FRAND

Posted on 13 March 2020

Cases concerning standard essential patents (SEPs) and FRAND (fair, reasonable and non-discriminatory) licensing, and the UK courts’ approach to these disputes, continue to dominate the headlines.

The Supreme Court heard argument in October 2019 in the appeals in Unwired Planet v Huawei and Conversant v ZTE. The Supreme Court’s decision will determine a number of key issues that will set the path for future litigation over SEPs and FRAND licensing (with a number of cases set to be impacted by the decision). Both cases concern SEPs declared to be essential to the practice of a number of telecommunications standards, pursuant to which Unwired Planet and Conversant are obliged respectively 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 last year’s Annual Patents Review.

Whilst the Unwired Planet decision is the key development to be looking out for, the Courts were busy throughout 2019 on other FRAND disputes, with highlights including:

TQ Delta v ZyXel

There were a number of interesting developments this year in this matter. In March 2019, Henry Carr J found that one patent relating to Digital Subscriber Line (‘DSL’) technology relied upon by TQ Delta was valid, essential to the operation of the ADSL2 and VDSL2 standards, and infringed by ZyXEL. The ZyXEL group of companies manufactures DSL equipment in China and sells it worldwide for use by consumers and telecoms companies. The Patent had just three months left to run.

The Patents Court went on to identify a case of ‘hold-out’ by ZyXel in seeking to postpone for as long as possible any payment of royalties whilst infringing a SEP, and granted an immediate injunction (for the remainder of the three months), demonstrating that implementers will need to engage constructively in any FRAND negotiation, rather than ‘blow hot and cold’ as to whether they are a willing licensee.

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Subsequently, ZyXel took a novel approach of seeking to irrevocably waive its FRAND rights in respect of the UK generally, thereby submitting to an injunction and damages, arguing this meant that there was no issue about FRAND in the UK between the parties and the non-technical trial should therefore be stayed. Whilst Birss J refused to stay the FRAND trial, this was overturned by the Court of Appeal, and so the FRAND trial will not now take place as the Court saw no utility in it doing so. The selective waiver by ZyXel was effective and valid, and meant there was no longer a commercial dispute between the parties involving the UK.

Vestel v HEVC Advance and Philips

In Vestel v HEVC Advance and Philips, the High Court had to consider the other side of the argument to that in Unwired Planet v Huawei – 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. The implementer, Vestel, relied upon competition law and sought to argue 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 sought a declaration from the Court that its counter-offer is FRAND.

However, HHJ Hacon 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 was 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 was that flowing from Vestel Turkey being ‘forced’ to enter into a licence agreement with Advance/Philips on abusive terms. The second 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.

Whilst Vestel has appealed to the Court of Appeal, it is worth noting the Judge’s comments as to ‘whether an implementer can overcome an impasse in negotiations’. Philips/Advance argued that an action for abuse of a dominant position would never be an appropriate avenue for an implementer in such a scenario, its Counsel speculating 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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IPCom v Xiaomi

In proceedings between IPCom and Xiaomi, IPCom sought an interim injunction pending the trial unless Xiaomi entered into a FRAND licence, through agreement or on the Court’s determination. The Patent is shortly due to expire and will expire before any trial, and Xiaomi is also challenging the Court’s jurisdiction. IPCom pointed to alleged hold out by Xiaomi given the pending expiry of the Patent, and also argued that it would suffer irreparable harm if the injunction was not granted.

HHJ Hacon accepted that the American Cyanamid test re the grant of an interim injunction applied in a FRAND related dispute and found that there was a serious issue to be tried. However, he concluded that IPCom would not suffer irreparable harm if the injunction were not granted and the Patent were found to be infringed. Xiaomi had said it would not take a licence in that situation. IPCom had no absolute right to conclude a licence with Xiaomi (or to any royalties under a licence), but would only be entitled to damages. That disposed of the application, but the Court would have found irreparable harm for Xiaomi. The Court granted IPCom permission to appeal due to the developing nature of the law in this area.

Further, in separate proceedings, Hacon HHJ granted IPCom an ‘anti-anti-suit injunction’ concerning proceedings in the US against certain Lenovo UK companies. This prevents those companies from “sanctioning, continuing to sanction or in any way assisting any application before any court which seeks directly or indirectly to prevent, (a) the UK court from making directions for the conduct of these proceedings, or any order in relation to the UK claim; or (b) the claimant from pursuing this UK claim to trial.” Again, this seems an area ripe for development.

IPCom v Vodafone

IPCom has been trying unsuccessfully to get Vodafone to take a licence for 11 years in relation to patents asserted as essential to 4G networks, and to UMTS/3G. The relevant patents expire in February 2020 and September 2020 respectively. There have been separate proceedings in Germany based on different patents and against a different company in the Vodafone group and there also seems to have been some delay in IPCom issuing and serving its claim in the UK. IPCom sought expedition of the infringement and FRAND trials relating to the 4G patent on the basis that it was necessary to hold those trials before that patent expired (October 2019 for the infringement trial; November 2019 for the FRAND trial) so that Vodafone could be required to take a licence as an alternative to an injunction. This is because Vodafone declined to give an undertaking that they would take a FRAND licence if they lost on essentiality, validity and infringement.

Whilst the Court decided the patent trial could take place in November 2019 (and later rejected IPCom’s application for its own expedited trial to be be adjourned until after the expiry of the Patent), the FRAND trial could not be expedited to take place before the Patent expired. In particular, the Court noted that the proposed timescale for the FRAND trial clashed with the Supreme Court’s hearing in Unwired Planet, which might affect the UK approach to FRAND generally, and so it should take place after the Supreme Court’s judgment.

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