In a decision that will cement the attractiveness of the UK courts as a forum for the resolution of standards disputes, the Court of Appeal has upheld the Patents Court's ground-breaking 2017 decision that it could set the terms of a global FRAND (fair, reasonable and non-discriminatory) licence of Standard Essential Patents (SEPs), even though it was based on a finding of infringement of patents whose scope was limited to the UK.
We discussed the background to the dispute in Unwired Planet v Huawei in our April 2017 bulletin reporting on the Patents Court decision, and also Mr Justice Birss' subsequent decision to grant a 'FRAND injunction' if Huawei did not agree to enter into a global licence on the determined terms. That injunction was stayed pending this appeal, but Huawei has now confirmed that it will enter into whatever licence is finally determined as FRAND in the proceedings.
The Court of Appeal has refused permission to Huawei to appeal this latest decision to the Supreme Court and so Huawei will need to apply for permission from the Supreme Court. It has already indicated that it intends to do so and, given the importance of the issues being assessed, it seems quite possible that permission to appeal will be granted. If the Court of Appeal's decision stands, however, it will set the framework for the resolution of such disputes and encourage SEP owners to bring further proceedings in the UK.
Court of Appeal decision
The Court of Appeal dealt with three issues on the appeal.
Can a global licence be FRAND?
On the important question of whether Huawei should be required to take a global licence, or a UK licence only following a finding of infringement of UK patents, the Court of Appeal agreed with Birss J that, depending on all the relevant circumstances, a global licence between a SEP owner and an implementer may be FRAND. In particular, whilst the Court of Appeal accepted that a UK SEP has limited territorial scope, it reiterated that the position in relation to a FRAND undertaking is different: standards, and the FRAND undertaking given by a patent owner to e.g., ETSI, are of international effect. This means that implementers should be able to secure a licence on FRAND terms under all the SEPs it needs, in order to produce and sell products that meet the standard. Similarly, SEP owners should also be protected, and provided with an appropriate reward for their R&D activities and engagement in the standards setting process. Further, Huawei had accepted that SEP owners and implementers will often negotiate a licence on global terms, or at least over a number of territories.
If a different conclusion were reached, the Court of Appeal noted that this would mean SEP owners would be required to bring proceedings against uncooperative implementers in every jurisdiction where their rights subsist. Further, the EU Commission's 2017 Communication in relation to the EU approach to SEPs (discussed in our December 2017 bulletin) reinforced the Court's approach: the Commission concluded that "for products with a global circulation, SEP licences granted on a worldwide basis may contribute to a more efficient approach and can therefore be compatible with FRAND."
On the facts, the Judge had decided that, given the size and scope of Unwired Planet's portfolio and the multinational basis of Huawei's business, a willing licensor and licensee acting rationally and reasonably would agree a worldwide licence. Indeed, he said, country by country licensing would be "madness" and something "no rational business would do if it could be avoided". The Court of Appeal agreed.
However, whilst the Court of Appeal concluded that Birss J was entitled to find that, in all the circumstances, only a global licence would be FRAND, it did disagree with his assessment that there will only ever be one set of FRAND terms for a particular set of circumstances. Instead, given the complexity of patent licences and the commercial priorities of the participating undertakings, the Court of Appeal thought it "unreal" to suggest that two parties, acting fairly and reasonably, would necessarily arrive at precisely the same licence terms as another two parties in the same circumstances - on the contrary, "the reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances". However, even on that basis, the Court of Appeal did not agree with Huawei that the Judge had made an error in not finding that a UK licence could also have been FRAND.
How should the Court approach the requirement of 'non-discrimination'?
The second issue on appeal was the meaning of the 'non-discrimination' obligation in the ETSI undertaking – does it mean that a licensee can demand a lower rate where one has been given to a different but 'similarly situated' licensee in relation to the same SEPs? The issue here was over a licence to Samsung, with Huawei arguing that the rates it was being offered were "much, much" higher than those in the Samsung licence.
The Judge had said that, whilst Huawei and Samsung were similarly situated, and the licences were equivalent or comparable, the non-discrimination obligation was either a general obligation integrated into the setting of the benchmark rate (which was a measure of the intrinsic value of the portfolio but did not depend on the licensee), or alternatively the asserted discrimination must distort competition to be a breach of the ETSI undertaking. Accordingly, he rejected Huawei's argument that it was a 'hard-edged discrimination' obligation which would take into account the nature of the particular licensee seeking to rely upon it.
The Court of Appeal endorsed the Judge's approach. Whilst the 'general' non-discrimination approach could operate asymmetrically (in that it prevents the SEP owner seeking to secure higher rates but does not prevent it from granting licences at a lower rate), it was supported by the object and purpose of the FRAND undertaking, namely to ensure the SEP owner cannot 'hold-up' implementation by demanding more than its patent portfolio is worth. A hard–edged approach would be unnecessarily strict, and would amount to in effect inserting a 'most favoured licensee' clause into the FRAND undertaking. The general approach meanwhile achieved the objective of the undertaking by making the technology accessible to all licensees at a fair price. Where there is discrimination below the benchmark rate, the Court suggested this could be redressed through competition law.
It is worth noting that the Court of Appeal accepted that it was desirable that a common international approach to the question of the non-discrimination obligation should be adopted, but the foreign case law to which it had been directed did not provide assistance.
The CJEU's framework in Huawei v ZTE and proportionality
The Court of Appeal rejected Unwired Planet's appeal against the Judge's finding that it was in a dominant position in the market, but it also rejected Huawei's appeal against the finding that Unwired Planet had not abused that dominant position when it sought an injunction from the UK court. This required an assessment of the scheme set out by the CJEU in Huawei v ZTE which set out a protocol for SEP owners and implementers. The Court of Appeal came to the firm conclusion that the Huawei v ZTE protocol was not a mandatory behavioural framework that a SEP owner must comply with before seeking injunctive relief, such that if it fails to comply with the framework, its conduct will necessarily amount to abusive conduct. Instead, it agreed with the Judge that the only mandatory requirement in the Huawei v ZTE protocol was that there must be notice to, or prior consultation with, the implementer, and what amounts to sufficient notice would depend on the circumstances. If the SEP owner complies with the CJEU's Huawei v ZTE protocol, it will be protected against a finding of a breach of dominant position if it seeks to bring proceedings for an injunction. However, if it does not, the question of whether its conduct is abusive will then depend upon all the circumstances.