In brief
- The UK Supreme Court has allowed Tesla's appeal in its dispute with InterDigital and Avanci, holding that there is a serious issue to be tried on whether the FRAND obligation applies to SEP owners licensing through pools or platforms, and overturning the decisions of both Fancourt J and the majority of the Court of Appeal.
- In doing so, it has opened the door to court scrutiny of pool and platform licence rates in the UK for the first time, and confirmed that the English courts have jurisdiction to hear Tesla's claims for declaratory relief. This has significant implications reaching beyond automotive into consumer electronics, streaming and IoT.
- The substantive questions will now be assessed by the Patents Court to decide Tesla's case on the merits.
Background
The case arises against the backdrop of the increasingly prevalent practice of licensing standard essential patents (SEPs) through pools and platforms rather than bilaterally. The Avanci 5G Platform is administered by Avanci as agent for its member licensors, which at the time of the appeal numbered 89 SEP owners licensing 86 brands and representing the equivalent of over 7,500 bilateral licences. Among its members is InterDigital, a significant SEP owner in the ETSI (European Telecommunications Standards Institute) 2G, 3G, 4G and 5G standards, and itself a frequent party to FRAND court proceedings.
Tesla wished to launch 5G-enabled vehicles in the UK and therefore required a licence under the relevant UK SEPs. The platform licence offered by Avanci was set at a flat rate of $32 per vehicle, which Tesla considered not to be FRAND. In December 2023, Tesla therefore commenced proceedings in the UK Patents Court seeking, amongst other things, declarations that: (i) the FRAND licence to InterDigital's UK SEPs on the Avanci 5G Platform is a global platform licence; (ii) the Avanci 5G Platform rate is not FRAND; and (iii) a determination of the rate that would be FRAND. These are the "Licensing Claims".
In July 2024, Fancourt J struck out the Licensing Claims, holding there was no serious issue to be tried and that the Delaware Court of Chancery was an available alternative forum because the claim had a closer connection with the US (including because the principal parties are all Delaware companies, the majority of the SEPs are US patents, and the Avanci Licence is administered and regulated in the US). The Court of Appeal dismissed Tesla's appeal, with Phillips and Whipple LJJ in the majority. Arnold LJ dissented, concluding that there was a serious issue to be tried against both InterDigital and Avanci and that the English courts had jurisdiction. The Supreme Court has now adopted, in all material respects, Arnold LJ's reasoning.
Was there a serious issue to be tried?
In a judgment delivered by Lord Hamblen and Lord Kitchin, the Supreme Court split this question into three issues.
Does the FRAND obligation apply to joint licensing through a platform?
The ETSI FRAND obligation (given by each SEP owner as a condition of having its technology adopted in the standard) is to make irrevocable licences available on FRAND terms. The court found nothing in the wording of that obligation, or in the wider ETSI IPR Policy, to suggest that it falls away when a SEP owner chooses to license through a pool or platform.
In fact, the policy of preventing "hold up" (i.e., preventing the implementation of the standards through enforcement of patent rights), which lies at the heart of the FRAND regime, applies with at least as much force where numerous SEP owners license collectively, and the utility of the FRAND obligation would be severely compromised if it did not apply to pools or platforms.
The court also noted that the ETSI FRAND obligation was drafted with the close involvement of the European Commission, and that competition law treats the application of FRAND principles to pool licensing as a prerequisite for safe harbour protection.
Critically, the Supreme Court rejected the majority's reasoning in the Court of Appeal as failing to address Tesla's actual case. Tesla did not contend that SEP owners were obliged to license collectively but argued that a SEP owner which joins a pool does not thereby escape the FRAND obligation it has already undertaken. The court held there was a serious issue to be tried on this question.
Is the FRAND licence of InterDigital's UK SEPs a platform licence?
The Supreme Court did not agree with Tesla's broader contention that all offers of a licence by a SEP owner must be on FRAND terms regardless of circumstances. The FRAND obligation requires that FRAND terms are available but does not preclude a SEP owner from also making separate commercial (but non-FRAND) offers.
However, the question of whether, for a member of the Avanci 5G Platform, the only FRAND licence of its SEPs is the platform licence rather than a series of bilateral licences, was held to give rise to a serious issue to be tried.
As a matter of commercial reality, the court found it was not practicable for potential licensees to seek bilateral licences from each platform licensee. The platform consolidates the equivalent of over 7,500 bilateral licences, and many licensors rely on it as discharging their FRAND obligation. Commercial practice is central to the interpretation of the FRAND obligation, and these commercial realities bear directly on whether a bilateral licence can genuinely be FRAND in the current market.
Did Tesla have a real prospect of obtaining the declarations sought?
The Supreme Court confirmed that Tesla had a real prospect of obtaining the declarations sought against both InterDigital and Avanci.
The judgment considered the background to the Court's power to make a declaration, in particular, in FRAND proceedings.
Against InterDigital, the claim was grounded in InterDigital's own contractual FRAND obligation, reinforced by its history of asserting its patent rights before the English courts. Against Avanci, Tesla need not have a cause of action directly (Avanci is not itself a SEP owner and has given no undertaking to ETSI).
It is sufficient that a declaration would serve a useful purpose. The Supreme Court concluded that, if the court assessing the request for the declaration was to determine that the FRAND rate for the Avanci 5G Platform was lower than $32 per vehicle, Avanci would in all likelihood reconsider its position, and any licensor relying on the platform licence to discharge its FRAND obligation would find that position unsustainable. Without the possibility of such scrutiny, the FRAND regime for pool and platform licensing would be ineffective.
On procedural fairness, the Supreme Court again disagreed with the majority of the Court of Appeal: Avanci was the essential party in any assessment by the court of the terms of the Avanci 5G Platform licence, and in any event the individual SEP owners had the option to participate in the proceedings.
Jurisdiction
On jurisdiction, the Supreme Court endorsed what it described as the "formidable line of authority" that has developed in this area, confirming that the Licensing Claims were properly characterised as claims relating to InterDigital's UK SEPs, not as a freestanding worldwide licensing claim. The fact that the only FRAND licence would be global did not alter the subject matter of the claim.
Service on InterDigital was upheld under the CPR rules governing intellectual property claims, and the claims against InterDigital and Avanci each passed through the relevant gateways for service out of the jurisdiction. On forum, the Supreme Court again adopted Arnold LJ's conclusion that the Delaware Court of Chancery was not an available alternative: on the balance of probabilities, a US court would only adjudicate FRAND terms for US patents.
Comment
It is important to be clear about what the Supreme Court has and has not decided. It has not held that pool or platform administrators are themselves subject to the FRAND obligation, or that the only FRAND licence for any particular licensor's SEPs must be the global platform licence. These questions will now return to the Patents Court to be decided on the merits.
What the decision does establish is that those are serious issues to be tried, that the English courts have jurisdiction to consider them, and that the Avanci 5G Platform rate is not beyond the reach of the court simply because it is offered through a platform rather than bilaterally.
The breadth of interest in the appeal (with written interventions from the CCIA, the ICLE, ACT, the FSA and the Motion Picture Association) illustrates that the implications of this decision extend well beyond the automotive sector, into consumer electronics, streaming services, IoT devices and beyond.