Tesla wants to sell 5G-enabled vehicles in the United Kingdom and says the royalty for a licence of the necessary patents through Avanci’s 5G platform is too high. The Supreme Court held that Tesla has a real prospect of obtaining declarations about a fair, reasonable and non-discriminatory licence of InterDigital’s UK patents on that platform, and that the courts of England and Wales can hear the claim. The decision lets the claim proceed. It does not decide the licence terms.
Standards let products from different manufacturers work together. Patents declared essential to a standard are standard-essential patents (SEPs). Before technology is included in a standard set by the European Telecommunications Standards Institute (ETSI), the owner undertakes to license it on fair, reasonable and non-discriminatory (FRAND) terms. That undertaking is a French-law contract which implementers can enforce. Its purpose is to stop owners “holding up” use of the standard, while discouraging implementers from “holding out” in negotiations.
Law Teacher writing support
Writing a law essay?
We choose a writer who is an expert in your area of law and qualified to at least the academic level you select. Most of our writers hold a master’s degree or PhD, have teaching experience, or both.
Send us your question and, if you wish, any marking criteria. We’ll write an essay to your instructions.
Tesla, a Texas company and its English subsidiary, wanted to launch 5G-enabled vehicles in the UK, its fourth largest market. Many of the relevant SEPs were offered through a global platform run by Avanci, a Delaware company, as agent for numerous owners. Avanci can license only the whole platform, not one owner’s patents alone. It owns none of the SEPs and has given ETSI no FRAND undertaking. InterDigital’s IDH gave the ETSI undertaking for the group, including three UK patents owned by IDPH which Tesla has challenged. Avanci says its rate is FRAND, but also says it need not ensure that it is. Tesla says the rate is too high.
In December 2023 Tesla sought declarations that it is entitled to a FRAND licence of the platform SEPs, including InterDigital’s UK SEPs, that such a licence extends to the whole platform, and that the standard royalty is not FRAND, with a determination of a lower rate. Earlier attempts to sue IDH as representative of every licensor, and to say that Avanci itself owed a FRAND obligation, were not pursued.
The courts below
Fancourt J struck out the licensing claims and set aside service. He held there was no serious issue to be tried: Tesla claimed no enforceable right against Avanci, and a declaration against InterDigital would be unfair without the other licensors. He stayed the patent claims by consent. The Court of Appeal, by a majority (Phillips and Whipple LJJ), dismissed Tesla’s appeal. They held that the FRAND obligation did not require collective licensing, that the exercise could not fairly proceed without all licensors, and that no bilateral claim had been pleaded. Arnold LJ dissented.
A real prospect of success
Lords Hamblen and Kitchin, with whom Lords Sales, Briggs and Burrows agreed, asked whether the claim had a real, rather than fanciful, prospect of success.
They held that choosing a pool or platform does not release a SEP owner from the FRAND obligation already given. Nothing in the ETSI undertaking says the obligation ceases when owners appoint a licensing agent, and the policy against hold-up applies at least as strongly where many owners offer terms together. Tesla does not say owners must license collectively. Avanci is not under a free-standing FRAND obligation, but it licenses as agent for owners who are.
The court rejected Tesla’s wider argument that every offer must be FRAND. An owner must make FRAND terms available, but may still negotiate a separate commercial bargain. Even so, Tesla has a real prospect of showing that, in commercial reality, the only FRAND licence of InterDigital’s UK SEPs on the platform is a global platform licence at a FRAND rate. Bilateral licensing of every necessary portfolio may be impracticable. The court noted Avanci’s own description of bilateral licensing as a “licensing debacle”, the platform’s success, and evidence that some 4G licensors, though not InterDigital, had treated a platform offer as meeting their obligation. Owners’ freedom to leave, InterDigital’s stated willingness to license bilaterally, and the absence of an undertaking by Avanci did not remove that serious issue.
Declarations and fairness
A declaration is discretionary. The claimant need not have a cause of action against every defendant, but the declaration must be useful and must not unfairly prejudice absentees. Against InterDigital, the claim rests on the ETSI undertaking and on the arguable case that the FRAND licence of the UK SEPs is the platform licence. Against Avanci, Tesla need not show a separate obligation: the right claimed is the owners’ obligation, which Avanci performs as agent. Unlike Vestel, a legally enforceable right to a FRAND licence was asserted.
The declarations would be useful. If the platform rate cannot be tested, the way licences are in practice granted may escape effective scrutiny. A finding that the rate was not FRAND would be likely to undermine Avanci’s public position and prevent licensors from relying on the platform licence as discharging their own obligation. The court doubted that bilateral licensing supplies enough market discipline, because there is a seriously arguable case that it is not a viable alternative.
Fairness did not stop the claim at this stage. Avanci devised the rate and offered it to licensors on a take-it-or-leave-it basis, so it is the essential party. Other licensors may apply to take part. That is case management, not a reason to say the claim has no real prospect.
Jurisdiction and where the claim should be heard
The particulars also embrace, in the alternative, a bilateral FRAND licence of InterDigital’s portfolio. The majority below were wrong to say that fallback was unpleaded. If pursued, it should be set out clearly.
The court agreed with the Vestel line of authority. A claim to enforce the FRAND obligation attached to UK SEPs is about those UK patents, even if the only FRAND licence is global and covers foreign patents. An owner’s infringement claim met by a global FRAND defence is about UK patents; the implementer’s proactive claim should not be characterised differently merely because the implementer sued first.
The licensing claims against IDPH were therefore properly served under CPR r 63.14(2) at the UK address for service: a licence would be a defence to infringement of those patents. IDH, which gave the undertaking for the owner, is a necessary or proper party, so Gateway 3 is available. Gateway 11 is also available, because the claim relates wholly or principally to property in the jurisdiction. The court did not treat that gateway as a general route for worldwide commercial rate-setting.
The proper question for forum was where to decide the FRAND terms of a licence of the UK SEPs on the platform. On the expert evidence, the Delaware Court of Chancery is not an available forum: United States courts would be likely to decline to set a FRAND rate for UK patents. Comparative forum arguments therefore did not arise. Permission to serve out should not be refused as a matter of discretion. InterDigital had not been unfairly singled out.
Verdict: The Supreme Court unanimously allowed Tesla’s appeal and dismissed InterDigital’s cross-appeal. There is a serious issue to be tried on the licensing claims against InterDigital and Avanci; service on IDPH under CPR r 63.14(2) was valid; IDH may be served as a necessary or proper party and Gateway 11 is also available; the Delaware Court of Chancery is not an available forum for the dispute as characterised; and permission to serve out should not be refused in discretion. The court did not decide whether the platform rate is FRAND, what a FRAND rate should be, or the validity of the challenged patents, which had been stayed by consent below. If the alternative bilateral claim is pursued, it is to be clarified by case management. Other platform licensors may apply to participate.
