October 31, 2018
As Lord Justice Kitchin said, this appeal raised a number of important points of principle concerning the obligations of the owner of a standard essential patent (SEP) protecting a technology essential to the implementation of one or more of the telecommunications standards, such as 3G and 4G.
The claimant, Unwired Planet International Ltd, issued proceedings against the defendant, Huawei Technologies Co Ltd, for infringement of five SEPs that it owned, which were part of a worldwide patent portfolio. UP contended that the five SEPs had been infringed and were essential, and that Huawei, having refused to take a fair, reasonable and non-discriminatory (FRAND) licence, should be restrained from further infringement.
Huawei contended that the SEPs were neither essential nor valid. It also raised defences and counterclaims alleging breaches of competition law based on the contention that UP had not offered to license the patents on FRAND terms.
Following a series of technical trials before Mr Justice Birss, two of the SEPs were found to be both valid and essential. Birss J also found that Huawei had infringed them.
Birss J then considered the licensing offers made by the parties to each other and whether they were FRAND. Essentially, UP had made various offers of a global licence and Huawei had offered to enter into a UK only licence. He also considered whether UP had abused its dominant position and was therefore barred from claiming injunctive relief.
Birss J found that:
- i) willing and reasonable parties would agree on a global licence, and such a licence was the FRAND licence for a portfolio such as that held by UP and for an implementer such as Huawei. UP was therefore entitled to insist on it. It followed that the UK licence offered by Huawei was not FRAND;
- ii) the rates sought by UP were too high and it was appropriate for the court to set the appropriate global FRAND rates between the parties; and
- iii) UP was in a dominant position in the relevant market, but had not abused that dominant position by pursuing the proceedings in the way that it did.
Birss J also determined the terms and appropriate FRAND rates for a global licence and granted a UK injunction against Huawei until such time as it entered into such a global agreement. However, he stayed the injunction pending appeal.
Huawei appealed on three grounds:
- i) far from being FRAND, the imposition of a global licence on terms set by a national court based on a national finding of infringement was wrong in principle and led to results that were manifestly unjust; it was inappropriate for a UK court to set rates and impose a licence that extended beyond the UK;
- ii) Huawei ought to have been offered the same rates as those reflected in a previously agreed licence with Samsung because the non-discrimination limb of FRAND prohibited a SEP owner from charging similarly situated licensees substantially different royalty rates for the same SEPs; and
- iii) pursuant to Case C-170/13 Huawei v ZTE  Bus LR 1261, the owner of a SEP could not, without infringing Article 102 of the Treaty on the Functioning of the European Union (TFEU), seek an injunction against an alleged infringer.
Huawei argued that Birss J was wrong to determine the terms of a worldwide patent licence, since the English courts do not adjudicate on foreign patent rights.
Kitchin LJ said that this argument confused and elided two separate, but related matters: first, the scope of these proceedings for patent infringement, and secondly, the scope and effect of the undertaking UP had given to the standard setting organisation, the European Telecommunications Standards Institute (“ETSI”).
The only patent rights in issue were the SEPs that UP owned in the UK. Birss J had found that two of those SEPs were valid and essential and that Huawei’s activities in this jurisdiction infringed them. He made no finding as to the validity or essentiality of any SEP in any other jurisdiction.
However, Birss J had recognised that the undertaking that UP had given to ETSI had international effect. This was because the standards supported by the ETSI undertaking were themselves of international effect so that businesses could make and supply, and members of the public could use, products that complied with the standard all over the world.
Birss J had been entitled to decide that UP’s undertaking to ETSI was enforceable by an implementer and that UP was obliged to grant a licence on FRAND terms. Birss J had then simply determined the FRAND terms of the licence that UP was required to offer to Huawei. To ensure UP met its obligations to ETSI, he had decided that such licence should be global. In doing so, Birss J had not adjudicated on infringement or validity of any foreign SEPs. Nor had he decided what the appropriate relief for infringement of any foreign SEPs might be. It was then a matter for Huawei whether it was prepared to take that licence. It could not be compelled to do so, and if it chose not to, the only relief to which UP would be entitled in this jurisdiction would be relief for infringement of the two UK SEPs the judge had found to be valid and essential.
Kitchin LJ also rejected the argument that a global licence wrongly assumed validity and infringement of UP’s foreign SEPs or that a licensee could no longer challenge the validity and essentiality of those SEPs. To the contrary, Birss J had, in fact, stated that a FRAND licence should not prevent a licensee from challenging the validity and essentiality of licensed patents and should make provision for sales in non-patent countries.
Huawei also said that the judge’s global approach ignored commercial and legal realities and that, for this reason, he should have adopted a national approach to licensing.
In Kitchin LJ’s view, Birss J had been fully alive to the commercial and legal realities and had taken them into account in an entirely appropriate manner. Kitchin LJ agreed with Birss J’s finding that country-by-country licensing would be “madness” and something that “no rational business would do if it could be avoided.” Kitchin LJ said that if Birss J had taken a national approach and found that only a country-by-country approach to licensing was FRAND, UP would then face not just the needless expense of negotiating and managing licences on a country-by-country basis, but also the problem of dealing with a potential licensee who was “holding-out” and refusing to engage in a reasonable way with the negotiation process. UP would then have to bring proceedings country by country.
Kitchin LJ did, however, agree with Huawei that Birss J had been wrong to find that, as between two undertakings, only one set of terms could be FRAND. In Kitchin LJ’s view, it was unreal to suggest that two parties, acting fairly and reasonably, would necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. To the contrary, the reality was that a number of sets of terms might all be fair and reasonable in a given set of circumstances.
However, Kitchin LJ said, this was more of a theoretical problem than a real one. If a tribunal were to find that two different sets of terms were each FRAND, then the SEP owner would satisfy its obligation to ETSI by offering either one of them to the implementer.
Kitchin LJ concluded that the judge had not erred in deciding that, in the circumstances of this case, only a global licence would be FRAND.
Non-discrimination under UP’s FRAND undertaking to ETSI
Huawei said that the licence offered to them was not on non-discriminatory terms and conditions, because the global royalty rate offered to Huawei was much higher than that contained in the global Samsung licence that UP had previously offered. Huawei said that Birss J should have fixed a royalty rate no higher than the range of royalties under the Samsung licence. An obligation to license upon non-discriminatory terms and conditions meant that the SEP owner had to grant the same or similar terms to all similarly situated licensees, it said.
UP said that the Samsung and Huawei licences were not sufficiently equivalent or comparable transactions to engage the non-discrimination obligation at all. Further, UP said that the non-discriminatory limb was an integral part of the determination of the FRAND terms, which included a benchmark royalty rate set by reference to the true value of the SEPs being licensed.
Kitchin LJ said that, in deciding whether two transactions were equivalent, it was important to focus on the transactions themselves and disentangle their equivalence from their differences in the circumstances in which the transactions were entered into. The judge had been right, Kitchin LJ said, to find the licences to Samsung and to Huawei as equivalent transactions on that basis. He therefore disagreed with UP that the non-discrimination limb of the FRAND undertaking was not engaged.
Kitchin LJ held that the ETSI undertaking should be construed so as to strike a proper balance between a fair return to the SEP owner and universal access to the technology without threat of injunction. He considered that Huawei’s approach was excessively strict and failed to achieve that balance, whereas UP’s “benchmark” approach achieved the objective of the undertaking by making the technology accessible to all licensees at a fair price.
Kitchin LJ concluded that the judge was right to hold that the licence offered to Huawei was on non-discriminatory terms.
Abuse of dominant position
Huawei argued that the judge had been wrong to reject its assertion that UP had breached its dominant position by bringing the proceedings prematurely.
Kitchin LJ held that the CJEU had not, in Huawei v ZTE, set out specific mandatory conditions that had to be satisfied before proceedings seeking injunctive relief could be issued, so that non-compliance necessarily rendered the commencement of proceedings for an injunction an abuse of a dominant position. In Kitchin LJ’s view, Birss J had been “entirely correct” to find that the conditions set out in the judgment, if satisfied, provided a safe harbour for the SEP owner by ensuring that the commencement of proceedings did not, in and of itself, amount to an abuse.
Kitchin LJ said that the CJEU had expressly recognised that, in determining whether a course of conduct was abusive, account had to be taken of the actual circumstances in the case.
Further, the CJEU had said that a refusal by the SEP owner to grant a licence on FRAND terms may, in principle, constitute an abuse of a dominant position. However, a SEP owner did not abuse a dominant position by bringing an action for an injunction as long as it had taken various steps. This language was apt for a safe harbour, Kitchin LJ said: if the SEP owner complied with the prescribed steps, the commencement of the action would not amount to an abuse.
In addition, the CJEU had made clear that a SEP owner could not, without infringing Article 102, bring an action for an injunction without notice or prior consultation with the alleged infringer.
There was therefore no basis for interfering with the judge’s findings of fact or his assessment of whether UP had behaved abusively. The appeal was dismissed. (Unwired Planet International Ltd v Huawei Technologies Co Ltd  EWCA Civ 2344 (23 October 2018) — to read the judgment in full, click here).