Today, the UK Supreme Court gave its widely anticipated judgment in Unwired Planet v Huawei on how patented technology should be licensed to equipment manufacturers accessing telecommunications standards (or ‘implementers’).
Such patents are called Standard Essential Patents or ‘SEPs’ and their owners must grant licences of their technology on fair, reasonable and non-discriminatory (‘FRAND’) terms. This case has far-reaching consequences for anyone selling interoperable communication devices on a worldwide basis and for those wishing to take advantage of the enhanced connectivity offered by 5G, particularly with respect to the Internet of Things and connected vehicles.
Such technology is protected by thousands of SEPs, so makers of interoperable equipment should take a FRAND licence in order to avoid an injunction for patent infringement.
Osborne Clarke is co-counsel for Unwired Planet, the patent owner and winning party.
Commentary from Osborne Clarke
The Supreme Court dismissed Huawei’s appeal in its entirety and has unanimously upheld the Court of Appeal and first instance judgment of Birss J. This is a great win for our client, Unwired Planet, and confirms the UK court has jurisdiction to decide FRAND terms for a global licence, which not only guarantees implementers access to the UK market, but also enables them to legally manufacture and sell their products on a worldwide basis without infringing the SEP owner’s patents. If an implementer enforces the SEP owner’s obligation to licence its technology on FRAND terms, the UK court will value its patent portfolio to determine a set of rates which are available to all equipment manufacturers using its technology. This ensures SEP owners get a fair market price for licensing their technology, but also have the freedom to enter into deals with other licensees seeking first-mover or other financial advantages. It also cements the UK as the premier jurisdiction of choice for SEP owners to litigate in.
Quote from Unwired Planet spokesperson:
“We are pleased with the UK Supreme Court’s decision, which fully affirms the rulings of the UK appellate court and Mr Justice Birss. Unwired Planet and its other PanOptis related companies believe that global licensing is the most efficient and effective solution for both licensors and licensees. We look forward to continue working with other manufacturers to offer licenses to our patents under this global FRAND framework and conclude negotiations in a timely manner.
“We greatly appreciate the efforts our UK counsel: EIP Legal, Osborne Clarke and the UK Barristers. The expertise, creativity and determination of the combined legal teams were truly exceptional.”
Quote from Arty Rajendra, UK Head of IP Disputes at Osborne Clarke and co-counsel for Unwired Planet:
“We are thrilled for Unwired Planet. The Supreme Court judgment endorses Unwired Planet’s consistent position that a global licence is FRAND and ensures it receives fair royalties for its SEP portfolio without having to litigate all over the world. Implementers complain this is a high price for access to the UK market, but because the UK court is determining terms of a global FRAND licence, implementers can also legally manufacture and sell their products on a worldwide basis without fear of infringing the SEP owner’s multinational patent rights.
“Unwired Planet’s contractual obligation to licence its SEPs on FRAND terms was raised by Huawei as a defence to a UK injunction, and the UK court has jurisdiction to rule on its meaning and effect. The UK court has taken a fair and pragmatic approach to its jurisdiction and the exercise of its powers, which gives effect to the commercial and legal realities of this case, and the external and internal context of the ETSI Policy. It also means the UK is quite rightly the hot spot for SEP and FRAND litigation.
“Implementers and SEP holders should be pleased the respected and high quality English court is willing and able to determine global FRAND terms to enable implementers to sell their phones worldwide. We can expect more SEP owners to seek to enforce their standard-essential patent rights in this country, and to see more clarity for SEP owners and implementers on the rates they should be seeking for licences.
“The Supreme Court also stated that Patent Assertion Entities should not be treated any differently from other SEP owners, and accepted that assigning SEPs to Patent Assertion Entities might be the most straightforward way to obtain value from such IP, and financial reward for research and innovation.”
Background to case
The UK court had previously found two SEPs owned by Unwired Planet to be essential, valid and infringed by Huawei. Unwired Planet would ordinarily be entitled to an injunction but had given an undertaking to ETSI (a telecommunications standards setting organisation) to grant a licence to implementers on FRAND terms. Huawei could take a FRAND licence and avoid an injunction.
Since Birss J had decided that a FRAND licence would be a global licence of Unwired Planet’s entire SEP portfolio, in order to avoid a UK injunction, Huawei would need to pay royalties on its worldwide sales. Huawei felt that was unfair for several reasons, not least because the majority of its sales were in China. In the courts below, Huawei contended for a UK-only licence and thus royalties payable only in respect of UK sales.
In the Supreme Court, Huawei changed positions and contended for a patent-by-patent licence. In another change of tack, Huawei’s appeal in the Supreme Court was based on jurisdiction and the court’s powers to grant an injunction, whereas previously Huawei had simply argued a global licence was not FRAND. Huawei also raised new issue 5 for the first time as to whether an injunction, a discretionary remedy, was proportionate, and instead whether damages would be an adequate remedy.
Summary of the Supreme Court’s findings
In summary, the UK Supreme Court found that:
Issue 1 – Face a UK injunction or take a global licence? Does the English court have jurisdiction and can it properly exercise its powers (a) to grant an injunction if the implementer does not take a global licence, and (b) to determine rates and other terms of a global licence?
The Supreme Court found that Huawei’s arguments attached too much weight to protecting implementers and not enough to protecting SEP holders – which is the balance ETSI is trying to achieve. The court accepted that a practical solution to the uncertainty over the validity and essentiality of a SEP owner’s portfolio is to offer a licence of all SEPs that have been declared by the owner to ETSI, and that would be reflected in the price. Against that, the implementer would have certainty that they can access the standard. Huawei relied on several foreign court decisions to argue UK’s approach to settling global FRAND terms was out of step with other countries. However, on analysing those decisions, the Supreme Court found they contained several principles which actually supported Unwired Planet’s submissions.
Issue 3 (Unwired Planet was not a party to Issue 2) – What does non-discriminatory mean in FRAND?
The Supreme Court found that Unwired Planet were not required to offer Huawei the same royalty rates which had been offered to Samsung.
Samsung had originally been a defendant with Huawei in this litigation but had agreed a settlement just before the first instance FRAND trial. Huawei had argued that the rates set by Birss J should not have been any higher than those offered to Samsung in order to satisfy the non-discriminatory element of FRAND. The Supreme Court found that the FRAND was a unitary term and that Huawei’s submission gave undue weight to the non-discriminatory element. It was an attempt to re-insert a “most-favoured licence” term into the ETSI Policy, which previously had been publically rejected by ETSI. The Supreme Court could also see force in giving SEP holders the freedom to offer below-FRAND rates – to implementers who wanted to take a ‘first mover’ advantage or to secure the SEP owner’s commercial survival. The Supreme Court found that Birss J’s approach to setting FRAND rates was a good one.
Issue 4 – What does a SEP holder have to do before suing to avoid competition law consequences?
The Supreme Court found that Unwired Planet had not breached its dominant position under Article 102 TFEU by bringing these proceedings prematurely. Huawei had contended that a set of pre-action steps set out in an earlier CJEU case (Huawei v ZTE) were mandatory and Unwired Planet had not complied with them prior to issuing proceedings. The Supreme Court held that Unwired Planet need only give prior notice or have prior consultation with the implementer, which they had done in this case, and were therefore compliant. The remaining steps simply provided a safe harbour against Article 102 TFEU, but were not mandatory.
Issue 5 – Is an injunction appropriate and proportionate?
This issue was raised by Huawei for the first time in the Supreme Court and had not been argued below. Huawei argued that Unwired Planet’s only interest in enforcing its SEPs was monetary, so it could be adequately rewarded in damages instead of an injunction. This issue was about the court’s discretion to grant injunctions. The Supreme Court found that any untoward threat that an injunction might carry was dissipated by the offer to licence on FRAND terms. Further, damages were unlikely to be an adequate substitute for an injunction. A monetary award would not prevent hold-out, which is a very real problem given the impracticability of suing in every country around the world where SEPs were owned. An injunction in one country would, however, give the implementer little option but to accept the FRAND licence. Indeed, an injunction was necessary to do justice.
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