UK Supreme Court’s FRAND/SEP judgment Unwired Planet v Huawei et al 26 Aug 2020
In one of the most important recent judgments for FRAND and SEP issues, the Supreme Court’s has strongly backed the High Court’s assessment of Unwired Planet’s multi-national portfolio of SEPs as being fair, reasonable and non-discriminatory (FRAND) and upheld the lower court’s determination of a royalty rate. The Supreme Court had considered two appeals by manufacturers (Huawei and ZTE) of wireless devices, who had sought rejection of the FRAND finding and the determined rate.
In a judgment which is likely to make the UK more attractive to SEP owners considering court action, the Supreme Court strongly supported the concept of a global portfolio licence and a global royalty rate. In the ongoing debate between patent owners and implementers, the judgment appears to have shifted the equilibrium somewhat in favour of SEP owners and may be persuasive in other jurisdictions. Various jurisdictional challenges by the implementers to the lower court’s findings, including claims that UK courts had no jurisdiction over a licence to a portfolio with non-UK components and that the UK court had made findings on validity of non-UK patents, were rejected by the Supreme Court.
Standard Essential Patents are those patents which may be mapped on to sections of global standards, such that devices that conform to the standard necessarily operate within the patent. Manufacturers of such devices, eg implementers of wireless technologies, which, for reasons of interoperability, must conform to the standard, may find themselves unable to avoid using the patent-protected technology, making SEPs extremely valuable. The commercial success of smartphones and the complexity of the standards has reinforced their value.
As cellular phones became widespread in the nineties the wireless industry recognized the risk that the SEP owners could, unless safeguards were installed, abuse the position inherent in such powerful patents. SEPs represent the interface between competition law, designed to restrict monopolies and eliminate abuse, and intellectual property under which a limited monopoly is registered and supported by a state.
The industry response was the introduction of the so-called “FRAND obligation”: owners of patents registered as SEPs with the relevant standard-setting body (such as ETSI or IEEE), had to offer a licence on terms which were fair, reasonable and non-discriminatory (FRAND). Since then there have been many disputes around the globe, but most notably in USA and Germany, between SEP owners and implementers about whether offered licence terms, including the royalty rate, were FRAND. The complex relationship between IP rights and competition law was highlighted in the 2015 case Huawei v ZTE, C‑170/13, the CJEU ruling that an SEP owner was not abusing a dominant position (arising from the SEP) if it followed specified guidelines. The willingness of the parties to agree a licence played a crucial role.
The Supreme Court judgment re FRAND
The Supreme Court made considerable reference to the CJEU guidelines, noting that these set a fair balance between the rights of SEP owners and those of the implementers. It appeared to confirm the view that the CJEU guidelines represent a safe harbour for SEP owners. The High Court decision appealed by the implementers, in determining a global royalty rate (actually two rates: one for China, and one for ex-China), had used a methodology which relied on comparative licences. The implementers claimed the price differentials among these comparators showed that the methodology was not non-discriminatory and therefore not FRAND, a claim which the rejected by the Supreme Court. The Supreme Court upheld the lower court decision that the licence terms offered by Unwired Planet were FRAND: Unwired Planet had discharged its duties under the FRAND obligation and had not acted abusively.
The Supreme Court judgment re jurisdiction
The implementers’ second appeal related to jurisdictional issues. Huawei and ZTE claimed that English courts were not an appropriate forum for hearing the dispute and had no jurisdiction to decide on the validity of non-UK patents or to issue an injunction. Unwired Planet’s patent portfolio contained both UK and non-UK elements.
The Supreme Court ruled that UK courts did have jurisdiction with respect to determination of a royalty rate and in accordance with the ETSI rules were entitled to issue injunctions. It agreed that UK courts had no jurisdiction on the validity of non-UK patents, but pointed out that the lower court had only adjudicated on and issued injunctions in respect of the UK components of Unwired’s portfolio, confirming that it was entitled to do so. Moreover, there was still scope for the implementers to seek revocation of the non-UK components in the relevant foreign courts, and the Unwired licence terms could be adjusted according to the outcome. The appeal was dismissed.
The Supreme Court has delivered a message to owners of portfolios of Standard Essential Patents (SEPs) that UK courts will adjudicate on global SEP portfolios and related FRAND issues, including determining global rates thereof, and are willing to issue injunctions in respect of UK patents which they deem to be both valid and infringed, even when they form part of a wider multi-national portfolio of patents. The High Court ruling appealed to the Supreme Court now joins a relatively small group of FRAND rate-determining judgments around the world, including the notable US ruling in 2013 by Judge Robart in Microsoft v Motorola. Observers monitoring the interplay between IP and competition law may consider that UK courts have demonstrated their willingness to support FRAND licence offers on SEPs. The UK’s status as an SEP/FRAND dispute venue seems likely to have been enhanced by the Supreme Court’s judgment.
The full Supreme Court judgment is available here: https://www.supremecourt.uk/cases/docs/uksc-2018-0214-judgment.pdf