Conversant FRAND trial coronavirus bid rejected

The ruling of Mr Justice Hacon means that the date of an upcoming trial concerning the fair, reasonable and non-discriminatory (FRAND) licensing of patents has been adjourned until October 2020 at the earliest.

The judgment provides a useful insight into the approach courts in England and Wales will take to trials in the light of the ongoing outbreak of coronavirus, officially Covid-19. 

The case at issue and disputes over FRAND

The judgment, issued on 25 March by Mr Justice Hacon, is part of the ongoing FRAND dispute between Conversant Wireless Licensing and companies in the groups of Chinese device manufacturers Huawei and ZTE.  Conversant owns a portfolio of patents declared essential to 2G, 3G and 4G standards. The UK trial to determine FRAND licence terms for Conversant's standard-essential patents (SEPs) was scheduled to start on 27 April 2020.

SEPs are patents that protect technology believed to be essential to implementing a standard. Standards are often developed by businesses working together in collaboration under the auspices of standardisation bodies such as the European Telecommunications Standards Institute (ETSI) or the telecommunication standardisation sector of the International Telecommunication Union (ITU-T).

Typically it is a pre-condition that businesses benefiting from that framework of collaboration make the patents they subsequently obtain relating to standardised technologies available to others by way of a licence on FRAND terms, sometimes referred to as 'RAND' by some standardisation bodies. The FRAND rate is agreed between the parties by commercial negotiation, but sometimes disputes arise as to what constitutes 'FRAND'. If the SEP holder and the technology implementer cannot agree on FRAND licence terms, these will require determination by a tribunal. The courts in England and Wales have indicated their willingness to do this.

Patent infringement actions in England and Wales typically proceed first to a technical trial where patent validity and infringement are determined.  Cases involving SEPs are no different in that respect, save that technology implementers typically avoid an injunction at the end of the technical trial because they rely on the patent owners' commitment to permit access to the technology through a suitable licence. SEP cases progress to a FRAND trial where FRAND licensing terms are assessed. 

At an earlier stage in proceedings in this case, the High Court rejected an application for disclosure of third party patent licences, which Conversant had requested. The application was rejected by Mr Justice Birss just over a month ago so as to preserve the trial date.

Use of remote technology by the courts

Covid-19 guidance from the Lord Chief Justice to the wider judiciary encourages the use of telephone and video to support hearings, with the courts otherwise closed for all but essential cases. Guidance has also been published by HM Courts & Tribunals Services (HMCTS) on how the courts will use telephone and video technology during the Covid-19 outbreak.

Both sets of guidance indicate the willingness of the courts to rise to the challenge and seek to operate as normal as much as possible during the current public health emergency. However, the HMCTS guidance, which has since been updated, noted that “final hearings and hearings with contested evidence will be included within those which will be conducted using technology, although it may be difficult to maintain trials and final hearings in the short term".

In this case, Huawei and ZTE applied to the High Court seeking an adjournment of the scheduled FRAND trial in light of the pandemic.

Countering that application, Conversant proposed that, instead of delaying the trial by at least 12 months, the court could deal with the matter largely by way of written submissions. This would involve the parties in dispute filing evidence in the usual way and putting any written questions to the experts in line with Rule 35.6 in the Civil Procedure Rules (CPRs). Under Conversant's proposal, full written submissions would replace skeleton arguments. The judge would be provided with a detailed reading guide and would be able to ask questions of the parties via Skype. Conversant argued that those measures would ensure any hearings would be relatively brief.

Huawei and ZTE argued that the guidance issued on remote hearings did not contain any mention of trials, as opposed to hearings, being conducted 'on the papers'.  They said that evidence had already been filed on the assumption that there would be a normal trial, and that cross-examination would be an important feature in the case since the approach to assessing royalties would depend on who had the most compelling evidence. The Chinese companies also criticised how the proposal would work practically, as the time to create the hugely detailed written submissions would create an "intolerable burden" on the family life of the legal teams, according to a Lawtel report.

Mr Justice Hacon had praise for that Conversant for proposing an alternative way forward, and the judge also acknowledged that there was evidence that Conversant might suffer significant prejudice if the trial was adjourned.

However, in reaching his decision, the judge considered certain features of a common law trial which are fundamental to the system of justice. These include that:

• having regard to open justice, trials should, subject to limited exceptions, be held and judgments given in public;
• parties should be given an opportunity to call their own witnesses and to cross-examine the opposing witnesses; and
• major changes in procedural law should not be a matter for individual judges and require political accountability. Although there have been rapid developments in the courts’ approach to proceedings as a result of the health crisis, this had not included a change in the CPRs which would permit a trial to be conducted on the papers.

While the judge clearly had some sympathy for Conversant he decided that, as there were issues that required cross-examination and due to the significant costs involved, the appropriate course of action was to vacate the April trial date and adjourn the trial. The parties were given permission to seek a new trial on the first available date after 1 October 2020. 

Insights from the judgment

The judgment offers some judicial insight into how the courts will approach the hearing of trials due to be heard during the current public health emergency.

In terms of the need for a public hearing, Practice Direction 51Y was signed by the Lord Chancellor on 26 March 2020. Practice Direction 51Y is introduced as a pilot scheme. It ceases to have effect on the date on which the Coronavirus Act 2020 ceases to have effect. It clarifies that the court may direct that the hearing must take place in private where it is necessary to do so to secure the proper administration of justice.

The need for a procedural change appears to be the more significant factor at this time. However, as the judge noted, developments in the courts' approach have been rapid and may go further to allow trials to proceed.

In those circumstances, where there has already been a finding that one or more of the claimant's patents have been found valid and infringed at an earlier technical trial, a defendant in FRAND litigation may wish to consider making an offer to pay back damages or make an escrow payment to counter any argument that the patent holder would suffer prejudice if the trial was adjourned.

The Conversant case is one of a number of FRAND disputes currently progressing through the UK courts, all of which are waiting for the Supreme Court’s decision in Unwired Planet v Huawei to be handed down. The current status of any settlement negotiations in that case, and the timing for that judgment, is unclear.