Published: 4/5/17
In 2014, Unwired Planet asserted infringement claims against Google, Samsung, and Huawei over six UK patents that Unwired Planet obtained from Ericsson (note: Google and Samsung since settled, leaving only Huawei to fight the case). The patent portfolio at issue concerns five patents essential to the 2G, 3G, and 4G wireless telecommunications standards developed by the European Telecommunications Standards Institute (ETSI).
Huawei denied infringement and essentiality, and also contended the patents were invalid, counterclaiming for revocation. Huawei believed that it did not need to obtain a license from Unwired Planet and contended that Unwired Planet’s offer was not fair, reasonable, and non-discriminatory (FRAND).
In addition, Huawei and Samsung (when it was still involved in the case) raised defenses and counterclaims based on breaches of competition law. This involved both (1) arguments about Article 101 of the Treaty on the Functioning of the European Union (TFEU) relating to the Master Sale Agreement (MSA) whereby Unwired Planet acquired patents from Ericsson, and (2) arguments about Art 102 TFEU concerning abuse of dominant position.
On April 5, 2017, the UK High Court of Justice (the High Court) found, after the completion of several technical trials, that (1) Huawei had not been prepared to take license on the terms the court found to be FRAND, and (2) Unwired Planet had valid rights in two SEPs that Huawei infringed upon. Additionally, the High Court determined that Unwired Planet did not abuse its dominate position by: issuing these for an injunction prematurely, maintaining a claim for an injunction in these proceedings, seeking to insist on a worldwide license, attempting to impose unfair prices, or bundling SEPs and non-SEPs. This decision is currently under an appeal.
What the High Court Held:
- FRAND Implications
Judge Birss discussed the following FRAND-related issues directly: (1) whether an English court can rule on this case concerning a French standards-development organization (SDO) (i.e., ETSI); (2) whether FRAND obligations implies a single rate; (3) whether Huawei obtained a worldwide license; and (4) whether FRAND requires granting a license or only offering FRAND terms. These will be discussed in turn below.
Judge Birss held that public policy dictates that FRAND commitments should be viewed as “public, irrevocable and enforceable,” which has the practical effect of allowing the English court to enforce Ericsson’s FRAND commitments against the parties developed under the ETSI standard regardless of the law from which it hailed. Additionally, Judge Birss affirmed that there is a single royalty rate which qualifies as FRAND for any given set of standards-essential patents (SEPs) and products. On the third issue, the High Court concluded that, because the two parties are international companies by nature and the fact that courts in other jurisdictions have granted a large number of SEP licenses on a worldwide basis; SEP licenses and their corresponding FRAND commitments are reasonable, this case being no exception. Therefore, the court held that worldwide licenses are subject to FRAND commitments. Lastly, Judge Birss found that accepting FRAND terms means a SEP licensee must enter a license on FRAND terms rather than merely offering it as an option to licensees.
- The Effect This Ruling has on Competition Law
The Higher Court ruled that the boundaries of FRAND and competition law are not the same. Moreover, the Higher Court stated that it is not necessary to rely on competition law to enforce FRAND commitments. The Court of Justice of the European Union (CJEU) established principles in Huawei v. ZTE that outlined what SEP holders must comply with when entering into FRAND license negotiations in order to circumvent abuse of dominant power pursuant to Section 102 of TEFU. With that decision in mind, Judge Birss held that offering a differing FRAND term that did not exceed the ‘single rate’ would not violate either the TFEU or the CJEU. Put another way, the FRAND rate is a ceiling and not a floor, and is not necessarily dispositive in a competition law analysis. Moreover, under this ruling, SEP holders are prohibited from engaging in “hold out” or “reverse hold up” tactics.
- Non-Discrimination in FRAND Commitments Under this Ruling
Under this ruling, the High Court held that the FRAND royalty rate should be based on the value of the licensed patent to measure when a rate qualifies as discriminatory as opposed of measuring the rate by “similarly situated” licensees. Judge Birss felt that this approach would level the field for smaller entrant licensees. Moreover, the ruling prevents a FRAND licensee to challenge the license on the grounds that a similar situated implementer has a lower royalty rate, unless the difference “distorts competition.” Therefore, “hard edge” components fall outside of FRAND’s non-discriminatory limb.
- How FRAND Rate is Calculated
Two different methodologies were used by Judge Birss used to calculate FRAND rates: (1) Comparable method; and (2) a Top-Down methodology. As to the former methodology, he found that rate used in an Ericsson-Samsung 2014 license was the most comparable to a qualified FRAND rate in this context. To ensure that the rate passed muster under FRAND commitments, Judge Birss utilized a Top-Down Methodology, described as a “cross-check” – This methodology involved multiplying the total aggregate SEP royalty burden of a particular standard on a product and the share of that aggregated royalty the SEP holder is entitled.
- Injunctions
Judge Briss held that an implementer’s commitment (either qualified or not) to take a license under FRAND terms precludes a SEP holder from seeking a final injunction. The Higher Court further held that an implementer who refuses to take a license on terms found by the court to be FRAND has chosen in fact to have no license. It follows that, if a court finds them to infringe upon such a valid patent, a court can grant a final injunction against the SEP implementer. Judge Birss found that since Huawei had not been prepared to take a license on the terms he had found to be FRAND, and since Unwired Planet had not breached any competition laws; a final injunction to restrain infringement of these two patents by Huawei should be granted.