A Google search throws up some amusing examples when one searches for oxymoron examples.
The recent decision by the UK Court of Appeal in Unwired Planet v. Huawei (click here) is exactly that. Why, would you ask? Because on one hand there is Brexit and on the other hand this judgement-it seeks to enforce those patents that are not under its own jurisdiction. Ergo-oxymoron. Perhaps some part of the judgement seems to be yearning for the good old days of the British legal system and hence the grand assumption of having global jurisdiction, or maybe a colonial hangover that refuses to go away.
This decision would no doubt be very much welcomed from the SEP owner side and would make London (like New Delhi) as the go to court for SEP litigation / assertion.
To recap, I will refer to my previous post on the issue (Click here to see the previous post- Justice Birss / single judge decision). In the post, I had focused on a limited set of issues: global portfolio licensing, valuations of patents. Similarly, for this post I am focusing the analysis on these issues.
Summary – a few selected paragraphs from the judgement regarding the FRAND framework
First, an undertaking given to ETSI pursuant to clause 6.1 has international effect. This is because the standards supported by the ETSI undertaking are themselves of international effect so that businesses can make and supply, and members of the public can use, products which comply with the standard all over the world. To this end clause 6.2 provides that an undertaking given pursuant to clause 6.1 in respect of a member of a patent family shall apply to all existing and future ESSENTIAL IPRs of that patent family unless there is an explicit written exclusion of specified IPRs at the time the undertaking is given.
It was common ground at the trial that UP was bound in law to license its ESSENTIAL IPR on FRAND terms. The ETSI IPR Policy is governed by French law and the judge found (and there is no appeal against his finding) that the FRAND undertaking given by UP was binding upon UP and enforceable by Huawei and, indeed, any third party…… 34….. The judge was not persuaded that global portfolio licensing necessarily foreclosed or restricted competition. Indeed, he found that portfolio licensing was common industry practice and had efficiency benefits. It saved transaction costs for both licensors and licensees and obviated the need to determine a royalty on a patent by patent basis. What was more, the vast majority of patent licences before the court were worldwide licences or at least covered a number of different territories. The judge drew the inference from all of the evidence before him that multi-jurisdictional portfolio licences were in and of themselves unlikely to have anti-competitive effects and that a demand for a worldwide licence was not inherently likely to distort competition. He therefore rejected the general submission made to him that worldwide portfolio licences were necessarily and inherently objectionable. They might or might not be, and all would depend upon the circumstances pertaining to each particular agreement and licence.
Predictably, Huawei had challenged some of the issues: an important one of which is Global nature of a FRAND license. Huawei (correctly) claimed that the imposition of a global licence on terms set by a national court based on a national finding of infringement is wrong in principle.
19. Huawei now appeals against Birss J’s final order with the permission of the judge on the following three grounds. It contends first, that, far from being FRAND, the imposition of a global licence on terms set by a national court based on a national finding of infringement is wrong in principle and leads to results which are manifestly unjust. That is particularly so in the present case, it continues. The judge held that, in order to be FRAND, the licence had to be global and had to include all SEPs owned by UP which it wished to license anywhere in the world. UP LLC was a party to the action only as a defendant to the competition law counterclaims and did not own any UK patents but only patents in other jurisdictions. Despite this, the judge set the global rate and terms of a licence in circumstances where 64% of the money to be paid relates to Chinese patents owned by UP LLC, rather than to any patent owned by UP International. What is more, the judge settled this licence notwithstanding the facts that (a) there was ongoing patent litigation in relation to corresponding patents in Germany and in China, and (b) there were some countries where UP had no relevant patents at all. For example, in this case it led to a licence where 64% of the money to be paid relates to Chinese patents owned by the second Defendant, UP LLC. UP LLC is a company which owns no UK patents. The English court had, in effect, set rates for a portfolio for which a large part had no enforceable English patent.
The Appellate Court brushed aside this reasoning and found merit in the single judge statement that
34. The judge was not persuaded that global portfolio licensing necessarily foreclosed or restricted competition. Indeed, he found that portfolio licensing was common industry practice and had efficiency benefits. It saved transaction costs for both licensors and licensees and obviated the need to determine a royalty on a patent by patent basis.e p
Here it ironic that the court sees only the examples provided by the Unwired. Most of the licenses that were entered into were those of Ericsson LM as Unwired was formed very recently a few months before litigation commenced. This is a logical assumption (wrong one) that just because something that was true in the past, is also true for the future. Portfolio licensing was alright earlier as the parties were on an equal footing. The present situation is not the same. The Licensor and Licensees are at poles apart. The situation may be compared to the jungle – the tiger and the deer have equal rights to live in the jungle – but we know who sets the rules.
The second assumption that transaction costs are minimized for both is also wrong. The costs may be minimized for Licensor, but not for the Licensee. Under the garb of a portfolio, patents of dubious quality may be pushed across as a part of the portfolio. Second, expired patents may also be pushed across. For example, GSM 2.0 standard came into being in 1995. -GPRS came in 1997, and EDGE in 1998. All GSM 2.0 patents have expired and so have GPRS. How can someone license something that is already in the public domain.
Here royalty must be determined on a patent-by-patent basis as the portfolio is not composed of equally valuable patents. Some are peripheral, some may be central, or some may be prospective. Hence it does not make sense to club everything together at the same rate.
Other important highlights:
Justice Birss had found that there was a single (set) FRAND term. The Appeals Court agreed with Justice Birss and found that the Non-Discriminatory aspect of FRAND was not hard edged. Huawei claimed that similar / same sets of terms of rates should be offered to similarly situated parties. The Appeals Court agreed with J. Birss that different rates could be offered to different licensees as long as there is some valid rationale for it / is not per se objectionable.
Huawei is now faced with an obvious predicament. It can choose to challenge the decision in English courts or challenge it in other territories where it has the upper hand – i.e. those territories where Unwired has no or less number of patents, on the grounds that an English court judgement goes beyond its jurisdiction. There is also the unthinkable – It may also choose to voluntary forego an entire market depending on the valuation of the market viz. the costs of operating in the market.
This decision is bound to have an impact on future standards / and FRAND set up. For 5G, will courts award royalty on the component level or on a use case basis as being touted by IP heavy weights? One sees US courts decide in many cases on a reasonable royalty being awarded on the scope of the patent basis rather on the entire market rule. UK courts go the other way. Some European cases decide in favour of the licensee and so do some Japanese, Chinese and Taiwanese courts. Indian courts go in favour of patent owner. Clearly, some more clarity is needed as the situation is gray.