English High Court grants Samsung interim licence declarations pending final FRAND determination

The Patents Court has recently handed down its decision in ZTE v Samsung. The court held that it would grant Samsung a declaration that a willing licensor and licensee would enter into an interim licence pending final determination of global FRAND (fair, reasonable, and non-discriminatory) terms between the parties.

This decision follows a spate of judgments from the Court of Appeal on the same issue: Panasonic v Xiaomi, Alcatel Lucent v Amazon and Lenovo v Ericsson. The Patents Court's latest decision again confirms that English courts are willing to grant interim licence declarations in situations where it believes they will serve a useful purpose.

The decision is interesting because both parties were willing in principle to enter into an interim licence, with the dispute being about whether it would be the English court or the Chinese courts that would decide the adjustment(s) for the final licence, as there were parallel FRAND proceedings in both jurisdictions.

Court of Appeal guidance

The Court of Appeal has considered applications for interim licence declarations in FRAND proceedings in a number of recent decisions. In Panasonic v Xiaomi, the Court of Appeal held that Xiaomi was entitled to a declaration that a willing licensor in the position of Panasonic would enter into an interim licence with it. The court also found Panasonic in breach of its obligation to act in good faith under clause 6.1 of the ETSI Intellectual Property Rights policy by virtue of its conduct initiating proceedings in other jurisdictions when the English court's determination of a global FRAND licence was pending.

In Alcatel v Amazon  and Lenovo v Ericsson, one of  the key questions for the Court of Appeal was whether Panasonic v Xiaomi was confined to its facts or whether the underlying reasoning could be applied more widely. In both instances, the Court of Appeal held it could be applied more widely, granting interim licence declarations in both cases. In Lenovo v Ericsson, Lord Justice Arnold stated that he hoped the decision provided the Patents Court with "sufficiently clear guidance to avoid, or at least reduce, the need for further such appeals".

Back to the Patents Court

Mr Justice Mellor's decision in Samsung v ZTE has been the first Patents Court decision to consider this guidance. ZTE sought to distinguish the situation in the present case on the basis that, unlike the respondents in the earlier proceedings, ZTE did not oppose entering into an interim licence.

Instead, ZTE made Samsung an offer of an interim licence subject to the condition that prospective and retrospective adjustment of all terms of the interim licence must be in accordance with the final determination of FRAND terms in an action brought by ZTE in Chongqing, China. In other words, ZTE requested that the courts of China, not England, be responsible for setting the global FRAND licence terms.

Application of Lenovo guidance to Samsung v ZTE

(1) Are ZTE in breach of their obligation to negotiate FRAND terms with Samsung in good faith? and (2) What terms for an interim licence would be FRAND?

Mr Justice Mellor considered these issues together. A large number of jurisdictional concepts were engaged here, but ultimately he considered an overriding concern was that ZTE had withdrawn its challenge to the jurisdiction of the English courts, thereby accepting the jurisdiction of the English court over the claim brought by Samsung. Therefore, subject to concerns of comity, the court should exercise jurisdiction and decide the claim brought by Samsung.

Against that backdrop, Mr Justice Mellor concluded that a willing licensor ought to have engaged with the English proceedings and sought a FRAND trial as speedily as possible. In contrast, he found that ZTE’s proposed terms were contrary to the position it took before and, in conjunction with its conduct commencing a wave of litigation in other jurisdictions, it was acting in bad faith to undermine the jurisdiction of the English court in order to seek a determination in its preferred forum.

(3) Useful purpose

Granting the interim declaratory relief was found to serve a useful purpose by potentially inducing ZTE to reconsider its position and enter into an interim licence on terms proposed by Samsung. This would also help avoid the continuation of unnecessary and burdensome litigation across multiple jurisdictions.

(4) Comity

ZTE sought to distinguish this case on the basis that, unlike the earlier cases, there was an alternative court – Chongqing – that had jurisdiction to determine the terms of a global FRAND licence. ZTE argued that granting the interim licence declarations would "signal a challenge by the English Courts to the legitimacy of Chinese rate-setting and/or a scepticism about the competence or probity of Chinese courts in this area". ZTE further submitted that the grant of the requested declarations would be an exercise of "jurisdictional imperialism".

In line with the earlier Court of Appeal decisions, Mr Justice Mellor rejected these arguments, holding that the interim licence declarations would not interfere with the proceedings in other jurisdictions, including Chongqing. Instead, the declarations aimed to streamline the resolution of the global FRAND dispute without undermining the authority of foreign courts. Making the declarations was not contrary to comity.

(5) FRAND terms for an interim licence

The principal (and perhaps only) dispute between the parties was whether the interim licence should include the term insisted upon by ZTE. The parties were therefore agreed about the sum that should be paid under an interim licence, and accordingly the judgment does not give an indication of the figure. Mr Justice Mellor ordered the parties to seek to agree an order that gave effect to his judgment.

Consequences of failing to enter into an interim licence

Mr Justice Mellor helpfully set out the likely consequences, as he saw them, for a licensor that failed to enter into an interim licence on the terms declared:

1. The court in question would be highly likely to declare the licensor to be unwilling.
2. The unwilling licensor was highly likely to have to pay the costs of the FRAND trial.
3. The effect of the declaration of unwillingness on proceedings in the courts of other jurisdictions would be a matter for those courts to determine.
4. There would be an interesting situation where FRAND terms were determined by multiple courts, where each court might be persuaded to take account of specific points in the other court's judgment (subject to sensible limits to avoid going around in circles).

Osborne Clarke comment

For implementers and SEP holders, this ruling provides further insight into the court's approach to interim licence declaratory relief and the expectations for good faith negotiations. Despite the added complexity of the parallel Chinese proceedings and the interim licence offer made by ZTE, the Patents Court has once again shown itself willing to grant the declaratory relief sought on the basis that it would serve a useful purpose.

There is often commentary suggesting that interim licence declarations amount to a form of anti-suit injunction. However, Mr Justice Mellor’s summary of the likely consequences of failing to comply with the declaration serves as a timely reminder that these declarations are intended as persuasive rather than compulsive measures. They are declaratory relief, not injunctions, and the decision makes it explicitly clear that foreign courts are responsible for addressing their own proceedings.