作者

James Marshall

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作者

James Marshall

合伙人

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2018年11月15日

Further analysis: Unwired Planet v Huawei

On 23 October, following a six day appeal hearing in May, the English Court of Appeal handed down the much awaited judgment on Huawei's appeal against the widely discussed Mr Justice Birss' first instance judgment of last year in Unwired Planet v Huawei. The Court of Appeal, which included patent specialists Lord Kitchin and Lord Justice Floyd on the panel, dismissed all three grounds of appeal and in substance fully upheld Mr Justice Birss. The only difference was as on the question of whether there is only a single set of terms that is FRAND, but that was not material to the outcome.

Huawei had been granted permission to appeal by Mr Justice Birss in June 2017 on three grounds:

The first was the global licensing issue, namely that the court ought to have held that a UK only licence was FRAND and that the UK court ought not to determine FRAND terms including rates for territories other than the UK. This ground also involved the argument that it was not appropriate for the UK court to grant an injunction excluding Huawei from the UK market unless it took the global licence.

The second was the so-called "hard-edged" non-discrimination point, which was whether the non-discrimination limb of the FRAND undertaking would justify a licensee demanding a lower rate than the benchmark rate decided upon by the court, on the basis that the lower rate had in fact been agreed with a different, similarly situated, licensee (namely Samsung). Mr Justice Birss had decided this was not so, but even if there was such a demand a licensee could make, it would only apply if the difference between the terms of the benchmark and those of the actual licence would distort competition between the licensees (which anyway on the facts had not been established).

The third concerned Mr Justice Birss' assessment and application of the requirements of the judgment of the Court of Justice of the European Union in Huawei v ZTE, in relation to which Huawei had argued (successfully) that Unwired Planet was in a dominant position in the market for licences under its SEPs, but had failed to persuade the judge that Unwired Planet had brought proceedings prematurely and thus abused its position. On the appeal, Unwired Planet challenged the Judge's decision that it was in a dominant position by virtue of owning the relevant SEPs.

Approach to determining FRAND terms

The appeal thus did not concern the methodology used by Mr Justice Birss to determine the FRAND royalties. Nor was there any real dispute as to how FRAND terms should be assessed.

In the words of the Court of Appeal:

"The task of the tribunal is to identify terms which would be fair, reasonable and non-discriminatory … relevant matters will include what a willing licensor and a willing licensee in the relevant circumstances acting without holding out or holding up would agree upon, general practice in the industry, and any relevant comparables. The evidence of the parties may be helpful, as may evidence from appropriately qualified expert witnesses. It was also agreed that it is appropriate to start by assessing a global rate, effectively as a benchmark, and then, if and so far as it may be necessary and appropriate to do so, to adjust it upwards to arrive at a UK rate".

Ground one - global licensing

The global licensing issue was examined by the Court of Appeal in detail, its reasons being set out over almost 100 paragraphs. The following is a summary of some of the key points.

Huawei argued that there is nothing in the FRAND undertaking that creates a global portfolio right. Instead, Huawei ought to be able to enter the UK market by payment of FRAND royalties in respect of the UK SEPs that protect this market. The legitimate purpose of an injunction in relation to a SEP is to secure the FRAND remuneration only for the territory in which that SEP subsists.

In rejecting these arguments and holding, in the circumstances of the case, that the judge was entitled to find that only a global licence was FRAND, the Court of Appeal made number of important observations.

As to the policy behind the FRAND undertaking:

"… implementers must be able to use the technology embodied in and required by the standard provided they are prepared to pay a FRAND rate for doing so, for otherwise the owner of the relevant patent rights would be able to charge excessive licensing fees. So any implementer must be able to secure a licence on FRAND terms under all the SEPs it needs to produce and market its products which meet the standard.”;

"…SEP owners.. are entitled to an appropriate reward for carrying out their research and development activities and for engaging with the standardisation process, and they must be able to prevent technology users from free-riding on their innovations.”.

Recognising that SEP owners and implementers will often in practice negotiate a global licence, as it is wholly impractical for a SEP owner to seek to negotiate a licence country by country, and stating that that strongly pointed a global licence being FRAND, the Court added:

"What is more, it seems to us, at least as a matter of principle, that there may be circumstances in which it would not be fair and reasonable to expect a SEP owner to negotiate a licence or bring proceedings territory by territory and that in those circumstances only a global licence or at least a multi-territorial licence would be FRAND" (emphasis added).

Regarding availability of an injunction, on the basis that a willing licensor and a willing licensee in the position of the parties to the proceedings would agree a global FRAND licence that conformed to industry practice and was non-discriminatory, the Court said this:

"If … the implementer were to refuse to enter into such a licence then, as a matter of principle … the SEP owner should be entitled to an injunction in that jurisdiction to restrain infringement of the particular SEPs in issue in those proceedings. Were the position otherwise then the SEP owner seeking to recover the FRAND licence monies for all of the SEPs in the same family from an uncooperative implementer who is acting unreasonably would be required to bring proceedings in every jurisdiction in which those rights subsist, which might be prohibitively expensive for it to do.".

The Court rejected the submission that such an approach does not accord with the approach taken in other jurisdictions, having considered the case law from Germany, US, Japan and China that Huawei cited. It also rejected the argument that Mr Justice BIrss had in some way usurped the right of foreign courts to decide issues of infringement and validity of patent rights subsisting in their respective territories. The judge had simply determined the term of the licence that the patentee was required to offer, it then being a matter for Huawei whether it was prepared to take that licence. If it chose not to, the only relief to which Unwired Planet would be entitled to would be that for infringement of the two UK SEPs the judge had found valid and infringed.

Nor did the Court accept that Mr Justice Birss had assumed validity and essentiality of foreign SEPs, issues that were not prevented from being challenged by the FRAND licence he determined:

"…It is of course true that the licence provides for payment of royalties in respect of the use by Huawei of UP’s whole portfolio of SEPs but the alternative would be to require UP to bring proceedings in each territory in which its SEPs subsist. That is not how a reasonable and willing licensor and licensee in the position of, respectively, UP and Huawei would behave; it would be a blue print for hold-out; and …the costs of such litigation for UP would be prohibitively high. So the outcome would be that, as a result of its FRAND undertaking, UP would not be able to secure an injunction in any jurisdiction and would not be able to secure payment of royalties for those jurisdictions in which it could not afford to bring proceedings”. On the facts of the case, the Court of Appeal said it had no doubt that Mr Justice Birss did not fall into error in deciding that only a global licence was FRAND. A UK only licence was not.

Is there a single set of FRAND terms?

One of the aspects of the judgment of Mr Justice Birss that has given rise to much discussion is his view that there is only a single set of FRAND terms, as a means of dealing with the so-called "Vringo-problem" ie should the court grant or refuse an injunction if FRAND were a range, and both the patentee and defendant had offered sets of terms within that range. This problem can be resolved by FRAND being that set of terms that the court sets, such that whether or not an injunction should be granted depends on whether the defendant accepts of refuses those terms.

The Court of Appeal was not, however, persuaded that there can only ever be one set of FRAND terms for a given set of circumstances. It expressed the view, however, that a court or arbitrator will normally declare one set of terms as FRAND. Importantly, the Court of Appeal stated that, if the outcome of the proceedings is that two different sets of terms are each found to be FRAND then the SEP owner will satisfy its obligations if it offers either one of them.

Ground two – does FRAND include a hard-edged non-discrimination aspect?

The Court of Appeal summarised, and approved, Mr Justice Birss approach the non-discrimination limb of the FRAND obligation as being what he termed "general" ie a benchmark rate for what was a fair and reasonable valuation for the patents, provided that it was on offer to all potential licences without reference to their size or any other characteristic. It rejected Huawei's contention that there was a so-called "hard-edged non-discrimination" aspect to the FRAND commitment, ie the obligation did not entitle Huawei to be granted – instead of terms derived from the Court determined benchmark - the more favourable licence terms as Unwired Planet had, in the then particular commercial circumstances it was facing, previously granted to Samsung.

The Court of Appeal's reasoning is encapsulated in the following extracts from its judgment:

"The “general” approach does, however, gain support from the object and purpose of the FRAND undertaking. These are to ensure that the SEP owner is not able to “hold-up” implementation by demanding more than its patent or patent portfolio is worth. The undertaking therefore requires it to offer to license the portfolio on terms which reflect the proper valuation of the portfolio, and to offer those terms generally (i.e. in a non-discriminatory manner) to all implementers seeking a licence. The objective of the undertaking is not to level down the royalty to a point where it no longer represents a fair return for the SEP owner’s portfolio, or to remove its discretion to agree lower royalty rates if it chooses to do so. It is inherently unlikely that a proposal presented in such terms would have gained support from innovators.";

"… We consider that a hard-edged approach is excessively strict, and fails to achieve that balance, whereas the general approach achieves the objective of the undertaking by making the technology accessible to all licensees at a fair price.".

The Court of Appeal thus agreed that the licence offer to Huawei was on non-discriminatory terms. It recognised that the approach in some other courts, for example in the Guangdong court, was quite different, stating that, whilst it was desirable that an internationally accepted approach should ultimately emerge, it would be wrong, in the Court's view, to "harmonise on a first to decide basis".

Ground three – Huawei v ZTE and proportionality

On the question of whether Unwired Planet was in a dominant position, the Court of Appeal was satisfied that Mr Justice Birss was entitled to find it was. However, it also agreed that Unwired Planet had not abused that dominant position in bringing proceedings when it did and fully upheld the first instance judge's interpretation of the requirements laid down by the CJEU in Huawei v ZTE.

Huawei had contended that Unwired Planet was in breach of, what they argued were mandatory conditions with which a SEP owner must comply before starting an action, by not designating the patents said to be infringed or presenting a licensing offer of any kind.

The Court of Appeal analysed the decision of the CJEU's judgment against the landscape in which Huawei v ZTE was decided, namely the need to ensure dissemination of interoperable and safe technologies through the use of standards and to reward adequately innovators, referring to the communication of November 2017 of the EU Commission.

Referring to the language of paragraph [60] of the judgment of the CJEU, the Court of Appeal upheld the view of Mr Justice Birss, saying:

"paragraph [60] of the CJEU decision … imposes a positive obligation to notify the alleged infringer before commencing proceedings, and that the nature and content of that notice must depend on all the circumstances. Its purpose is to notify the alleged infringer of the rights said to be infringed and that it is prepared to licence the infringer on FRAND terms, in so far as it is not already aware of these matters.".

The Court gave the example of the alleged infringer that is familiar with the technical details of the devices in which it is dealing, saying that it would be "harsh" to deny the SEP owner an injunction if it had not taken the formal step of designating the SEP or specifying the way it had been infringed. To what extent this flexibility will aid the SEP owner seeking an injunction against the maker of a handset in the case where the technical details relevant to the patent in question are better known to the supplier of the chips, was not further explored.

It will be remembered also that paragraph 63 of the CJEU decision states that, after the alleged infringer has expressed a willingness to conclude a licensing agreement on FRAND terms, it is for the SEP owner to present a "specific, written offer for a licence on FRAND terms … specifying in particular the amount of the royalty and the way in which that royalty is to be calculated". In this case, Unwired Planet provided a proposed licence a month after starting the UK proceedings.

In support of a flexible approach to the CJEU protocol, the Court of Appeal drew attention to the fact that in the UK the question of the grant or refusal of an injunction is now usually decided after a series of so-called "technical" trials (in which validity and infringement are determined) and then a FRAND trial. In those circumstances, there is limited scope for an alleged infringer being coerced into agreeing unduly high terms before proceedings are started.

Overall, the Court of Appeal's view of the nature of the CJEU protocol is summarised in the following passage:

" …compliance with the protocol laid down by the CJEU affords the SEP owner safe harbour protection against a finding of breach of a dominant position arising from the commencement of proceedings for an injunction. If the SEP owner steps outside the protocol, the question whether its behaviour has been abusive must be assessed in light of all of the circumstances.".

Accordingly, the Court of Appeal concluded that there was no basis for interfering with Mr Justice Birss' findings of fact or his assessment that Unwired Planet had not behaved abusively.

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