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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Inside IP: Patent Court sets FRAND royalty in Unwired Plant v Huawei dispute
 Briefing 
Author
David Rose, Nina O'Sullivan & Natasha Pearman
Date
10 April 2017

Inside IP: Patent Court sets FRAND royalty in Unwired Plant v Huawei dispute

In a ground-breaking decision in the telecoms licensing battle between Unwired Planet and Huawei, Birss J has set what he considers a FRAND (Fair, Reasonable and Non-Discriminatory) rate for a licence, having decided that the parties' respective offers and counter-offers were not FRAND.  

In particular, given the nature of the Unwired Planet portfolio and the multinational licensee status of Huawei, the Court has concluded that a worldwide licence would be FRAND. As there had previously been a finding of infringement/essentiality/validity, and Huawei was only prepared to engage with a UK portfolio licence, this means that an injunction will be granted against Huawei. However, it now has the opportunity to agree to such a licence in order to avoid injunctive relief.  

Birss J stressed that the UK Court's power to grant an injunction against an implementer only arises once at least two conditions are satisfied: (1) there must be a FRAND licence available for the licensee to accept (or case management means to settle one) and (2) there must be a SEP held by the court to be valid and essential. An implementer who refuses to take a FRAND licence in those circumstances will be at risk of an injunction. 

The decision considers a number of important issues including (1) What is FRAND? (2) Abuse of a dominant position and (3) the impact of the CJEU's decision in Huawei v ZTE. It will set the standard for future licensing negotiations, though it is of course very possible that the case will now be heard by the Court of Appeal. The Court's conclusions on the law and the facts are helpfully summarised at the end of the decision.  

In particular, the decision makes the following key points:

What is FRAND?

  • A FRAND undertaking is a legally enforceable obligation and it is not necessary to rely on competition law to enforce it. 
  • In each case, there will be only one set of FRAND terms and one FRAND rate. The Court can grant a declaration as to what rate and terms would be FRAND in the given circumstances. 
  • Whilst a court cannot directly enforce the FRAND undertaking by compelling a patentee to make an offer in those terms, an English court would at least refuse to grant a patentee an injunction if it refused to accept FRAND terms (under its equitable jurisdiction to grant or refuse an injunction).
  • A defendant who has been found to infringe a valid patent cannot be compelled to accept an offer of a licence. However, a defendant with no licence, who refuses to accept terms found to be FRAND, would be subject to an injunction.
  • FRAND also applies to the process by which a set of terms are agreed. Both patentees and implementers should take a FRAND approach to the negotiation of a licence under a SEP portfolio. An opening offered rate may be higher than the true FRAND rate but that does not of itself mean that a patentee has refused to take a FRAND approach (though extreme offers and an intransigent approach which prejudice FRAND negotiation is not a FRAND approach).
  • In terms of determining a FRAND rate, the Court will determine a benchmark rate governed by the value of the patentee's portfolio (and which does not vary depending on the size of the licensee). The rate can be determined by using comparables if they are available and freely negotiated licences are relevant evidence of what may be FRAND. A top down approach can also be used in which the rate is set by determining the patentee's share of relevant SEPs and applying that to the total aggregate royalty for a standard (this may be more useful as a crosscheck). Counting patents is inevitable.
  • In relation to non-discrimination, this does not mean that a licensee can demand a lower rate where it has been given to a different but similarly situated licensee. Any such obligation would only apply if the difference would distort competition between the two licensees. 
  • Aside from rate, the core question was the scope of the licence. Huawei was only willing to take a licence under the UK patent portfolio, whereas Unwired Planet wanted to grant a worldwide licence. Birss J concluded from the evidence that multi-jurisdictional portfolio licences are unlikely to have inherently anti-competitive effects and a demand for a worldwide licence is not inherently likely to distort competition. Depending on the facts, a worldwide rate may be excessive, or a given portfolio may not justify a worldwide licence. However, assuming the licensor has a worldwide portfolio of SEPs, Birss J considered that asking a licensee to accept a worldwide licence is unlikely to be abusive (the rates in a worldwide licence may be different depending on the territory). In particular, he considered specifically the multi-national status of Huawei as a licensee and the geographical scope of Unwired Planet's portfolio. 

Competition law – abuse of a dominant position

  • Whilst a proper economic analysis had not been done of the market, Birss J proceeded on the basis that Unwired Planet was in a dominant position. He concluded it had not abused its dominance through issuing proceedings prematurely, excessive pricing, or by making an offer which bundled SEPs and non-SEPs. Its offers were higher than the benchmark FRAND rate but this was not illegitimate (provided that such an offer did not disrupt or prejudice negotiations).
  • Birss J stressed that an implementer who wishes to show they are a willing licensee should make an open offer of the FRAND terms it would be prepared to accept. Whilst this was not a mandatory requirement, without prejudice offers are not admissible to establish that it is a willing licensee. 
  • Huawei had never made an unqualified commitment to enter into a FRAND licence. A willing licensee must be willing to take a FRAND licence on whatever terms are in fact FRAND. To insist on any particular terms runs the risk that that term is not FRAND. 

Impact of the CJEU's Huawei v ZTE decision

  • The CJEU's decision in Huawei v ZTE sets out a scheme that the parties are expected to follow but is not a series of rigid predefined rules, compliance with which is never abusive, whereas deviation from which is always abusive, all regardless of the circumstances. The scheme sets out standards of behaviour against which both parties' behaviour can be assessed to decide if an abuse has taken place. Even though the CJEU's decision called for concrete proposals from both the patentee and implementer, the CJEU was referring in general terms to a willingness to conclude a licence on FRAND terms.

Remedies

  • In addition to the question of injunctive relief, the Court considered that damages would be compensatory and would be tied to the appropriate FRAND rate. 

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