Application for disclosure of patent licenses rejected

Out-Law News | 26 Feb 2020 | 10:41 am | 4 min. read

It would not be reasonable and proportionate to require two technology companies to disclose the terms of 16 patent licenses to a patent holder for benchmarking purposes just 11 weeks out from a scheduled patent trial involving the three companies, the High Court in London has ruled.

Conversant Wireless Licensing, which owns a portfolio of patents for 2G, 3G and 4G technology, had asked the court to require Chinese device manufacturers Huawei and ZTE to disclose patent licences the companies had entered into with other patent holders. Conversant said disclosure of those licences would provide evidence on which to assess the relevant fair, reasonable and non-discriminatory (FRAND) royalty rate for use of its patents.

Cornwell Tamsin

Tamsin Cornwell

Senior Associate

The judgment offers some judicial insight into acceptable levels of disclosure of licences for the purpose of calculating FRAND royalties

A trial which is expected to determine what constitutes a FRAND licence in the case is scheduled to start on 27 April 2020. The short time available until the trial and the volume of work entailed in assessing 16 patent licences were factors that Mr Justice Birss considered when rejecting Conversant's application for disclosure.

The judge said: "I am quite satisfied that I should not make this order. The reason why not is because it would not be reasonable and proportionate to do so, having regard to the timetable for this case. Purely on case management grounds, if I made an order requiring production of sixteen licences that would add a very significant extra amount of evidence into the case."

Conversant had put forward a fall back option which would involve the disclosure of fewer licenses – "something like six" – but the judge said this "would still add significant extra evidence".

"The fundamental thing is that it would put the parties to a great deal of difficulty," Mr Justice Birss said. "There would be confidentiality issues to deal with, although I think those would be overcome in the time. However the critical problem would be that in order for both sides to prepare fairly with at least six further licences is just something which cannot be done between now and holding on to the trial date on 27 April. Holding on to the trial date is something which I intend to do my utmost to achieve."

Conversant had previously raised "more or less the same application" for disclosure of the third party licences back in July 2019 at the time of the case management conference. The judge considering that application rejected it at the time.

Patent law expert Tamsin Cornwell of Pinsent Masons, the law firm behind Out-Law, said: "The judgment offers some judicial insight into acceptable levels of disclosure of licences for the purpose of calculating FRAND royalties. Conversant’s application, if granted, would have led to the disclosure of 16 licences. Mr Justice Birss stated that he had serious doubts that an order for sixteen licences would ever be proportionate but said that 'a much lower number might have been'."

"In his ruling, the judge also confirmed that third party licences can have value in helping determine an appropriate royalty rate in FRAND disputes and in certain circumstances should be disclosed. He rejected the submission from Huawei and ZTE that third party licences ought never to be disclosed in FRAND cases or are not capable of having evidential value. Their value, the judge said, depends on the pleaded case and the nature of the evidence available to the court," she said.

Mr Justice Birss had previously considered the question of the value of third party licences to the setting of FRAND rates in another patent case. That case, which involves patent holder Unwired Planet and Huawei, is now awaiting a ruling of the UK Supreme Court after being first considered by Mr Justice Birss at the High Court and then subsequently by the Court of Appeal in London.

While Mr Justice Birss had determined that third party licenses were of very little help in the Unwired Planet case, he said he would have been inclined to order "some measure of disclosure of third party licences" in this case had it been possible to do so without "massively disrupting the timetable". This was because there is "much less evidence in this case of the kind that there was in the Unwired Planet case, of licences from the portfolio from which the patents are taken", he said.

While Mr Justice Birss ultimately rejected Conversant's second application for disclosure, he had considered that the request was allowable even though the court had considered, and rejected, the company's similar application at the case management stage of proceedings.

Central to that finding was the fact that the case between Conversant and Huawei and ZTE is subject to a disclosure pilot that is ongoing in the Business and Property Courts in England and Wales. Cases subject to the pilot are subject to different rules regarding disclosure than apply ordinarily.

Dickman Richard

Richard Dickman

Legal Director

The pilot was designed to make disclosure less burdensome for clients 

The disclosure pilot provisions state, among other things, that the court may at any stage make an order that varies an order for extended disclosure. This includes making an additional order for disclosure of specific documents or narrow classes of documents relating to a particular issue of disclosure.

The provisions also state that the party applying for such an order must satisfy the court that varying the original order for extended disclosure is necessary for the just disposal of the proceedings and is reasonable and proportionate. Various factors to be considered when assessing whether applications are reasonable and proportionate are stated in the pilot provisions. These include the nature and complexity of the proceedings; the likelihood documents will have probative value; and dealing with the case expeditiously, fairly and at a proportionate cost. 

"The pilot was designed to make disclosure less burdensome for clients by ensuring, among other things, that it is tailored to the particular issues in the case," said litigation expert Richard Dickman of Pinsent Masons, who was a member of the disclosure working group which devised the pilot.

"The pilot requires parties to justify the need for the sort of disclosure which would have been ordered by default under the previous rules, and give the judge a specific discretion to vary such orders without the need for a material change in circumstances, which is generally required for varying an order under the Civil Procedure Rules. However, in this case, Mr Justice Birss, who was also a member of the disclosure working group behind the pilot, was still reluctant to vary the earlier order, even applying the more relaxed test under the pilot," Dickman said.