Out-Law Analysis | 21 Aug 2020 | 12:52 pm | 6 min. read
The judgment could potentially have far-reaching consequences, including a greater volume of litigation over technology patents in the UK, satellite litigation in other European countries, and increased clarity on the rates businesses reliant on communications technologies will need to pay to use the technology. This includes businesses developing internet-connected devices – the so-called 'internet of things' (IoT) – that will come to rely on '5G' and other standardised communication technologies.
The case that the UK Supreme Court will rule on involves a dispute between Chinese technology company Huawei and patents owner Unwired Planet. The dispute is over the licensing of wireless communications patents that have been declared to be essential to the '2G', '3G' and '4G' communications standards.
The Supreme Court's judgment will have the potential to influence the commercial and litigation strategies that both SEP owners and technology implementers pursue in cases involving current and future standardised technologies, both in the UK and further afield
A patent that protects technology believed to be essential to implementing a standard is termed a standard-essential patent (SEP). 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 fair, reasonable and non-discriminatory (FRAND) terms. 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.
In the case before the UK Supreme Court, Huawei has challenged Unwired Planet's bid to force Huawei to sign up to global licensing terms for two SEPs the company has previously been found to have infringed – Huawei has instead sought a UK-only licence to use the SEPs.
In another case that will be decided at the same time involving Huawei, ZTE and patent owner Conversant, Huawei and ZTE argued that the Chinese court is the appropriate forum to set the licence terms.
The High Court previously backed Unwired Planet's case, ruling that Unwired Planet's licensing offer to Huawei was FRAND. The court held that while it was legitimate for Unwired Planet to bundle its SEPs and non-SEPs together in its licensing offer to Huawei in the context of FRAND negotiations, other patent holders will not be able to insist on bundling such patents together and must unbundle the package and provide SEP-only rates when asked to do so by prospective licensees. The court further held that it is also acceptable for SEP owners to agree different FRAND licensing rates with different licensees, so long as the differing rates are all within a FRAND range.
Huawei appealed the ruling. Before the Court of Appeal, Huawei claimed that it was "wrong in principle" for a national court to impose a global licence obligation on the basis of a national finding of infringement. However, in 2018 Huawei's appeal was dismissed. The Court of Appeal also expressed the view that it is possible for more than one set of proposed licensing terms for SEPs to be FRAND.
The case was appealed to the UK Supreme Court and was heard between 21 and 24 October 2019. The court’s judgment is expected to primarily determine the scope of powers and jurisdiction of courts in England and Wales to order prospective SEP licensees to enter into a global licensing agreement for SEPs, whether the courts can further determine the rates and other terms of those licences and also declare that those rates and terms are FRAND.
The Supreme Court is also set to clarify the meaning and effect of the 'non-discrimination' element of FRAND and whether it requires SEP owners to offer "materially the same licence terms" to all prospective licensees.
The Supreme Court's judgment will have the potential to influence the commercial and litigation strategies that both SEP owners and technology implementers pursue in cases involving current and future standardised technologies, both in the UK and further afield.
A decision upholding the Court of Appeal’s earlier judgment in the case would confirm that the UK is open to global FRAND rates based only on a finding of infringement of a single patent in the UK. This would likely be an attractive result for SEP holders as the prospect of a judgment setting a royalty rate globally, or an injunction if those terms are not accepted, is likely to provide greater leverage in commercial negotiations with prospective licensees.
Such a ruling could also open the door to an increasing volume of FRAND litigation in the UK. There has already been an upturn in the number of new proceedings issued in the UK seeking declarations of FRAND licence terms in response to the Court of Appeal's ruling. In June 2019, Sisvel commenced patent infringement proceedings against several smartphone manufacturers, including Xiaomi. In August 2019, InterDigital commenced proceedings against Lenovo seeking a determination of FRAND terms for a licence to InterDigital’s portfolio of 3G and 4G SEPs. This action was the first time InterDigital had initiated patent litigation proceedings in more than six years. The trials are listed for March and June 2021. In December 2019, InterDigital filed a further patent infringement action against Huawei, asserting some of the same patents as in the Lenovo case. InterDigital and Huawei settled this litigation in April 2020.
Another possible outcome is that technology implementers could seek to raise legal proceedings outside the UK over SEPs in an effort to avoid a potential global licensing rate being set in the UK. This in turn could spur patent holders to raise jurisdiction challenges both in the UK and elsewhere in an effort to keep FRAND determination in the UK. Such strategies have been seen in the global dispute between IPCom and Lenovo and Motorola. A number of applications for 'anti-suit' injunctions, which prevent an opposing party from commencing or continuing proceedings in another jurisdiction, and corresponding 'anti-anti-suit' injunctions, have been heard in various jurisdictions. In France, for instance, the Paris Court of Appeal upheld the first instance court's decision to grant, for the first time, an anti-anti-suit injunction which ordered Lenovo and Motorola to withdraw their application for an anti-suit injunction in the parallel US proceedings insofar as it related to the action in France.
Some businesses with a small UK market share might weigh up the commercial risks involved should they be subject to a finding of infringement in the UK if the court endorses an obligation to enter global licensing agreements in those circumstances
The forum in which businesses seek to resolve disputes over FRAND could also be influenced by what the Supreme Court decides. The judgment could prompt a greater uptake in arbitration as an alternative forum to determine FRAND terms on a worldwide basis, with such proceedings offering parties greater confidentiality and access to a panel of arbitrators that includes technical experts. Various patent holding entities such as Nokia already favour this option. InterDigital has publicly stated its willingness to resolve its claim against Lenovo through arbitration as an alternative to litigating before the courts.
The Supreme Court's ruling could also have a bearing on whether technology implementers seek to operate in the UK at all. Some businesses with a small UK market share might weigh up the commercial risks involved should they be subject to a finding of infringement in the UK if the court endorses an obligation to enter global licensing agreements in those circumstances.
Implementers could also choose to risk injunctions being issued against them and waive their right to a licence to avoid FRAND proceedings and the courts setting a FRAND rate – in July last year the Court of Appeal ruled to prevent a dispute concerning the licensing terms for SEPs from proceeding to trial on the basis that the trial to determine RAND (reasonable and non-discriminatory) terms was redundant. The court reached that conclusion after a prospective licensee waived its rights to license the patent portfolio on RAND terms.
If the Supreme Court upholds the Court of Appeal's decision, courts in other European jurisdictions may follow in setting global FRAND rates too. In Germany, for example, the law on the licensing of SEPs has come into closer alignment with the UK Court of Appeal's decision in the Unwired Planet v Huawei case following a recent ruling by the German Federal Court of Justice in the case of Sisvel v Haier. In that case, the court, among other things, confirmed that businesses using SEPs will only be considered to be 'willing' licensees of that technology if they are willing to take a licence from patent holders on whatever terms are deemed to be FRAND. SEP litigation is very active in Germany and just this month, Nokia secured a nationwide injunction from the District Court of Mannheim against Daimler in relation to connected cars. An appeal is inevitable, raising important questions about FRAND licensing and the automotive industry.
Another aspect of the anticipated UK Supreme Court decision is whether it may lead to the establishment of a 'going rate' for the use of SEPs in certain sectors. This could be particularly so where separate publicly acknowledged benchmarks emerge depending on the standardised technology at issue – whether 4G or 5G, for example – and on the industry in which those patents apply. Some organisations have already taken proactive steps in this respect, with Avanci publishing the royalty rates it charges automotive manufacturers to license its wireless communication SEPs.
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