From October 2016 to March 2017 the team is joined by Guest Kats Rosie Burbidge and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Tian Lu and Hayleigh Bosher.

Wednesday, 5 April 2017

BREAKING: Birss J hands down first FRAND decision in Unwired Planet v Huawei

The IPKat meets the Unwired Planet judgment
Fresh off the press is today's decision from Mr Justice Birss in Unwired Planet v Huawei [2017] EWHC 711 - the latest judgment in the Unwired Planet cases (see previous Kat reports here).  Clocking in at a cool 166 pages, the decision is the first time the High Court has not only assessed whether offers are FRAND but has gone about setting a worldwide FRAND rate. The judge, plainly anticipating that not everyone can make their way through a 166 page judgment (about half of the closing submissions) in one sitting, helpfully provided a summary of his findings at the end of the judgment.  These are set out below.

Summary of Legal Principles
806. In summary, my conclusions on the law are:

(1) As a matter of French law the FRAND undertaking to ETSI is a legally enforceable obligation which any implementer can rely on against the patentee. FRAND is justiciable in an English court and enforceable in that court. 
(2) It is not necessary to rely on competition law to enforce the FRAND undertaking. 
(3) The boundaries of FRAND and competition law are not the same. A rate may be above the FRAND rate but not contrary to competition law.

(4) There is only one set of licence terms which are FRAND in a given set of circumstances. The problem identified in Vringo v ZTE does not exist because there cannot be two sets of terms which are both FRAND in a given set of circumstances. That way the FRAND undertaking can be enforced. 
(5) The legal effect of the FRAND undertaking relating to a SEP is not that the implementer is already licensed. Its effect is that an implementer who makes an unqualified commitment to take a licence on FRAND terms (settled in an appropriate way) cannot be the subject of a final injunction to restrain patent infringement. Whereas an implementer who refuses to take a licence on terms found by the court to be FRAND has chosen to have no licence, and so if they have been found to infringe a valid patent an injunction can be granted against them. 
(6) FRAND characterises the terms of a licence but also refers to the process by which a licence is negotiated. Although an implementer does not owe a FRAND obligation to ETSI, an implementer who wishes to take advantage of the patentee’s FRAND obligation, must themselves negotiate in a FRAND manner.

(7) Offers in negotiation which involves rates higher or lower than the FRAND rate but do not disrupt or prejudice the negotiation are legitimate. 
(8) An appropriate way to determine a FRAND royalty is to determine a benchmark rate which is governed by the value of the patentee’s portfolio. That will be fair, reasonable and generally non-discriminatory. The rate does not vary depending on the size of the licensee. It will eliminate hold-up and hold-out. Small new entrants are entitled to pay a royalty based on the same benchmark as established large entities.

(9) The non-discrimination limb of FRAND does not consist of a further “hard edged” component which would justify a licensee demanding a lower rate than the benchmark rate because that lower rate had in fact been given to a different but similarly situated licensee. If FRAND does include such a component, then that obligation would only apply if the difference would distort competition between the two licensees. 
(10) A FRAND rate can be determined by using comparable licences if they are available. Freely negotiated licences are relevant evidence of what may be FRAND. A top down approach can also be used in which the rate is set by determining the patentee’s share of Relevant SEPs and applying that to the total aggregate royalty for a standard but this may be more useful as a cross-check.

(11) In assessing a FRAND rate counting patents is inevitable.

(12) In assessing the dominant position of a SEP holder, the practical effect of the FRAND undertaking and the potential for hold out by an implementer are relevant factors and may lead to the conclusion that a SEP holder is not in a dominant position. 
(13) The principles to be derived from the decision of the CJEU in Huawei v ZTE are summarised at paragraph 744 above."
What is FRAND?

At [807], Mr Justice Birss than summarized the facts.  On the question of what is FRAND the judge held as follows (abbreviated):
  • None of Unwired Planet’s offers (April 2014, June 2014, June 2015 or August 2016) were FRAND.
  • None of Huawei’s offers (June 2015, August or October 2016) were FRAND.
  • A UK portfolio licence is not FRAND.  The FRAND licence between Unwired Planet and Huawei is a worldwide licence. 
  • In a FRAND worldwide licence the rates for China would be substantially lower than the benchmark rates.  The rest of the world outside China would be divided into Major Markets (MM) and Other Markets (OM).  The OM rates would be the same as the China rates because that is where the goods are made. 
  • The rates in a worldwide licence would be:

Major Markets
China and Other Markets

Handsets
Infrastructure
Handsets
Infrastructure
2G/GSM
0.064%
0.064%
0.016%
0.032%
3G/UMTS
0.032%
0.016%
0.016%
0.004%
4G/LTE
0.052%
0.051%
0.026%
0.026%
  • The detailed terms of a worldwide licence have been settled. They are FRAND.
Competition law defence

On the competition point, he concluded:  
  •  If a proper economic analysis had been done the answer might be different but in this case, as the holder of SEPs, Unwired Planet is in a dominant position.
  • Unwired Planet did not abuse their dominant position by issuing these proceedings for an injunction prematurely, by maintaining a claim for an injunction in these proceedings, by seeking to insist on a worldwide licence, by attempting to impose unfair prices or by bundling SEPs and non-SEPs.
Remedies

On remedies, the judge held as follows:
  • Final injunction  - Since Unwired Planet have established that Huawei have infringed valid patents EP (UK) 2 229 744 and EP (UK) 1 230 818, and since Huawei have not been prepared to take a licence on the terms I have found to be FRAND, and since Unwired Planet are not in breach of competition law, a final injunction to restrain infringement of these two patents by Huawei should be granted.  If Unwired Planet had issued these proceedings prematurely, in the circumstances as they now are, refusal of an injunction would have been disproportionate.  Paragraphs [793] and [794] state:  
"The relevant patents have been found valid and infringed. Unwired Planet wish to enter into a worldwide licence. Huawei is willing to enter into a UK portfolio licence but refuses to enter into a worldwide licence. However a worldwide licence is FRAND and Unwired Planet are entitled to insist on it. In this case a UK only licence would not be FRAND. An injunction ought to be granted because Huawei stand before the court without a licence but have the means to become licensed open to them.  
Were it not for the fact that Huawei did not engage with the terms of the worldwide draft, I would have been able to hand down this judgment with the worldwide terms fully settled. That has not proved possible. So in the exercise of my discretion I will not grant the injunction on the day this judgment is handed down in public. Normally when a judgment in a case of this complexity is handed down a date some few weeks afterwards is found for the consequential orders. I will deal with the injunction at that later hearing. It should be sometime after the Easter holidays. Unwired Planet’s legal team will be able to produce a clean copy of the worldwide licence in the form I have approved. They should file it at court and serve it on Huawei well in advance of the later hearing. I do not expect to hear any further argument about the terms since the time for that has passed. I will discuss the directions for this on the day the judgment is handed down."
  • Back damages - To the extent damages should be awarded, they would be at the same rate as the appropriate FRAND rate.
The IPKat will be back with further analysis once he finds a cool towel.

1 comment:

ML said...

In relation to the Vringo v. ZTE problem, specifically paragraph 155 dealing with the objection that parties may now be able to challenge valid licences after the fact as having not been the true FRAND terms, Mr Justice Birss states that: "However in terms of the ETSI FRAND undertaking, there is no reason why the undertaking should entitle either party subsequently to challenge agreed terms as being non-FRAND absent competition law considerations. If parties agree licence terms then their rights and obligations under the ETSI FRAND undertaking will be discharged and replaced by their contractual rights under the licence.".

My issue with this reasoning is that the obligations of the SEP holder under their undertaking to ETSI to agree FRAND terms would only be discharged if the terms agreed are actually the true FRAND terms. So therefore adopting a "one-true" FRAND approach will create uncertainty as it will be open to the licensee to argue that the terms agreed were not true FRAND and so the licensor has not fulfilled their ETSI undertaking obligations.

Obviously the licensor could argue that the licensee agreed to accept the terms as FRAND and to voluntarily discharge the ETSI undertaking;however, clever drafting of the licence could avoid accepting the terms as FRAND and more generally the "one-true" FRAND interpretation does leave uncertainty as it means the ETSI undertaking imposes and almost impossible burden upon the licensor. Anyone else have some input on the potential repercussions of this reasoning?

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