In brief
- It is not bad faith for the owner of Standard Essential Patents (SEPs) to adopt a litigation strategy intended to force an implementer to accept that the SEP owner's preferred court would make a final determination regarding FRAND licence terms (unless there were a legitimate and substantiated objection to that court).
- There is no internationally accepted rule that the court first seized should make the determination. Indeed, such a rule might only encourage pre-emptive litigation.
- The current system permits multiple competent courts making final FRAND determinations in parallel.
- Declarations regarding interim licence terms are a useful tool, which should be jurisdiction neutral in order to ensure comity is preserved.
Background
Samsung and ZTE each hold significant portfolios of SEPs covering the 3G, 4G and 5G standards, which they undertook to ETSI to license on FRAND terms. They had operated under a cross-licence of the 3G and 4G patents, under which Samsung was the net payor of royalties until 31 December 2023, and had subsequently been negotiating an extension of the term of that licence and a cross licence of the 5G patents.
On 19 December 2024, Samsung pre-emptively commenced proceedings in the UK, asking for declarations recording FRAND terms for a global cross licence. A few days later, on 23 December 2024, ZTE commenced proceedings in Chongqing, China, seeking declarations from that court recording global FRAND terms. ZTE obviously considered that licence terms determined by its home court would be more favourable to it.
On 1 January 2025, ZTE wrote to Samsung offering a standstill of all litigation if Samsung agreed to the Chongqing court determining the global cross-licence terms. A wave of infringement proceedings, commenced by ZTE in various jurisdictions and seeking unqualified injunctive relief for patent infringement, immediately followed. The clear purpose of the suite of new proceedings was to force Samsung to abandon the UK proceedings and to accept that the Chinese court would decide global licence terms.
To counter, in March 2025, Samsung made an application in the UK for a declaration of an interim global cross-licence. More particularly, it sought declarations that (a) ZTE was acting in bad faith, (b) a willing licensor in ZTE's position would enter into an interim licence on terms determined by the UK court subject to adjustments following the final determination of FRAND terms by the UK court, and (c) if ZTE refused such an interim licence it would be an unwilling licensor.
On the same day that Samsung made its application, ZTE offered Samsung a global interim cross-licence, including an interim payment to ZTE pending a final FRAND determination by the Chongqing court and adjustment of terms in accordance with the final determination by that court. These proposed interim terms would have required the dismissal or stay of all other proceedings, including the UK proceedings. However, ZTE proposed slightly revised terms in April, which excepted the UK proceedings from that consequence.
By the time Samsung's application was heard by Mellor J, the parties had agreed that there should be an interim licence. The only dispute was about which court should determine FRAND terms for the final cross-licence.
Further, the Chongqing court had rejected Samsung's challenge to its jurisdiction to determine the final FRAND terms, so it was clear that it intended to do so. And ZTE had conceded that the UK court had jurisdiction to decide final FRAND terms, and it was clear that the UK court was also going to do so.
The first instance decision
The question that Mellor J had to decide was whether ZTE was acting in bad faith, or more specifically, whether it was acting as an unwilling licensor (i.e. engaging in "hold-up"), such that its conduct would give Samsung a basis for defending claims for unqualified injunctive relief for patent infringement brought in other countries.
The parties accepted that the UK court was first seized of the dispute and that the UK court was a suitable forum. At the same time, Mellor J rejected Samsung’s criticisms of the Chongqing court, thereby accepting that it was also a suitable forum.
During the hearing, Mellor J raised whether there were ways to craft an interim licence which did not specify the court, or the methodology by which adjustments to the interim licence terms would be converted into final terms. However, after being discouraged by the parties from pursuing such a course, he ultimately found that ZTE had been acting in bad faith:
"ZTE have acted in bad faith with their wave of unnecessary injunctive proceedings, and by using the continuing threat imposed by them to seek to sideline or displace the jurisdiction of this Court and in seeking to secure their preference for a determination in Chongqing."
The judge considered inter alia that the question of which court was first seized was “a tie breaker in an appropriate case”.
The appeal
Both Arnold and Birss LJJ gave reasoned decisions for allowing the appeal, with Peter Jackson LJ agreeing with both.
Arnold LJ distinguished the circumstances of the case from other interim licence cases in which the UK courts decided that the relevant SEP owners were acting in bad faith (i.e. Panasonic v Xiaomi and Lenovo v Ericsson). Neither of those cases had involved the SEP owner seeking to force the implementer to accept the SEP owner’s preferred forum for a FRAND determination.
He observed that if there were a "legitimate and substantiated objection to determination of FRAND terms by the forum in question", then an anti-suit injunction might be an appropriate remedy. However, in the absence of such an objection, it was not bad faith for a SEP owner to seek to force an implementer to accept determination of FRAND terms by the SEP holder’s preferred court. There could be no objection in principle to a party’s desire to litigate in the courts of its home state.
It followed that the possibilities both of parallel SEP infringement proceedings and parallel FRAND determinations in multiple jurisdictions are inherent in the current system. Further, a rule providing that the court first seized should determine what terms are FRAND would encourage forum shopping by pre-emptive commencement of proceedings. In any event, if the principle of ceding jurisdiction to the court first seized was internationally accepted, the Chongqing court would have declined jurisdiction. The fact that it did not demonstrated that there was no such accepted rule.
Birss LJ observed that what ZTE were doing was directed at trying to force Samsung to agree to a FRAND determination in Chongqing rather than London, and the purpose of Samsung's application for declarations was to force ZTE to reconsider and agree to a FRAND determination in London instead. However, in theory, all that was needed was a determination by a court of the appropriate financial terms to operate in the interim until the parties had signed a final agreement. Royalties paid (or committed as security) could be taken into account in the final agreement. This would be effective whether the final terms were agreed following negotiation, or settled by any competent court, or settled by arbitration.
Birss and Arnold LJJ acknowledged that they were effectively kicking the can down the road. That is, "[t]he consequences of how to deal with more than one court being seized with the issue of determining what is FRAND will have to be worked out internationally over time on a case by case basis". Importantly, however, the helpful possibility of an interim payment or security in advance of a final determination should not be turned into a tool to force that issue.
In the result, the court allowed ZTE's appeal, but did not disturb one of the declarations made by Mellor J, namely that:
"A willing licensor in the position of ZTE, and in light of the undertaking given by Samsung, would enter into the interim cross-licence with Samsung on terms and including the sum to be paid by Samsung by way of royalty in respect of the interim licence period as set out in Confidential Annex 1 to this Order (the Interim Licence)."