Patent ruling highlights need for legal basis for FRAND claims

Out-Law News | 30 Mar 2021 | 2:17 pm | 4 min. read

Businesses need to be specific about the legal basis on which they are raising claims that the licensing terms proposed to them for using standard-essential patents (SEPs) are not fair, reasonable or non-discriminatory (FRAND) if they want their case to be heard by the courts in England and Wales, an expert in patent law has said.

Mark Marfé of Pinsent Masons, the law firm behind Out-Law, was commenting after the Court of Appeal in London ruled that a technology implementer had failed to establish the necessary grounds for raising a FRAND claim against SEP rights holders based overseas before the courts in England and Wales.

Marfe Mark

Mark Marfe

Legal Director

This is another noteworthy case relevant to the future of standard essential patent licensing

The court was considering an appeal raised by Vestel, which manufacturers televisions sold in various countries around the world under various brands including Toshiba, Hitachi, Telefunken and Panasonic.

Vestel's TVs use 'high efficiency video coding' (HEVC) which is a form of high definition television technology that is defined in the video compression standard called H.265. The standard is promoted by the International Telecommunication Union (ITU), a UN agency based in Geneva.  A large number of patents have been declared as essential to the H.265 standard. The ITU rules require that patentees who have declared essential patents to this standard must commit to licensing those patents on FRAND terms.

One of the companies to have declared patents as essential to the H.265 standard is Philips. Philips has included those patents within a broader patent pool for the standard. That patent pool is administered by Access Advance. As Vestel's TVs use Philips' SEPs, it is required to obtain a FRAND licence from Philips directly or for the patent portfolio administered by Access Advance.

Vestel has said that it is quite happy to agree a licensing deal with Access Advance, which would entail taking out a global licensing agreement for all the patents within the patent pool Access Advance administers. Unlike some of the implementers in earlier FRAND cases, it is content that the global scope of that arrangement would be FRAND and is not insistent on agreeing a UK-only licence. However, it has argued that the licensing terms proposed are not FRAND, particularly because it considers the royalty payments it would have to pay under it to be too high.

The case initially raised by Vestel before the High Court was that Access Advance and Philips had acted in breach of EU and UK competition law by seeking to impose a licence for SEPs that it considered not to be FRAND. It specifically claimed that the companies were responsible for abusing a dominant market position and previously asked the High Court to either declare the alternative licensing terms it had proposed as FRAND or to set its FRAND terms of its own to apply in this case.

To have its case heard, however, Vestel had to be able to demonstrate that the High Court had jurisdiction to rule on the matters raised. Vestel had to clear this jurisdictional hurdle because both Access Advance and Philips are based outside of the UK – Access Advance in the US, and Philips in the Netherlands.

In late 2019, the High Court ruled to reject Vestel's claims that the court had jurisdiction to rule on its case. In doing so, the court considered that Vestel had not met any of the legal requirements for bringing a case against Philips under the EU's Brussels 1 Recast Regulation, and that it had also not met the criteria for serving claims against Access Advance via any of the available "jurisdictional gateways" available under the  Civil Procedure Rules applicable in England and Wales.

In relation to Philips, amongst other findings, the judge held that none of the evidence Vestel had filed disclosed any credible basis on which to conclude that its UK subsidiary, Vestel UK, had suffered or would suffer any direct damage arising from the alleged abuse of dominance, assuming the abuse was proved at trial. In relation to Access Advance, the judge held that Vestel’s claim did fall not within any of the applicable gateways because it had failed to show it would suffer any damage.

Vestel was granted permission to raise an appeal before the Court of Appeal. While Vestel amended its case in early 2021, the Court of Appeal determined that the newly pleaded arguments arose from the same facts and evidence already in the case but also held that the company has "identified no legal right to the declarations sought".

In giving the lead judgment, Lord Justice Birss said: "The need of a legal standard against which to judge the claimed declarations is important… There is no such thing as a free standing FRAND claim. Although Vestel refers to the ITU rules it does not contend in these proceedings that they have legal force."

Mark Marfé of Pinsent Masons said: "This is another noteworthy case relevant to the future of standard essential patent licensing. It follows on from a series of cases, culminating in the judgment of the Supreme Court in the case of Unwired Planet v Huawei last year which confirmed the English court’s jurisdiction to make FRAND declarations. However, this case is different because it was the technology implementer, Vestel, seeking a FRAND declaration from the patent holder. There was no claim for patent infringement and Vestel had not sought to bring a claim for a declaration of non-infringement or revocation of any SEPs before the court."

"The judgment gives rise to a number of interesting issues related to declaratory relief – in particular, the basis for a FRAND claim. The legal basis for the particular FRAND obligation upon which the court is being asked to adjudicate needs to be identified, as the Supreme Court confirmed in the case of Unwired Planet v Huawei, which the Court of Appeal gave consideration to in reaching its judgment in this case," he said.

"In Unwired Planet v Huawei, the Supreme Court found that the English court had jurisdiction to grant the FRAND declarations before it because the undertaking to offer licences on FRAND terms, which had been given by the patentee to the relevant standard setting body (ETSI), was enforceable in law by an implementer. The relevant terms were the ETSI IPR Policy and the judgment explains that under French law, this created a right enforceable by the implementer against the patentee. FRAND is therefore not something to be addressed in the abstract. In this case, the rules of the relevant standard setting body, the ITU, were only referred to in general terms and it was not argued by Vestel that the ITU rules conferred a legal right upon which the court's declaratory jurisdiction could apply," Marfé said.

"Issues of SEP licensing are now a consideration for businesses across a range technology-rich sectors all reliant on standardised technologies. These technologies have been developed under the auspices of various standard setting bodies not just ETSI and the ITU and so this decision will not be the last word on this issue," he said.