Appeal dismissed in FRAND licensing decision of Unwired Planet v. Huawei

Global Publication 23 October 2018

The Court of Appeal has rendered its decision upholding the UK High Court’s first instance ruling of Birss J concerning FRAND licensing of Unwired Planet’s SEP portfolio, on all points of appeal, namely 

  • The scope of FRAND licence between the parties should be global
  • Non-discrimination limb of FRAND did not mean a “most favoured licensee” type clause should apply
  • The Court of Justice of the European Union (CJEU) in Huawei v. ZTE did not lay down mandatory procedural steps, such that non-compliance would result in a finding of abuse. The CJEU imposed a positive obligation to notify the implementer before commencing proceedings, but whether there was abuse depended on all the circumstances.

The Court of Appeal did though find that Birss J fell into error in his finding that there was only one set of FRAND terms for any given set of circumstances. Here, the Court of Appeal pragmatically said that patent licensing is complex and there are many ways to structure terms within the FRAND framework. However, all in all, the Court of Appeal generally approved Birss J’s approaches and decisions in this area where historically there has been little by way of judicial guidance.

This appeal decision comes 18 months after Birss J’s first instance decision determining FRAND terms, a decision which caught considerable attention by all in the industry working in telecommunication technology. The 291 paragraph Court of Appeal decision followed the appeal hearing in May of this year. Notably, this is one of the first decisions of Lord Kitchin since he was elevated to the Supreme Court earlier this month. 

Recap of the background

Aside from the fact that FRAND determination was the first of its kind to ever reach trial, the Unwired Planet v. Huawei dispute was not extraordinary.

Unwired Planet, a non-practising entity holding some Standard Essential Patents (SEPs), resorted to suing under six patents (five of which declared SEPs) against Huawei, Samsung and Google when it found itself struggling to secure licences, claiming an injunction. In addition, Unwired Planet claimed for a Court determination of FRAND licence terms under its global patent portfolio. Although Unwired Planet had not provided its own licence terms before issuing proceedings, there was some contact between the parties, and the Defendants had known that Unwired Planet wished to agree a licence with them.

Unwired Planet settled relatively early on with Google. Technical trials of the patents ensued, and Unwired Planet was able to show that at least two of the six patents sued upon were valid and infringed/essential. By the time it got close to the FRAND trial, Unwired Planet found itself on the brink of insolvency. Against this background, Samsung secured a settlement at a rate which was subsequently considered at trial to be significantly below the market rate relative to the value of Unwired Planet’s portfolio.

The FRAND trial went ahead with Huawei as the only defendant. As at the first instance trial, Huawei undertook to take a licence under every 2G/3G/4G SEP owned by Unwired Planet, but only for the UK.

First instance decision

Birss J's first instance decision attracted considerable interest primarily for its calculation of the correct FRAND royalty rate. The trial involved extensive examination of a vast amount of evidence.

The first instance Court also ruled on other aspects of FRAND terms which became subject to this appeal

  • It would be FRAND for the scope of licence to be on a worldwide basis. Looking at the evidence, most licences were worldwide. The Judge also said it would be “madness” to expect parties to negotiate a licence on a country-by-country basis.
  • Samsung had procured a very favourable royalty rate for commercial reasons under settlement. However, the Court’s determined FRAND rate for Huawei was much more than Samsung’s.
  • The Court ordered a special form of injunction against Huawei – an injunction which operated until Huawei entered into a Court determined worldwide licence. This “FRAND injunction” was stayed pending appeal.

Issues on appeal

The following issues were appealed by Huawei

  • Global Licensing Point: Did a FRAND licence need to be global? Huawei contended it did not.
  • Non-Discrimination Point: should Huawei be given the same royalty rate as Samsung, owing to the non-discrimination limb of FRAND? 
  • Entitlement to Injunction Point: Was Unwired Planet entitled to be granted an injunction when in Huawei’s view Unwired Planet had not strictly followed the Huawei v. ZTE protocol set by the CJEU? The CJEU had, in a previous case between Huawei v. ZTE, prescribed steps that needed to be taken by parties in negotiating a FRAND licence. The CJEU ruling provided that a SEP owner cannot claim for injunction without infringing competition laws, if no prior notice is given to the alleged infringer and offer a FRAND licence.

Court of Appeal finding

Global licensing point

The Court of Appeal found that Unwired Planet’s undertaking to ETSI was met by offering Huawei a global licence in respect of all of its SEPs on the terms settled by Birss J. The basis for the first instance finding was that a willing licensor and licensee who were global players, would agree a global licence, having regard to the size and extent of Unwired Planet’s SEP portfolio, and inefficiencies of agreeing a licence with global coverage otherwise.

The Court of Appeal did however decide that, Birss J fell into error by finding that there could be only one set of FRAND terms for any given set of circumstances. There are a number of possible sets of terms which parties can fairly and reasonably agree to, and that a SEP owner’s obligation to ETSI could be discharged by offering one set of possible FRAND terms.

Non-discrimination point

The Court of Appeal held that differential pricing was not per se objectionable.

Unwired Planet was obliged under the ETSI undertaking to offer Huawei a licence on terms which reflect the proper valuation of the portfolio, and to offer those terms generally to all implementers seeking a licence. The non-discrimination requirement did not apply to override the SEP owner’s entitlement to secure a fair reward. Thus, the licensor could agree a lower rate if it chose to do so but it was not necessarily obliged to offer that rate to other implementers. The Court of Appeal recognised that otherwise, the non-discrimination requirement could be harmful to technological development of standards. The “most favoured licensee” type stance adopted by Huawei was therefore rejected.

Indeed, Birss J had held that the Samsung licence did not represent useful evidence of the value of Unwired Planet’s portfolio having regard to the context in which the licence was agreed (as described above). The Samsung licence terms were not required to be offered to Huawei.

Entitlement to injunction point

As SEP owner, Unwired Planet was in a dominant position. Although it was an important starting point, it was no more than one factor in the analysis. Although Unwired Planet represented that it was not dominant, having found itself unable to secure licences leading it to considerable financial distress, it failed to shift the presumption of dominance. The Court of Appeal found that Birss J was entitled to find that Unwired Planet was in a dominant position as SEP owner, without there being any evidence to rebut the presumption, for example market analysis.

Huawei argued that Unwired Planet had abused its dominant position because whilst there had been some contact, Unwired Planet had not designated the patents said to be infringed and how, and had not offered licence terms before it issued proceedings. The Court of Appeal held that the CJEU in Huawei v. ZTE was not laying down mandatory steps to follow such that non-compliance will result in abuse, except the ruling did impose a positive obligation to notify the alleged infringer before commencing proceedings, and that the nature and content of that notice had to depend on all the circumstances. In this case however, Unwired Planet had given sufficient notice. Birss J was not in error to find that Unwired Planet did not abuse its dominant position. There was no other reason why an injunction should be refused. Accordingly Birss J was not wrong in granting a FRAND injunction against Huawei.  

Looking into the future

The Court of Appeal acknowledged that this was a developing area of law, and that inevitably different approaches may be followed by courts around the world. Given this, the Court of Appeal said that it would be wrong to harmonise the different approaches on a first-to-decide basis. It hoped that an internationally accepted approach would ultimately emerge as future cases are decided.

It is understood that Huawei intends to appeal to the Supreme Court. Permission to appeal was not given by the Court of Appeal.

We will provide further, more in-depth comments in due course.

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