05 October 2020

On the 26 August 2020 the Supreme Court handed down its judgment on three combined cases: Unwired Planet International Ltd and another v Huawei Technologies (UK) Co Ltd and another; Huawei Technologies Co Ltd and another v Conversant Wireless Licensing SARL; ZTE Corporation and another v Conversant Wireless Licensing SARL [2020] UKSC 37.

The Huawei case was originally brought in 2014 after Huawei was accused of infringing the UK patents of Unwired Planet, which had purchased the patents used in mobile technology from Ericsson. The Court of Appeal ruled Huawei had to pay a global licence fee for use of the 'standard essential patents' (SEPs) in 2017. Huawei appealed, arguing that it only needed to pay licence fees for the technology used in the UK (a much smaller sum). During the process both parties had proposed their own licence terms to the other that they deemed to be 'fair, reasonable and non-discriminatory' (FRAND), which the other party had rejected.

The Supreme Court upheld the Court of Appeal’s decision, dismissing the appeals and confirming that the Court has the power to both grant an injunction to prevent infringement of a UK patent by a defendant that is not willing to enter into a FRAND licence and determine global FRAND licence terms.

What is a FRAND licence?

The members of the European Telecommunications Standards Institute (ETSI) (members mostly consist of telecoms manufacturers) set the standards for 'mobile telephony' devices. Members are required to let ETSI know of “essential” patents for their devices (SEPs). ETSI’s IPR Policy means that members have contractually agreed to license these rights to other members on FRAND terms.

What did the Supreme Court decide?

There were five key points considered by the Supreme Court:

1) Jurisdiction. In brief, the Supreme Court ruled that it has the jurisdiction to grant an injunction to prevent infringement of a UK patent, where the UK patent is essential to the telecoms equipment that is being used globally, unless there is a global licence of the multinational patent portfolio in place. The Court can also determine royalty rates and other disputed terms of that licence.

The Supreme Court ruled that the 'validity and infringement of a national patent are within the exclusive jurisdiction of the courts of the state which has granted the patent'. However, ETSI’s IPR Policy is a contractual relationship between the members that 'give[s] the English courts jurisdiction to determine the terms of a license of a portfolio of patents which includes foreign patents'. The Supreme Court went to great pains to disprove Huawei’s submission that the approach of the English courts is out of step with other foreign jurisdictions, after analysing US, German, Chinese, Japanese, and European Commission precedents.

2) What was the most appropriate court (forum non conveniens)? This issue was only raised in the cases heard by the Supreme Court that involved Conversant Wireless Licensing SARL. Huawei and ZTE argued that the Chinese courts would be a more suitable forum given their leading market is China. However, the Court dismissed this argument because, unlike the English courts, the Chinese courts did not have the jurisdiction to decide the terms of a global FRAND licence.

3) Was there a breach of competition law? Huawei also argued that, as Unwired did not offer a licence on acceptable FRAND terms before seeking an injunction, Unwired’s claim for an injunction was an abuse of its dominant market position. The Court emphasised that there was no abuse of a dominant position here, as Unwired had displayed willingness throughout the process to grant a FRAND licence on terms set by the Court (and it had offered licence terms to Unwired, which Unwired rejected as it believed the terms were not FRAND).

4) What does the 'non-discriminatory' element of a FRAND licence mean? A key point to consider when drafting FRAND licence terms is the 'non-discriminatory' element. In this case Huawei argued they should be granted a licence with the same royalty rates as a licence for the same SEPs granted to Samsung. The judgment emphasised that the requirements for a licence to be FRAND is a single, 'composite' obligation, not three separate obligations to be fair, and reasonable, and non-discriminatory. This means that there is no obligation for SEP owners to grant a licence on the most favourable terms to all similarly situated licensees, although the 'role of the non-discrimination limb is to ensure that the fair and reasonable royalty is one which does not depend on any idiosyncratic characteristics of the licensee.'

5) Can the court award an injunction? Huawei argued that they should pay damages to Unwired, in lieu of the royalties they would have paid and that an injunction requiring a global FRAND licence was unnecessary. However, granting an injunction (instead of monetary damages) is a discretionary exercise and the Court believed in this case it was necessary. Without a global licence, the infringer (in this case Huawei) would be incentivised to continue infringing, given the almost impossibly high costs involved for Unwired to enforce its patents against Huawei in every single one of the hundreds of jurisdictions the SEPs are utilised and registered in.

What does mean for telecoms licensing?

SEPs are used in thousands of mobile devices today and are increasingly being used in connected internet of things devices. The Court’s decision will have a significant impact moving forward and will further increase the UK’s profile as a destination for patent litigation. In terms of licensing, the cost of creating devices for telecoms manufacturers will likely increase if they want to sell those devices in the UK, as they now have to enter into a global licence to do so, which may ultimately impact on the price paid by the consumer. However, the judgment is good news for SEP holders as it gives extra certainty about what FRAND licences will look like (as the Supreme Court upholding the lower court’s guidance in 'non-discriminatory' licences). This also gives SEP holders some flexibility on which terms should be included in a FRAND licence, depending on who the licensee is and the surrounding circumstances.

If your business has been affected by the issues raised in this article, or for further information, please contact Helen Scott-Lawler or Alicia Lenoble in our Intellectual Property team.

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Helen Scott-Lawler

Helen Scott-Lawler Partner

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