UK Supreme Court rules on FRAND approach in Unwired Planet and Conversant

The court dismissed the appeals of Huawei and ZTE.

The Court heard together the appeals from the Court of Appeal judgment in Unwired Planet v Huawei [2018] EWCA Civ 2344 together with the appeal from the Conversant v Huawei and ZTE [2019] EWCA Civ 38 case.

Lord Reed, Lord Hodge, Lady Black, Lord Briggs, Lord Sales considered the following questions raised by the cases on appeal:

1. Does the English court have the power or jurisdiction, or is it a proper exercise of any such power or jurisdiction without the parties’ agreement:

• to grant an injunction restraining infringement of a UK SEP unless the defendant enters into a global licence under a multinational patent portfolio;
• to determine the rates/terms for such a licence; and
• to declare that such rates/terms are FRAND?

2. If the answer to (1) is "yes", is England the proper forum for such a claim in the circumstances of the Conversant proceedings (this point had not been taken in the earlier Unwired Planet proceedings)?

3. What is the meaning and effect of the non-discrimination component of the FRAND undertaking and does it mean that materially the same licence terms as offered to Samsung must be offered to Huawei in the circumstances of the Unwired case?

4. Does the CJEU’s decision in Huawei v ZTE mean that a SEP owner is entitled to seek an injunction restraining infringement of those SEPs in circumstances such as those of the Unwired case?

5. An additional issue raised before the Supreme Court as to whether the Court should grant damages in lieu of an injunction.

Issue 1:  FRAND injunction pending global licence

Global v National licence

The first instance judge in the Unwired Planet case, Birss J, found that in any given set of circumstances, there was one set of FRAND terms. In these circumstances, a global licence was FRAND.  He determined what rates would be FRAND for a global licence.

He granted an injunction that Huawei may not infringe the UK patents that had been found valid and infringed, but this would not take effect if Huawei agreed to take a global licence on those FRAND terms.  On appeal to the Court of Appeal the rates that the Judge had determined were not challenged. However, the global nature of the FRAND licence was challenged.

The Court of Appeal agreed with the Judge's finding that a global licence was FRAND.  It accepted that global licensing was the industry norm. It may be wholly impractical for a SEP owner to seek to negotiate a licence of its patent rights country by country, and prohibitively expensive for it to seek to enforce those rights by litigating in each country in which they subsist.

The Court of Appeal did not agree that there was only one set of FRAND terms for any given set of circumstances, but found that this had no material effect on the Judge's conclusion.  If more than one set of terms was FRAND, the SEP owner may choose which he offers. Therefore, if both a global and a national licence could be FRAND, then the SEP owner may, if he prefers, offer only the global licence. It would be a matter for the prospective licensee whether or not to accept it.

The Supreme Court found that the English Court had power to grant an injunction in respect of UK national patents unless the implementer enters a global licence of a multinational patent portfolio, and determine the terms of that licence. The court recognises that national courts determine validity and infringement of national patents but the ETSI policy empowers a national court to determine FRAND. The courts below in the UK had not determined validity or infringement of foreign patents, they had determined industry practice. An implementer would remain free to challenge a particularly important national patent and seek a change in royalties should that be successful.

Issue 2: forum conveniens

Is England the proper forum for a claim in Conversant

In the Unwired Planet case Huawei did not at first challenge whether the English Court was the appropriate forum for the dispute, so it was unable to raise this issue at the appeal stages.  In the later Conversant case both defendants (Huawei and ZTE) challenged the jurisdiction of the English Court at the outset on the basis that England was not the most convenient forum to determine the FRAND dispute.  Both parties argued that the UK was a small market: the more appropriate country to resolve the dispute was China, where both defendants were based and most sales were made.  The Court of Appeal answered the issue by focusing on what the dispute before the English Court was: it was a claim for infringement of UK patents and an injunction under those patents. This could not be brought in China.  The determination of what a FRAND licence was part of the defence to the claim for an injunction of those UK patents.

The Supreme Court held that England was the proper forum. It noted that China had not determined that it was the proper forum for determination of the global rate.

Issue 3: meaning of the ND part of FRAND

Huawei argued that the Non-Discriminatory part of FRAND meant that the rates for similarly positioned licensees should be the same across the industry.  In the Unwired Planet case, Co-defendant Samsung settled shortly before trial, when Unwired Planet was cash-strapped. It paid a lower rate. Huawei argued that it would be discriminatory if Huawei had to pay more than Samsung. 

At first instance, Birss J dealt found that the non-discrimination limb of FRAND was not “hard edged”. A licensee who was offered a "fair and reasonable" rate was not discriminated against merely because another licensee had been given lower rate. Non-discrimination might apply if the difference would distort competition between…