FRAND issues back in the spotlight

Posted on 28 October 2019

The Supreme Court has heard argument recently in the appeals in Unwired Planet v Huawei and Conversant v ZTE.  It will no doubt be a few months before the Supreme Court delivers its decision, which will determine a number of key issues that will set the path for future litigation over standard essential patents and FRAND (fair, reasonable and non-discriminatory) licensing.  Both cases concern patents declared to be essential (standard essential patents or SEPs) to the practice of a number of telecommunications standards, pursuant to which Unwired Planet and Conversant are obliged to make those patents available to license on FRAND terms.

The first issue is whether the UK courts can set the terms of a single FRAND licence in relation to a multi-national patent portfolio on a global basis, as opposed to a nation-by-nation one (noting that, if the implementer does not agree to accept the global licence, it will be subject to an injunction in the UK).  Another important issue focuses on the meaning of the non-discriminatory requirement, where different licence terms are offered to different implementers: specifically here, does it mean that materially the same licence terms that Unwired Planet offered to Samsung had to be offered to Huawei?  We discussed the issues in Unwired Planet v Huawei in our October 2018 report on the Court of Appeal's decision, and the issues raised in Conversant v ZTE in our Annual Patents Review.

We will report on the Supreme Court's decision in these two cases in due course.  In the meantime, the High Court has had to consider the other side of the argument – i.e., where an implementer says it is willing to take a licence, but considers the SEP owner to be intransigent or to be offering non-FRAND terms.  In the case of Vestel v (1) HEVC Advance and (2) Philips, the implementer (Vestel) has relied upon competition law and argued that Advance and Philips have abused their respective dominant positions in the relevant markets, contrary to Article 102, TFEU, for example by failing to offer Vestel licences on FRAND terms and threatening to seek injunctions against it.  Vestel also seeks a declaration from the Court that its counter-offer is FRAND.

However, HHJ Hacon has rejected Vestel's claims against both Advance and Philips on the grounds that the English court does not have jurisdiction to hear them.  In relation to Philips, this was because Vestel could not demonstrate that it could rely upon Article 7(2) of the Brussels Re-Cast Regulation: this provision provides that, in tort matters, a party can bring proceedings in the courts for the place where the harmful event occurred or may occur.  In relation to Advance, Vestel likewise could not rely upon the relevant jurisdictional gateways to allow the claim to proceed in the High Court.

In particular, Vestel were unable to convince the Court that it would suffer the two heads of damage that it relied upon in the UK arising out of the alleged abuses by Advance/Philips (assuming such abuse were made out at trial). The first head of damage Vestel relied upon was that flowing from Vestel Turkey being 'forced' to enter into a licence agreement with Advance/Philips on abusive terms.  However, the Court concluded that there was nothing that would have the effect of forcing Vestel Turkey to enter into a licence.  In particular, in circumstances where the terms of a licence was set by the Court, those terms would necessarily be FRAND. The second head of damage relied upon was Vestel's uncertainty as to the royalty it would ultimately have to pay for a licence from Advance, which meant that Vestel UK did not know how much money to set aside, which could lead to it setting aside too much or too little money to pay royalties.  The Judge concluded that, to succeed in this argument, Vestel would have to have filed evidence explaining why Vestel UK would suffer significant damage, but also why obvious ways to avoid such damage (such as any suitable member of the Vestel Group putting aside the royalties claimed until the licence was settled) could not be put in place. The judge concluded that Vestel's evidence was vague and the assertion that Vestel UK risked 'catastrophic losses' was hyperbole, at best.

No doubt Vestel will seek permission this ruling to appeal to the Court of Appeal.  In the meantime, it is worth noting the Judge's comments under his heading 'whether an implementer can overcome an impasse in negotiations' i.e., in circumstances where it regards a SEP owner's offer for a licence as non-FRAND, and the SEP owner refuses to amend its offer.  Philips/Advance's Counsel argued that an action for abuse of a dominant position would never be an appropriate avenue for an implementer in such a scenario, and speculated that a court may be able to exercise an inherent jurisdiction to decide FRAND terms by means of declaratory relief. The Judge did not deal with this point (as it was not necessary to do so)  noting "that [it] would be for another day and, in this instance, another jurisdiction".

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