Can an implementer save the time and cost of UK FRAND proceedings by waiving its right to a FRAND licence and accepting an SEP injunction in the UK? Maybe not, according to a recent decision in the Philips v Asus litigation.
Why implementers might avoid the UK
Implementers have generally not been big fans of the UK Court’s willingness to determine FRAND licence terms on a global basis (i.e. governing royalties arising from an implementer’s activities worldwide rather than being limited to the UK). This has led to an increasing number of implementers reassessing their need to operate in the UK market as part of SEP infringement proceedings – the implementer can accept a UK injunction for any valid and infringed UK SEPs and stop selling its products on the UK market. By waiving the right to a FRAND licence in this way, the UK Court does not need to determine the related licence terms. There is also a time and cost saving from avoiding participation in the non-technical FRAND trial on this issue.
This may sound like a drastic decision to take but it can make sense to an implementer whose major markets are outside the UK. SEP holders like the potential effect of the UK Court’s approach – with a global FRAND decision, a SEP holder could end up getting royalties from an implementer’s sales in its major foreign markets. SEP holders therefore often get the UK Court involved by starting UK SEP infringement proceedings based on relatively small volumes of UK sales by an implementer. With this backdrop, the prospect of abandoning the UK market altogether, rather than let the UK Court decide a global FRAND licence, is much more appetising.
Can an implementer stop participating in UK proceedings as a result?
This strategy has had mixed success based on how the SEP holder has reacted. It worked for ZyXel in SEP infringement litigation brought by TQ Delta. ZyXel had been found to infringe a valid UK SEP which was due to expire within a few months of the decision. ZyXel waived its right to a FRAND licence, accepted the Court’s injunction and paid TQ Delta’s suggested damages for past infringement. The Court of Appeal found that no other issues remained which the UK Court should decide and the non-technical RAND trial should not go ahead.
However, the Court came to a different conclusion in Philips v Asus. Asus had been found to infringe 2 of Philips’ valid UK SEPs. The next step was the FRAND trial. At this point, Asus decided that it would waive its right to a FRAND licence, accepting the injunction and agreeing to pay damages. Following ZyXel’s lead, Asus argued that the FRAND trial was unnecessary and it should not have to participate. Neither Philips nor the UK Court agreed.
Both Philips and Asus had differing views on the value of damages which should be attributed to Asus’ past infringement (both in terms of the applicable royalty rate and whether this rate should be applied to UK sales or sales in multiple jurisdictions). The Court held that these issues required careful consideration of facts and, potentially, expert evidence (with the resulting damages referencing a hypothetical FRAND licence). This all required Asus’ participation in the full FRAND trial.
Implementers may be outraged at the prospect of participating in a UK FRAND trial where they have waived their right to a FRAND licence but the key issue here is whether, even with the waiver, any dispute remains between the parties. In this case, Philips had reacted to Asus’ FRAND waiver by disagreeing with Asus’ suggested approach to damages for past infringement (even retracting its previous agreement to Asus’ suggested royalty rate and not putting an alternative forward). This was very different to the position in TQ Delta v ZyXel where TQ Delta sought a specific damages sum and ZyXel had agreed to pay all of it. The UK Court has repeatedly noted that the issues in the damages enquiry and the FRAND trial are closely interlinked. With this in mind, it seems inevitable that an implementer who cannot agree damages with the SEP holder will be required to participate in a FRAND trial.
This case is one of many ongoing UK FRAND cases exploring the options for both SEP holders and implementers following the “global FRAND licence” decision in Unwired Planet. The Supreme Court is considering this decision and is yet to hand down its judgment. If the position remains the same, we can expect to see many more rapidly evolving strategies as both sides test what they can do to be in or out of the UK’s jurisdiction. With the Philips v Asus decision, we see that an implementer will not necessarily get a speedy exit from UK proceedings if it abandons its UK market and waives its right to a FRAND licence. Expect to see unwilling UK participants waiving their rights to a FRAND licence and trying to reach agreement on potential damages at an early stage in future cases (where the scale of past UK sales makes this approach more preferable). Where a SEP holder refuses to cooperate, we may even see very favourable damages offers from implementers – far beyond any amount that the UK Court will award – in an effort to render any further FRAND trial disproportionate.