Huawei ordered to take a worldwide licence for patents or face UK sales ban

Out-Law News | 06 Apr 2017 | 4:01 pm | 5 min. read

Chinese telecoms company Huawei has been ordered to take a worldwide licence to patents for wireless communications owned by Unwired Planet or face a sales ban on its devices in the UK.

The High Court in London set the indicative rates Huawei will be required to pay worldwide to use the patents for 2G, 3G and 4G technologies in a ruling issued on Wednesday. It is the first time that a UK court has issued a decision on what constitutes a fair, reasonable and non-discriminatory (FRAND) commitment to licence standard-essential patents (SEPs). 

Patent law specialist Deborah Bould of Pinsent Masons, the law firm behind Out-Law.com, said: "This is a major judgment that looks in-depth at the commercial positions SEP owners and prospective licensees typically adopt when engaged in licensing discussions, and reflects the tension that exists between the rights of patent owners to profit from their investment in developing technology, and the rights of technology implementers to access those technologies on FRAND terms. This ruling will not only shape how UK courts resolve other FRAND disputes in future, it is likely to influence how courts around the world also address such cases."

"The decision is commercially pragmatic, made by an experienced and well respected UK Patents Court judge. Forcing Huawei to take a worldwide licence, rather than allowing them to only take licences in countries where they are sued, is a major development and one which broadly will be welcomed by the TMT industry," she said.

A SEP is a 'patent essential to a standard': it is impossible for competitors to make products that comply with that standard without using the patented technology. To join standard-setting initiatives, businesses generally offer undertakings to standard-setting organisations that they will licence use of the SEPs that emerge from their R&D reading on to the new standards to third parties on FRAND terms.

However, sometimes disputes break out between SEP owners and technology implementers about whether licensing terms are FRAND. In some cases, SEP owners apply to courts for injunctions to prohibit companies that do not sign up to their licensing terms from selling products that incorporate their SEPs.

In 2015, the Court of Justice of the EU (CJEU) ruled that SEP owners could be held to be abusing a dominant market position, in breach of competition laws, by seeking an injunction against an alleged infringer of their SEPs if those technology implementers are willing to enter into a licensing agreement for use of the patents on FRAND terms.

In its judgment, the High Court had to decide if Huawei was a willing licensee of Unwired Planet's SEPs, and whether the terms of Unwired Planet's licensing offer to Huawei were FRAND. It also had to decide whether the legal action taken against Huawei amounted to an abuse of a dominant market position by Unwired Planet.

The two companies were in dispute about both the rates to be paid under any licensing agreement for the SEPs as well as the geographic scope of the licensing offer. Unwired Planet wanted to licence its SEPs on a worldwide basis, but Huawei wanted a UK-only licence to use the SEPs. 

Mr Justice Birss said that, while Unwired Planet held a dominant market position for licensing its SEPs, it had not abused that position. The judge came to that conclusion despite the fact that Unwired Planet had sued Huawei for patent infringement before offering to licence its technologies on FRAND terms, and even though Unwired Planet had offered Huawei a royalty rate three times the FRAND benchmark rate for 4G.

The judge also said 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. He said, though, that patent holders cannot insist on bundling these patents together and must unbundle the package and provide SEP-only rates when asked to do so by the prospective licensee.

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, the judge said. He said rates should be determined by reference to the value of the patents being licensed, with the result that all licensees will be charged the same kind of rate. Mr Justice Birss endorsed benchmarking as a means to help SEP owners ensure their adjustments are within the boundaries of FRAND.

Mr Justice Birss also considered that it was legitimate for Unwired Planet to insist that Huawei take out a worldwide licence for its SEPs. He came to that conclusion after considering the position of "a willing licensor and a willing licensee with more or less global sales". He said it would be "madness" for licensing agreements to be struck between such parties on a "country by country" basis, and concluded that the UK-only licence Huawei was seeking was not FRAND.

"Unwired Planet’s portfolio today is (and in 2014 it was) sufficiently large and has sufficiently wide geographical scope that a licensor and licensee acting reasonably and on a willing basis would agree on a worldwide licence," the judge said. "They would regard country by country licensing as madness. A worldwide licence would be far more efficient. It might well have different rates for different regions and for different standards but that is another matter."

"The employment of different rates would not lead the parties to abandon a worldwide licence and go for country by country licensing. Assuming the licensee was a Chinese multinational like Huawei, they might well agree on different rates for China as for the Rest of the World but again they would not go for country by country licensing. If the multinational had a significant manufacturing base in another country in which the portfolio was weak, again that could be taken into account," he said.

After determining that Unwired Planet had engaged with Huawei in line with competition rules and that Huawei had not engaged in negotiations as a willing licensee should, Mr Justice Birss considered what the FRAND rates are for Unwired Planet's technologies.

The rates set were lower than Unwired Planet was seeking and will be used to assess the future award of damages to account for Huawei's historic infringement.

Mr Justice Birss agreed to consider an injunction against Huawei over the sale of its devices in the UK which rely on Unwired Plant's SEPs unless Huawei quickly agrees to licence the technologies on the basis of the terms set by the court.

Munich-based patent law expert Peter Koch of Pinsent Masons said: "The ruling by the CJEU on the issues of FRAND licensing of SEPs in 2015 left many questions unanswered about whether certain industry practices were in line with competition rules. The High Court's judgment provides insight into the way the UK courts will interpret some of those questions. The specialist patent infringement courts in Germany have already considered that it is legitimate for SEP owners to insist on worldwide licensing agreements, acknowledging the global nature of business."

"Interestingly, the appeals courts in Germany have considered that an assessment must be made as to whether a first offer of licensing terms by SEP owners is FRAND before any consideration needs to be given as to whether the absence of any counter-offer by a prospective licensee shows an unwillingness to engage in FRAND licensing," Koch said.