Knowledge & News

Unwired Planet: one small SEP for man, one giant leap for FRAND-kind

28 November 2018

A number of recent cases have bolstered the UK Court’s expertise on licensing of Standard Essential Patents (“SEPs”), confirming its status as the venue of choice when seeking to resolve disputes over fair, reasonable and non-discriminatory (“FRAND”) terms and related issues.  With the recent Court of Appeal decision in Unwired Planet v Huawei, the UK Court’s approach is becoming helpfully predictable for parties to FRAND disputes.  Now is therefore a good time to take stock on what SEP holders and users should know about FRAND licences in the UK.

  • The UK Court will determine FRAND terms, including royalty rates, for a global licence which covers both UK and non-UK SEPs (not limiting itself to terms relevant to UK SEPs).  This approach has received criticism from those who view it as the UK Court extending its jurisdiction impermissibly widely by interfering with issues relating to foreign property (in particular, foreign SEP validity which must be dealt with by the court in the SEP’s jurisdiction).  However, the UK Court considers this issue to be separate from the subject of its decision: determination of FRAND licence terms.  Determination of these licence terms is based on the scope and effect of the undertaking given when an SEP holder declares its patent as essential to the standard.  The UK Court is happy to make this determination on a global basis, to help prevent SEP users from employing delay tactics in FRAND licence negotiations (a likely outcome where SEP holders are faced with the prohibitive costs of starting multiple proceedings in different jurisdiction to secure global FRAND terms by way of various country-specific decisions).  The Court has also noted that various mechanisms can be built into FRAND terms (including different territorial royalty rates dependent on numbers of SEPs in a territory, and annual adjustments to account for change in the SEP landscape) to ensure that a global licence remains fair to users.  This capability is good news for SEP holders who wish to settle FRAND terms in one set of proceedings.  It is less welcome to SEP users, who now have the burden of showing whether particular SEPs should not attract royalties (through separate patent revocation proceedings in the SEPs’ jurisdictions).  A discontented user should, however, be wary of any attempt to try to circumvent the UK Court’s authority on this issue via relief sought in subsequent foreign proceedings – previous cases have demonstrated that the UK Court is prepared to block these attempts (by way of an anti-suit injunction).  If a user decides to simply ignore the UK Court’s FRAND terms, it will face an injunction against use of the relevant UK SEPs in the UK.
  • SEP holders can start proceedings, seeking an injunction against use of a UK SEP, without detailed and time-consuming negotiations with a user – the only requirement is that the SEP holder has given the user notice of the SEP infringement with a view to granting a licence on FRAND terms.  A well-known protocol – previously established in the European court judgment in Huawei v ZTE – described the steps to be followed in order to obtain an injunction.  The UK Court of Appeal has confirmed that it considers these steps to be best practice rather than mandatory, as long as the SEP holder has provided the user with the above basic level of notice.  This approach works in the UK – where an injunction will not be granted in proceedings until all key issues (including the UK SEP’s validity) have been considered.  However, there may be a need for the protocol to be considered mandatory in other jurisdictions where an injunction might be granted at an earlier stage.
  • When deciding appropriate royalty rates for SEPs, SEP holders will not be excessively constrained by the terms that they had previously agreed with a similarly situated licensee.  A user cannot complain about different royalty rates if the rate they are offered is still considered fair and reasonable.  (In other words, the Court of Appeal has decided that the correct approach to non-discrimination is the “general” rather than “hard-edged” approach.)
Whilst the Court of Appeal’s decision is especially welcomed by SEP holders, there are aspects that can help SEP users too.  This may be the case where a user is a direct competitor of the SEP holder (i.e. both are at the same level in the supply chain).  In these circumstances, the holder may refuse to negotiate a licence arguing that this is not required under its FRAND commitments.  Where a user seeks to challenge this, the UK Court can now ensure that the issue is dealt with on a global basis.  Furthermore, the Court has left a number of avenues open for users to explore where they consider that their particular circumstances warrant a departure from the above approach.  For example:

  • A UK Court may refuse to assess a licence on a global basis where a SEP holder’s portfolio is very small, covering a limited number of SEPs and territories.  As part of this, a user should consider whether there is evidence that the SEP holder normally engages in country-by-country licensing.
  • A user might also seek to demonstrate anti-competitive effects of tying a SEP licence in one country to a SEP licence in another – through a detailed analysis of the actual effects of these tying activities.  Such evidence may convince the Court that a global licence constitutes unlawful bundling and is not appropriate.
  • Where a user considers that the court of another jurisdiction is more appropriate to determine FRAND issues (for example, because it is the place of manufacture or its SEPs form a larger proportion of the portfolio), it may wish to take a point on whether the UK is the proper or appropriate forum.  Whilst other decisions indicate that this argument will not necessarily succeed, it is certainly clear that any such argument – and a corresponding application to stay the UK FRAND proceedings – must be made at an early stage.
  • Contrary to the findings of the first instance court (which found that only one set of terms could be FRAND), the UK Court of Appeal found that more than one set of terms, agreed between a willing licensee and willing licensor, could be determined to be FRAND.  The practical outcome of having a range of FRAND terms is that FRAND licences are likely to be litigated with reference to the end of the FRAND range which is preferred by the SEP holder (because an SEP holder must only offer a licence on FRAND terms and it will inevitably choose terms within the FRAND range which best suit its own goals).  The user can at least seek to narrow this FRAND range by providing detailed economic evidence to the Court regarding what the FRAND terms should be.
  • More generally, all of the main UK cases relate to FRAND terms for telecommunications SEPs and their associated standards and FRAND undertakings.  Where the SEP relates to a different technology standard, the actual undertaking given by SEP holders should be considered – to establish whether it imparts different obligations on the SEP holder regarding terms which are to be considered “FRAND”.  Furthermore, one of the justifications for a global licence in telecommunications cases is the global nature of a mobile phone (which has to be capable of continuous use when crossing borders).  This may not be true for other technologies that are the subject of SEP licensing disputes.
Aside from any particular advantages or disadvantages for SEP holders and users, both sides should note that negotiations which refer back to the UK Court’s approach can avail of a level of certainty in how particular issues will ultimately be decided (with reference to the growing collection of UK judgments) – this certainty can prove to be a powerful tool when negotiating FRAND licences.

Authors

Dafydd Bevan

Dafydd Bevan Partner London (UK) Solicitor (UK)

John de Rohan-Truba

John de Rohan-Truba Managing Associate London (UK) Solicitor (UK)

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