The Supreme Court held that an English court may restrain infringement of a valid UK patent which is essential to a telecommunications standard unless the implementer takes a worldwide licence of the owner’s portfolio on fair, reasonable and non-discriminatory terms, and may settle the disputed terms of that licence. Huawei’s and ZTE’s appeals, in claims by Unwired Planet and Conversant, were dismissed.
The contractual setting
Mobile equipment must work across borders, but patents are national rights. Once a UK patent is held valid and infringed, the owner is ordinarily entitled to an injunction. That power can be used to hold up a standard. If the owner must instead sue country by country, an implementer may hold out and avoid paying for international use.
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The European Telecommunications Standards Institute (ETSI), whose intellectual property policy is governed by French law, requires the owner of a declared essential patent to undertake to license it on fair, reasonable and non-discriminatory (FRAND) terms. An implementer can enforce that promise. ETSI does not decide whether a declared patent is valid or essential. The undertaking is intended to have international effect and, subject to a limited reservation, covers the patent family. In practice, owners and implementers of large portfolios agree worldwide licences. Birss J said that willing parties would regard country-by-country negotiation as “madness”.
Unwired Planet, a licensing company, bought a portfolio from Ericsson in 2013. It covered 42 countries and comprised 276 patents and applications declared essential, including 29 UK rights. Ericsson’s earlier licence to Huawei expired in 2012. Conversant, also a licensing company, bought about 2,000 patents and applications from Nokia in 2011, covering more than 40 countries. Huawei and ZTE manufacture mainly in China. They said the United Kingdom accounted for only a very small share of the relevant sales, so the value of a global licence depended heavily on Chinese patents, which only a Chinese court can hold invalid or not infringed.
The decisions under appeal
Unwired established infringement of valid UK standard-essential patents. The judge determined the terms of a worldwide portfolio licence and granted an injunction against UK infringement unless Huawei entered that licence. Huawei disputed the court’s power and the compatibility of the terms and remedy with FRAND obligations.
Conversant sued Huawei and ZTE in England in July 2017, seeking FRAND terms and injunctions, if UK patents were valid and infringed, until the defendants took a FRAND licence. Henry Carr J rejected challenges to jurisdiction and forum, and the Court of Appeal agreed. Conversant’s FRAND trial had not been heard.
Settling a global licence
In a single judgment to which every member of the panel contributed, the Supreme Court held that this power comes from the ETSI contract, not from any general jurisdiction over foreign patents. The policy balances implementers’ access to the standard against a fair reward for the owner. It does not confine the owner to payment only for patents already found valid and infringed, and it does not remove the possibility of a national injunction. That possibility gives the implementer a reason to negotiate and accept FRAND terms. Because a large portfolio cannot practicably be tested patent by patent, the commercial solution is a portfolio licence whose price reflects the risk that some patents will fail. The Court read the undertaking as intended to follow that practice.
The English courts had not decided that any foreign patent was valid or essential. An implementer who is concerned about important patents in another country may, as part of a fair process, seek a term allowing those patents to be challenged there and the royalty adjusted. Huawei had not asked for such a term in the Unwired draft and had not appealed its detailed terms.
The Court rejected the claim that England had set itself up as a global licensing tribunal out of step with other countries. Developing authority in the United States and Germany, and the European Commission’s 2017 communication, supported looking to industry practice, treating a worldwide licence as capable of being FRAND, and granting an injunction if the implementer refuses a FRAND offer. Chinese courts had not rejected that possibility in principle.
An injunction was not disproportionate: the implementer is buying authority to make and sell standard-compliant products worldwide, not merely access to the UK market. Damages for past UK infringement are a different exercise from settling a licence. A licensing company takes the rights of the former owner and is not, merely because it does not manufacture, in a weaker position. Forum shopping is a consequence of standard-setting arrangements which allow worldwide FRAND licences but provide no international tribunal. Huawei was before the Court without a licence although it could have taken one.
China as an alternative forum
Forum non conveniens arose only in the Conversant appeals. Even if the dispute were treated as a dispute about a global licence, the challenger had to identify another court which could decide it. China was the only candidate put forward. After expert evidence, the judge found that the Chinese courts do not at present have jurisdiction to settle a global FRAND licence unless the parties agree, and that it was speculative whether they would do so even then. Conversant had reasonably refused the conditions attached to the proposed agreement. The challenge therefore failed at the first hurdle. The Court left for a future case the Owusu principle, any reflective application of article 24 of the Brussels I Regulation, and Lungowe v Vedanta, should another country have that jurisdiction.
A temporary stay for Chinese proceedings was not appropriate. Those proceedings concerned Conversant’s Chinese patents, not a global licence, and further delay would harm an ageing portfolio.
Non-discrimination
Huawei said that the much lower worldwide rate in Unwired’s Samsung licence of 28 July 2016 had to be offered to it. Birss J found that Huawei and Samsung were similarly situated, so the comparison was relevant, but that the Samsung rate was not a good guide to market value: Unwired was close to insolvency, and its new owner had a strategic interest in a deal with Samsung.
The Court held that “fair, reasonable and non-discriminatory” is a single obligation, not a separate duty to give every similarly situated licensee the most favourable terms already agreed. The price should reflect the value of the portfolio and be available without adjustment for the individual licensee. ETSI had included a most-favourable-licence clause in a 1993 draft and then removed it. Restoring it would prevent an owner from granting an initial or distressed licence without permanently devaluing the portfolio. There was no breach. The Court did not need to decide whether a difference in rates must also distort competition.
Abuse of dominance and the remedy
Huawei argued that the Court of Justice in Huawei v ZTE had imposed mandatory conditions, and that Unwired could not have an injunction because it had not itself offered FRAND terms. The Supreme Court held that seeking an injunction without notice or prior consultation infringes article 102, but that the content of the notice depends on the circumstances. The further steps are not a code which must be followed exactly; the language supported, at least to a degree, treating them as a safe harbour rather than as automatic conditions of legality. Birss J had found that Huawei already knew Unwired wanted a licence, and that Unwired would accept whatever terms the court held to be FRAND, whereas Huawei would take only a licence of a scope it chose. There was no requirement that Unwired’s own offer match the court-determined terms. The finding of no abuse stood.
Huawei’s further argument, raised for the first time in the Supreme Court, was that damages for infringement of the UK patents should be awarded instead of an injunction. The Court was not persuaded. The owner cannot use the injunction to demand more than FRAND terms, because the injunction depends on a FRAND offer having been made and refused. Damages alone would leave an implementer with an incentive to infringe until sued country by country, where worldwide enforcement would, on Huawei’s own evidence, be prohibitively expensive.
Verdict: The Supreme Court unanimously dismissed the appeals. The English court could determine global FRAND terms in deciding whether to restrain infringement of a UK patent. It upheld English jurisdiction in the Conversant litigation. It did not determine the validity of foreign patents or settle Conversant’s licence terms.
