Damages issue thwarts bid to waive FRAND patent licence

Out-Law News | 06 Feb 2020 | 11:27 am | 3 min. read

ASUS, a major computer and phone hardware manufacturer, has failed in its bid to avoid a trial before a London court over the licensing of standard-essential patents (SEPs) owned by Dutch electronics company Philips.

The High Court last year ordered a trial to take place between Philips and five defendants to determine an appropriate fair, reasonable and non-discriminatory (FRAND) rate to license Philips' portfolio of 3G and 4G patents. Three of the defendants are ASUS group companies while the other two are HTC group companies.

However, with Philips seeking to require ASUS to take a global licence to all the patents in its portfolio, ASUS asked the High Court to accept a waiver of its rights to take a FRAND licence and end its participation in the forthcoming trial.

According to the ruling, ASUS has accepted it is liable for past acts of infringement of Philips' patents in the UK and has calculated it owes Philips more than $45,000 in damages. However, ASUS has a small market in the UK for products requiring a licence to the Philips portfolio. ASUS took the view that this is a market not worth developing and therefore will not be seeking a FRAND licence to the Philips portfolio. ASUS was prepared to be enjoined, by way of a permanent injunction, from infringing the Philips portfolio in the UK and was willing to consent to a court order to that effect. For those reasons, ASUS claimed it is not necessary for the High Court to determine a FRAND licence for its use of Philips' patents.

However, Philips challenged ASUS' application. It believes it is entitled to a more substantial payment in damages. As a consequence of the uncertainty on that point, the court ultimately rejected ASUS' application, meaning the FRAND trial will go ahead.

In his judgment, Mr Justice Marcus Smith said: "The process whereby damages for infringement of UK patents are assessed is heavily fact based. In my judgment, any automatic linkage between the terms of the declared licence and the terms of the counterfactual licence is wrong in principle and a claim based on such automatic linkage ought to be struck out."

"That is not to say that the terms of the declared licence are irrelevant. To the contrary, it would equally be wrong to disregard the terms the declared licence when quantifying a [patent] holder's loss in relation to a past infringement of its patents. In short, the extent to which the terms of the declared licence inform the assessment of damages is a question of fact. Whilst I consider a measure based upon an automatic linkage between the declared licence and the counterfactual licence to be unarguable, it may be that in this specific case either the measure proposed by ASUS or the measure proposed by Philips is the appropriate one, or it may be that the true measure lies somewhere in-between," the judge said.

"The short answer to ASUS' application is that the extent to which the terms of the declared licence are relevant to the assessment of damages is itself a question of fact to be determined at trial. That question is in no way susceptible of summary determination. It follows that the dispute between ASUS and Philips as to the damages payable for ASUS' past infringement of the Philips UK patents is one that has to be determined at a trial," he said.

In its application before the High Court, ASUS had pointed to a similar application made to the Court of Appeal last year. The Court of Appeal determined that a trial over the licensing of SEPs was not necessary in that case after the applicant, a technology implementer, waived its rights to a RAND licence from the SEP holder. The High Court in this case said, though, that the circumstances of that case were different since consideration of the amount of damages to be awarded in that case was not at issue in the trial.

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.