UK Supreme Court Allows Lower Courts to set FRAND Licensing Terms for Standard Essential Patents (SEPs)
By: Katie Rubino
On August 26, 2020, the United Kingdom’s Supreme Court affirmed a decision allowing English courts to determine fair, reasonable, and non-discriminatory (FRAND) terms for patent licenses held worldwide. FRAND terms denote a voluntary licensing commitment that standards organizations request from an owner of an intellectual property right, such as a patent, that may currently be or will be essential to practice a particular technical standard.
Such patents are known as “standard essential patents” (SEPs) and are considered unavoidable for the implementation of a standardized technology. These patents may protect innovations that entire industries may be built around. For example, a laptop computer may implement hundreds of operability standards. Standards may be set by standard development organizations (SDOs) that allow innovators to work together and select innovations that will become foundational for a particular industry.
The above referenced case arose in 2016 when Unwired Planet brought an action against Huawei Technologies Co., Ltd. (“Huawei”) for infringement of several UK SEPs that Unwired Planet had acquired from Ericsson. Unwired Planet is a Silicon Valley based patent assertion entity (PAE) and Huawei is a Chinese multinational technology company headquartered in Shenzhen, Guangdong. Concomitantly, a separate case was also brought in the UK by Conversant, which had acquired 2000 SEPs from Nokia, against both Huawei and ZTE Corporation (“ZTE”). Conversant is a digital medica advertising company and ZTE is a Chinese technology company that specializes in telecommunication. The patents asserted in these cases had been declared essential to standards as set by the European Telecommunications Standard Institute (ETSI).
Both Unwired Planet and Conversant offered to license SEPs to Huawei and ZTE respectively, on a worldwide use basis. However, both Huawei and ZTE objected to the proposed royalty rates, claiming that they did not meet FRAND terms. Previously, in 2017, the UK High Court held that a FRAND license between multinational companies automatically creates a worldwide license. Further, the UK High Court held that if Huawei did not agree to a worldwide license that incorporated FRAND royalty rates, then the High Court would enter an injunction against Huawei’s sales of infringing products in the UK. The UK Court of Appeal affirmed the High Court’s ruling.
The UK Supreme Court dismissed all appeals filed by Huawei and ZTE on all grounds. The UK Supreme Court rationalized its decision by first examining whether the UK and the UK Supreme Court were appropriate jurisdictions in which to review these decisions. Here, the UK Supreme Court emphasized that questions regarding validity and infringement of national UK patents are within the jurisdiction of national courts. Additionally, the UK Supreme Court also addressed that the contractual arrangement of the FRAND licenses and the ETSI standards gave English courts jurisdiction to hear these cases.
In Unwired Planet, Huawei argued that a license Unwired Planet had granted to Samsung had more favorable terms than the license offered to Huawei, and as such violated FRAND terms. Specifically, because Unwired Planet had granted Samsung a more favorable offering and was discriminating against Huawei. However, the UK Supreme Court held that the non-discriminatory requirement of FRAND did not mean that all licensees had to be treated equally.
The UK Supreme Court also ruled on whether Unwired Planet had abused a dominant marketplace position and had thus breached Article 102 of the Treaty on the Functioning of the European Union (TFEU). In order to make such a determination, the Court reviewed the ruling in Huawei v. ZTE, heard by the Court of Justice of the European Union (CJEU). That ruling laid out all of the necessary procedures that SEP owners and licensees should take during FRAND negotiations. The Court found that Unwired Planet was willing to license patents to Huawei, based on terms that complied with FRAND terms. However, Huawei was unwilling to comply with FRAND terms during the negotiations. As such, Unwired Planet had not abused a dominant marketplace position.
This decision is noteworthy because of its holding that English courts can set the terms for global licenses of telecommunication SEPs. This may provide an avenue for SEP holders to seek out English courts as a venue to assert global patent portfolios, and thus avoid re-litigating in multiple countries. This case also signifies an important step in the direction of creating a global tribunal that sets FRAND royalty rates for SEPs. Frequently as demonstrated by this case, disagreements over FRAND royalty rates create havoc and upset global technology markets. A global tribunal has been proposed as a way to increase transparency and fairness during FRAND negotiations. It remains to be seen how other jurisdictions around the globe will react to this ruling.