current practice of the Chinese courts. However, the Court also indicated, in obiter dicta, its agreement with the lower courts’ characterisation of the dispute (§95-96); namely, that global FRAND determination only arises as an issue in the context of relief for UK patent infringement and that it is up to the patent owner which national patents to assert. It is unclear whether the High Court will in future characterise the UK as the appropriate forum for pursuit of UK patent claims involving global licence disputes. The Supreme Court’s reference to “further issues” that could have arisen if China had been an available alternative forum (§98) leaves open the possibility of implementers resurrecting arguments as to the suitable forum.
- Case management stays: Where there are American or Chinese FRAND proceedings underway, there may be strong arguments to stay UK proceedings. The English courts will no doubt closely scrutinise the comity and propriety of litigating the FRAND assessment here; thereby imposing global terms on multinational companies like Samsung, Huawei and ZTE. The UK generally accounts for only a tiny proportion of relevant sales of such entities: in the Conversant proceedings, Huawei claimed that the Chinese market accounted for 56% of its worldwide sales on which Conversant made claims. The UK market by contrast comprised 1% of relevant sales. As to ZTE, 0.07% of its turnover came from the UK and 60% of its operating revenue came from China. Both entities manufacture in China. (§37).
Secondly, the Supreme Court’s decision on non-discrimination is potentially highly important, in practical terms. The Court twice referred to a single royalty “price list” available to all licensees irrespective of their individual characteristics. (§114) This raises the prospect that going to court could present risks for SEP owners; on the Supreme Court’s approach, once the court has set a fair and reasonable global rate, it appears that the patent owner will then have to offer that rate to all putative licensees.
Thirdly, like the lower courts, the Supreme Court drew succour from the prospect of global “FRAND” licences including a clause which reduces the rate payable if foreign patents are later found to be invalid or inessential. The ‘adjustment’ clause imposed by Birss J in the Unwired proceedings had problems, however ( EWHC 2988 (Pat), §582-592): it only applied to “major markets” and did not provide any adjustment to royalties payable if there was a successful challenge to Unwired’s Chinese patents (§47, 65). Inevitably, the Supreme Court’s decision means that there will be much focus, in negotiating the terms of a global FRAND licence, on the drafting of these ‘adjustment’ clauses.
The Supreme Court’s decision has settled the law definitively on the power of the English courts to determine the terms of global FRAND licences for SEPs. However, it leaves important practical implications unresolved. The judgment, while providing clarity on the jurisdictional aspect, is unlikely to be the last word on questions of comity and the proper role of foreign courts; the dictates of non-discrimination; or the drafting and interpretation of ‘adjustment’ clauses, and how they will operate in practice. Moreover, other national courts may well start asserting jurisdiction over these disputes, particularly in countries which account for a far greater proportion of relevant sales than the UK market. The questions posed by this article are therefore likely to play out before the English courts in coming years.