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You are here: BAILII >> Databases >> England and Wales High Court (Patents Court) Decisions >> Unwired Planet International Ltd v Huawei Technologies Co. Ltd & Anor (Rev 2) [2017] EWHC 2988 (Pat) (30 November 2017) URL: https://www.bailii.org/ew/cases/EWHC/Patents/2017/2988.html Cite as: [2017] RPC 19, [2017] EWHC 2988 (Pat), [2018] 4 CMLR 17 |
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Neutral Citation Number:
[2017]
EWHC
2988
(
Pat)
Case No: HP-2014-000005
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS
COURT
Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL
Date: 30/11/2017
Before :
THE HON. MR JUSTICE BIRSS
- - - - - - - - - - - - - - - - - - - - -
Between :
|
Unwired Planet International Ltd |
Claimant |
|
- and - |
|
|
(1) Huawei Technologies Co. Ltd (2) Huawei Technologies (UK) Co. Ltd - and- |
Defendants |
|
Unwired Planet LLC
|
Tenth Party |
Adrian Speck QC, Sarah Ford, Isabel Jamal and Thomas Jones (instructed by EIP and Enyo Law) for the Claimant
Andrew Lykiardopolous QC and James Segan (instructed by Powell Gilbert) for the First and Second Defendants
Hearing dates: 24th, 25th, 31st October, 1st -4th, 9th - 11th, 14th, 15th, 21st - 24th November, 5th - 8th December 2016
- - - - - - - - - - - - - - - - - - - - -
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is the final
public form of the judgment handed down confidentially on 5th April
2017
as [
2017]
EWHC
705(
Pat)
and in a public form as [
2017]
EWHC
711 (
Pat).
.............................
THE HONOURABLE MR JUSTICE BIRSS
Mr Justice Birss :
Introduction, the issues, confidentiality, evidence and factual background |
|
FRAND |
|
The applicable principles |
|
(i) What is FRAND and what principles apply to it |
|
(ii) The history and purpose of FRAND |
|
(iii) Enforceability of the ETSI FRAND undertaking and French law |
|
(iv) Can there be more than one set of FRAND terms? |
|
(v) Can the court set a FRAND rate or other FRAND terms? |
|
(vi) How to assess what is FRAND |
|
(vii) A hard-edged non-discrimination aspect of FRAND |
|
(viii) Concepts used to derive a FRAND rate with telecoms standards |
|
FRAND on the facts of this case |
|
(i) Relevant SEPs – shares and ratios |
|
(ii) The parties’ rival submissions on royalty rates |
|
(iii) The MNPA and HPA techniques |
|
(iv) Findings about the strength of Unwired Planet’s portfolio |
|
(v) The comparables in this case |
|
a. Unwired Planet – Lenovo 2014 |
|
b. Unwired Planet – Samsung 2016 |
|
c. Ericsson - Huawei 2016 |
|
d. Ericsson - Samsung 2014 |
|
e. Ericsson - Huawei 2009 |
|
f-m. other licences |
|
(vi) Other indications relating to rates |
|
(vii) What is the benchmark FRAND rate for Unwired Planet? |
|
(viii) Impact of hard-edged non-discrimination on the FRAND rate |
|
(ix) Rates - conclusions |
|
(x) The other disputed terms |
|
a. What licence scope is FRAND – UK or worldwide? |
|
b. Should the court settle the FRAND rates in a worldwide licence |
|
c. FRAND rates in a worldwide licence |
|
d. Other terms in a worldwide licence |
|
e. The terms of a UK only portfolio licence |
|
COMPETITION LAW |
|
(i) Dominant position |
|
(ii) Abuse of dominance |
|
a. Premature litigation: Huawei v ZTE |
|
b. Unfair excessive pricing |
|
c. Bundling/ tying-in SEPs and non-SEPs |
|
REMEDIES |
|
(i) Should an injunction be granted |
|
(ii) Damages |
|
(iii) Declarations |
|
Summary of conclusions |
|
Annex 1 – Unwired Planet’s declared SEPs by country |
Introduction
1.
Unwired Planet have a worldwide patent
portfolio which includes numerous
patents
which are declared essential to various telecommunications standards
(2G GSM, 3G UMTS, and 4G LTE). Most of the relevant portfolio was acquired
from Ericsson. Unwired Planet’s business is licensing those
patents
to
companies who make and sell telecommunications equipment such as mobile phones
and infrastructure. This action began in March 2014 when Unwired Planet sued
Huawei, Samsung and Google for infringement of six UK
patents
from their
portfolio. Five were claimed to be SEPs (see below). Unwired Planet contended
their
patents
were infringed and (so far as relevant) essential.
2.
The dispute was managed to consist of a series of trials, docketed to
me. First would be five “technical” trials relating to the validity and
infringement/essentiality of the six patents
(two
patents
are divisionals).
These were called trials A to E and were to run from October 2015 to July
2016. The
patent
in trial A was
patent
EP (UK) 2 229 744 which is for an
invention concerning poll triggers, the
patents
in trial B were divisionals EP
(UK) 2 119 287 and EP (UK) 2 485 514 which are for an invention related to
self-configuring networks, the
patent
in trial C was EP (UK) 1 230 818 which
relates to inter-RAT handover, the
patent
in trial D was EP (UK) 1 105 991
which related to Hadamard codes, and the
patent
in trial E was EP (UK) 0 989
712 which relates to network messaging. The 712
patent
was not said to be a
SEP.
4.
This judgment arises from the non-technical trial and relates to the
patents
which are or are said to be Standards Essential
Patents
or SEPs. Part
of the process of standardisation involves holders of
patents
which are
essential to an international telecommunications standard declaring them as
essential to the relevant standards body. In this case that body is the
European Telecommunications Standards Institute (ETSI). The ETSI IPR Policy
requires that a
patentee
declaring
patents
as essential to a standard commits
to licensing those
patents
on FRAND terms. FRAND stands for Fair Reasonable
And Non-Discriminatory. The judgment mostly concerns FRAND.
5.
After proceedings began, in April 2014, Unwired Planet made an open
offer to the defendants to license its entire global portfolio (SEPs and
non-SEPs). The defendants denied infringement/essentiality and contended the
patents
were invalid, counterclaiming for revocation. So, they said, no
licence was needed. They also contended that Unwired Planet’s offer was not
FRAND. In addition, Huawei and Samsung raised defences and counterclaims based
on breaches of competition law. This involved both arguments about Art 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 arguments about Art 102 TFEU concerning abuse of dominant position. The
allegation that the offer was not FRAND was pleaded as a breach of competition
law. These allegations were the subject of counterclaims against other
companies in what was then the Unwired Planet group (the ninth and tenth
defendants) as well as against Ericsson, who were joined as the eleventh party
to the proceedings. Various other defences were also raised. After the April
2014 offer Unwired Planet made a further offer in July 2014. That offer
related only to Unwired Planet’s SEPs. That is also said not to be FRAND by
the defendants. The terms of these and other licensing offers are difficult
to summarise but at this stage it can be said that the SEP royalty rates in the
July 2014 proposals were global rates of 0.2% for 4G/-LTE and 0.1% for other
standards (i.e. GSM/UMTS). The percentages related to average selling price
(ASP) for mobile devices and revenue for infrastructure. These offers and
other of Unwired Planet’s offers also contained US dollar or sterling
alternative figures which operated as a cap if the royalty expressed as a share
of ASP would be a higher sum. This is the last time I will mention them. The
caps did not play a significant part in this case.
7.
In June 2015 as a result of directions from the court which are
considered further below, each side made certain open offers of licensing
terms. Unwired Planet’s June 2015 proposals included offers of a worldwide SEP
portfolio licence, a UK SEP portfolio licence (the UK portfolio consists of
more patents
than just the five SEPs in suit) and per-
patent
licences for any
SEPs the licensee chose. The details do not matter at this stage but one point
to note is that the royalties claimed for per-
patent
licences or a UK portfolio
were higher than the global rate on offer. The rates all scaled by reference
to the same global rate proposals as in 2014, i.e. a global rate of 0.2% for
LTE and 0.1% for GSM/UMTS.
8.
Huawei’s June 2015 proposal was for a per-patent
licence limited to the
UK SEPs in suit. The rates for all five SEPs together were 0.034% for LTE,
0.015% for UMTS and zero for GSM.
9.
In the summer of 2015 and before trial A, Google settled as regards the
SEPs. From then on they would only have played a role in the fifth technical
trial (E) since that related to the implementation patent.
By about April 2016
three technical trials had been completed and the parties agreed to postpone
any further technical trials indefinitely. By that stage Unwired Planet had
won two and lost one of the technical trials. Two of Unwired Planet’s
patents
had been found to contain claims which were valid and were essential to the
relevant standards while the other two
patents
were held invalid. The results
of all three technical trials are under appeal to the Court of Appeal. Also in
about April 2016, the claimant company and the tenth party (Unwired Planet LLC)
were acquired by PanOptis, a group ultimately held by PanOptis Equity Holdings
LLC. The ninth party, Unwired Planet Inc., was not acquired and changed its
name to Great Elm Capital Group Inc..
12. For a UK SEP portfolio licence Unwired Planet’s August 2016 proposals are:
i) for LTE: infrastructure 0.42%; mobile devices 0.55%;
ii) for GSM/UMTS: infrastructure 0.21%; mobile devices 0.28%.
13.
Huawei’s 1st August offer was on the same UK only per-patent
basis as before. The rates proposed were:
i) for LTE: infrastructure 0.036%; mobile devices 0.040%;
ii) for UMTS: infrastructure 0.015%; mobile devices 0.015%;
iii) for GSM: infrastructure zero; mobile devices zero.
14.
On 11th October 2016, about two weeks before the trial,
Huawei made a new licensing proposal. This amended the per-patent
royalties on
offer and also proposed a licence under the whole of Unwired Planet’s UK SEP
portfolio. The UK portfolio rates were:
i) for LTE: infrastructure 0.061%; mobile devices 0.059%;
ii) for UMTS: infrastructure 0.046%; mobile devices 0.046%;
iii) for GSM single mode: infrastructure 0.045%; mobile devices 0.045%.
The issues
17.
Simply stated the main dispute to be resolved is about whether and to
what extent various terms on offer are or would be FRAND. One key battleground
is the value of Unwired Planet’s patents
which is reflected in the royalty
rate. However that is not the only issue. There is a major dispute about the
proper scope of any licence. The case also involves important questions of
whether the April or July 2014 offers were FRAND and/or whether they amounted
to an abuse of a dominant position by Unwired Planet contrary to Art 102 TFEU.
18.
Depending on the outcome of the main dispute the question of an
injunction to restrain patent
infringement may arise together with the issue of
whether Huawei have a defence to a claim for an injunction under competition
law.
22.
This had not been apparent to me either from the written openings or the
evidence and it came as a surprise to Unwired Planet, whose clear preference
was for a global licence rather than a UK portfolio licence. Huawei argued
that the result it contended for followed from a combination of three steps:
first, Huawei had stated that it no longer intended to maintain that Unwired
Planet was obliged to offer per-patent
licences, second, therefore the only
thing on offer from Huawei was a UK SEP portfolio offer and Huawei had
undertaken to accept whatever royalty rate the court set for that licence, and
third, a licence of that scope was one of Unwired Planet’s offers.
Consequently, Huawei submitted, a licence of that scope must be the outcome.
This was so even though it was obvious that what Unwired Planet really wanted
was a global licence and even though global rates and the FRAND status of
global offers were at the heart of the dispute. I will need to examine this
issue in more detail below.
23.
Aside from the clear dispute about the value of Unwired Planet’s patents
and the concomitant FRAND royalty, the parties’ submissions as to the outcome
of this non-technical trial are as follows:
i)
Unwired Planet contend that they have established that they hold valid
and essential SEPs (winning technical trials A and C) and that they have made
offers of a licence on FRAND terms. Its preferred offer is for a global
licence and since global licences are FRAND a patentee
is entitled to insist on
a global licence. In terms of rate Unwired Planet will accept whatever rate
and terms are set by the court. They submit that Huawei are not willing to
take this FRAND licence and are an unwilling licensee. Accordingly the court
should grant an injunction restraining Huawei from infringing. If the court
decides that Unwired Planet are not entitled to insist on a global licence then
Unwired Planet have offered a UK portfolio licence and will accept such a
licence at a rate and on terms set by the court.
ii) Huawei contend that Unwired Planet’s 2014 offers were not FRAND. They also contend that Unwired Planet’s commencement of this action was an abuse of their dominant position and contrary to the CJEU’s judgment in Huawei v ZTE (Case C-170/13) 16th July 2015 [2015] Bus LR 1261. Accordingly Huawei have a complete defence to any claim for an injunction. In any event Unwired Planet are not entitled to insist on a global licence because such a licence would not be FRAND. Only a UK portfolio licence would be FRAND and Huawei will accept any royalty rate set by the court. Huawei cannot state that they will accept whatever terms of a UK licence are set by the court, but that is only because of a manoeuvre by Unwired Planet addressed below. Huawei accept they must have a licence to be permitted to sell products in the UK and therefore hope that the terms set by the court are ones they can abide by. They recognise that if there is no licence in place and no defence under competition law then an injunction would follow.
Confidentiality
[26B Once the draft
was circulated a hearing in private was convened to work out a way forward. The
result of that process was a redacted public version of the judgment which was
handed down at the same time as the full judgment ([2017]
EWHC
705 (
Pat)),
which was confidential. That first redacted public version was [
2017]
EWHC
711
(
Pat).
The date on which these two judgments were delivered was 5th
April
2017.
The confidentiality issues were finally resolved and this public
form of the judgment was settled. The reasons for the redactions in this
version are set out in judgment [
2017]
EWHC
3083 (
Pat).
All the changes as
compared to the unredacted 705 judgment are in square bracketed italics like
this paragraph. Some of the redactions have been left as square bracketed
ellipsis. In others, some explanatory text and anonymised designations have
been included. The draft was given to the parties in advance for checking.
The evidence
27. Unwired Planet called the following fact witnesses:
i) Sami Saru;
ii) Timothy Michael Robbins;
iii) Leslie Dale Ware.
30.
Mr Ware is the Chief Executive Office of PanOptis Equity Holdings LLC. He
founded the PanOptis Group in September 2003. On 30 June 2016, PanOptis
acquired Unwired Planet LLC and Unwired Planet International Limited (and so
the Unwired Planet portfolio of patents)
from Unwired Planet Inc. His evidence
related to PanOptis's business model and focus on long-term relationships with
licensees. In particular, his evidence related to the negotiation and
circumstances of the Unwired Planet/Samsung licence.
33.
Mr Cheng has been the Deputy Director of Huawei's IP Department since
February 2008, and Vice President for IP Licensing & Transactions. He gave
his evidence through an interpreter. His evidence related to Huawei's position
on FRAND, whether any steps have been taken to avoid infringing Unwired
Planet's patents,
and Huawei's conduct in licence negotiations.
35.
Mr Yang is the Vice President and Senior Marketing Officer for Huawei's
Wireless Network product line. He has worked at Huawei's Shanghai R&D
centre since 1998. He gave his evidence through an interpreter. His evidence
related to the significance of certain releases of technical specifications in
the context of LTE deployment since 2013. This was relevant to the relative
value of patents
that are essential to the earlier releases relative to those
that are essential to later releases.
42.
Dr Cooper’s evidence related to certain Unwired Planet patents
and
whether they were truly essential. He also addressed the parties’ rival
approaches for identifying and counting truly essential
patents.
48.
In 1995, Dr Kakaes left George Washington University and went to work
full time for Cosmos Communications Consulting Corporation, a private
communications engineering consulting firm specialising in mobile
communications, which he formed some years earlier. He has acted as an expert
witness in a number of trials and arbitrations since 2006. His evidence
related to Huawei's patent
analysis (HPA) and Unwired Planet's MNPA.
53.
The challenge to objectivity relied on four alleged inconsistencies,
which were that: Mr Lasinski was inconsistent in placing reliance on the words
of a licence when it suited him but then relying on context in other cases; he
was inconsistent in rejecting all pre-2013 licences because they all involved
hold-up but then relying on the 2009 Ericsson-Huawei licence when it suited
him; his approach to the two Unwired Planet licences with Lenovo and Samsung
was inconsistent, relying on Samsung when it suited him but not on Lenovo when
it did not; and he was inconsistent in his approach to using a figure for
Unwired Planet’s share of Ericsson’s patent
portfolio, having been happy to use
a share of 10% at the beginning but then changing to a lower figure once Unwired
Planet’s claimed rate dropped from 0.2% to 0.13% because the 10% share would
have supported Unwired Planet.
56.
In terms of the specific points taken by Unwired Planet, the first three
points on objectivity and the first three points on ambit are best addressed in
context. Having heard Mr Lasinski, the suggestion, if made, that I should
reject his evidence wholesale would be unwarranted. Mr Lasinski gave his oral
evidence fairly, however many of these criticisms arise from Mr Lasinski’s
approach to his written evidence in this case. In that respect I was concerned
about Mr Lasinski’s approach. Overall his reports and his oral evidence left
me with the impression that Mr Lasinski has tried to avoid making written
statements which might be construed as adverse to Huawei. I infer that is why
he never presented figures based on the MNPA, unlike Mr Bezant who presented
figures calculated using both sides’ preferred methodologies (the HPA and the
MNPA). That also explains why he used a different, lower figure for Unwired
Planet’s share of Ericsson’s patent
portfolio in his third report from his first
report after Unwired Planet had reduced the rate claimed, and it explains why
he never mentioned hold-out but only hold up. His approach to the joint
statement had the same effect, unlike the approach of Mr Bezant (and Dr Leonard
for Samsung), both of whom properly explained and qualified their opinions in
the course of agreeing the joint statement.
Concurrent evidence – a “hot tub”
The factual background
60.
The business which became Unwired Planet was founded in 1994 as Libris
Inc. Its purpose was to develop technology concerned with how mobile devices
(phones) could access the internet. In 1996 Libris changed its name to Unwired
Planet Inc. and launched its first commercial product, called up.link, which
was a mobile network system. In 1998 Unwired Planet was a member of the WAP
Forum. At the time WAP was an early approach to mobile internet access. The
WAP forum included Ericsson, Motorola and Nokia. Between 1999 and 2001 what
had been Unwired Planet was now called Openwave Systems Inc. In 2002 Openwave
was one of 200 companies to found the Open Mobile Alliance. This group
included the WAP Forum companies. The general aim of both groups was similar,
to try and come up with global standardised protocols for mobile internet and
to lobby standard setting organisations. Openwave continued to develop mobile
internet technology but by the time Mr Robbins joined in 2011 the company’s
success was uncertain. That was because of a shift in the balance of power
away from Openwave’s customers (carriers) and towards device makers like Apple
and Google. In November 2011 Openwave decided to sell its product business and
concentrate on earning revenue from its intellectual property. After the sale
the business was renamed Unwired Planet and so Unwired Planet became a
licensing business. Unwired Planet was staffed by a small group of IP
specialists and accountants. The business had a portfolio of patents
and
applications, now called the Openwave Legacy Portfolio. The portfolio consists
of 140 implementation
patent
families. Unwired Planet believed it contained
significant value.
61.
The history of Ericsson’s business up to 2011 does not matter. By 2011
Ericsson was a major technology developer in telecommunications and a
participant in standard setting. It had a handset business via a joint venture
with Sony and an infrastructure business. Ericsson also had a major licensing
business earning revenue from its patents.
Ericsson had licensed a wide range
of companies including Samsung. In 2009 Ericsson and Huawei had signed a
telecommunications
patent
licence which was still in force in 2011.
62.
In October 2011, Ericsson announced that they were going to leave the
handset business, selling their shares in the joint venture Sony-Ericsson to
Sony. The transaction completed in February 2012. Since then Ericsson has
remained active in infrastructure. Its largest competitor is Huawei. At the
same time, Ericsson started thinking about selling some patents.
Ericsson’s
motives for this come up later. Part of this exercise involved identifying
organisations which might take some
patents
from Ericsson with a view to
licensing them to the industry. The
patents
would include SEPs. At some point
before June 2012, Ericsson identified Unwired Planet as a possible candidate.
63.
By early June 2012 the discussions between Ericsson and Unwired Planet
were underway with the name “Project Cluster”. In July and August 2012,
Unwired Planet and Ericsson engaged in extensive discussion concerning the
composition of the “Cluster portfolio” of patents
to be transferred. Ericsson
were in control of the process. The process included swaps, in that Unwired
Planet could ask for a
patent
which was earmarked to be transferred to be
swapped out and replaced by another. During the negotiations possible royalty
rates were discussed. The evidence is clear that Unwired Planet did not see
Ericsson’s actual royalty rates, because the licences were confidential.
Unwired Planet made its own assessment based on whatever material was
available, including public statements by Ericsson and others.
The Master Sale Agreement (MSA)
64.
On 10th January 2013 the MSA was executed. One of the parties is an
entity called Cluster LLC but the detailed corporate arrangements do not
matter. Pursuant to the agreement 2,185 patents
and applications were
transferred to Unwired Planet from Ericsson via Cluster LLC. In numerical
terms this represented about 5% of Ericsson’s relevant portfolio. Initially
this included 37 families with SEPs declared to 2G, 3G or 4G. The portfolio
also included 786 implementation
patent
families. Unwired Planet reviewed the
portfolio and declared some of the implementation
patent
families as standards
essential. As a result, the number of declared SEPs held in the portfolio
increased to 40 in August 2013.
65. The MSA included, in clause 3.2(a), three “tiers” for the revenue split between Unwired Planet and Ericsson, being 20:80 in Unwired Planet’s favour between $0m and $100m, 50:50 from $100m to $500m and 70:30 in Ericsson’s favour above $500m. The MSA also contained royalty floor provisions in clauses 3.2, 3.4(a) and 6.1(aa). The clauses are quite complicated. They include a floor rate referred to as the ARR. The ARR is 0.10% for 3G and 0.15% for 4G. If Unwired Planet entered into a relevant licence at a rate below the ARR, then in the revenue split Unwired Planet were obliged to make up the difference between the sums actually earned and the ARR. So once Unwired Planet had reached the second tier, if Unwired Planet agreed a rate at less than 50% of the ARR, it would make a loss. That is why the ARR operates as a royalty floor.
66.
After the MSA had been executed, Unwired Planet began to formulate a
strategy for approaching potential licensees under its new portfolio of
Ericsson-derived patents
and in particular SEPs. Unwired Planet’s initial aim
was to contact and commence negotiations with various manufacturers they had
identified with a view to closing three deals by the end of the year. The initial list of manufacturers did not include Huawei
but by April 2013 Unwired Planet had identified Huawei as a company to be
contacted by the end of June. Unwired Planet decided to offer a flat rate
of $1 per LTE multimode handset. Taking a handset sale price as $200, that
would be 0.5%. At that time Ericsson’s publicly stated expectation for a rate
for their 4G/LTE
patents
was 1.5%.
The patents
transferred under the MSA
67.
Before entering into the MSA and thereby transferring patents
to Unwired
Planet, Ericsson’s portfolio consisted of about 15,000
patent
families. Of
those
patents
just over 800 were declared as essential to GSM, UMTS or LTE.
The portfolio transferred to Unwired Planet amounted to 825
patent
families of
which 37 were declared as essential. The transfer process was a bit more
complicated than this but for this purpose that does not matter. Ericsson
ranked its
patents
in tiers and selections of
patents
were chosen in each
tier. The numbers mean that the total number of
patents
transferred to Unwired
Planet represented about 5.5% of Ericsson’s portfolio (825/15,000). The size
ratio, if one considers declared essential
patents,
is 4.6% (37/800). So
purely on a numerical basis based on total numbers and declared numbers there is
a ratio of about 5% between Unwired Planet’s and Ericsson’s
patent
portfolios.
Contacts with Samsung and others
Contacts with Huawei
70.
In June 2013, Unwired Planet decided to approach Huawei. The approach
was about a possible purchase by Huawei of Ericsson-derived infrastructure
patents.
Unwired Planet discussed this with its advisors Evercore and the
approach occurred on 2 July 2013. Correspondence ensued and by 22nd August
2013 Huawei had informed Evercore that it was not interested in acquiring
Ericsson
patents.
71.
A point which Unwired Planet emphasise in these proceedings is that the
Ericsson-Huawei 2009 licence had expired at the end of 2012 and that, as a
result of the MSA, by 2013 certain Ericsson SEPs were now held by Unwired
Planet. The significance of this point is that while I accept Huawei’s case
that this first approach from Unwired Planet to Huawei via Evercore concerned a
purchase and not licensing (contrary to suggestions from Unwired Planet),
nevertheless, as Unwired Planet submit, by 2013 Huawei ought to have known that
they would need a licence from Unwired Planet to continue to use SEPs they had
formerly licensed from Ericsson. There is no evidence Huawei considered this
point at the time at all and I doubt they did. In cross-examination Mr Zhang
made the point that since Unwired Planet were trying to sell the patents
it had
acquired from Ericsson, then from Huawei’s point of view it was not clear the
patents
would remain with Unwired Planet. They might be sold on elsewhere.
That is true but it does not take away the force in Unwired Planet’s point that
after early 2013 Huawei knew all they needed to know to appreciate that certain
SEPs which they had formerly licensed were now held by a different company and,
if and to the extent a licence was required, it would have to come from Unwired
Planet or its successors.
October 2013
November 2013 - further contact with Huawei
The Lenovo deal
75.
Unwired Planet’s contacts with Lenovo had started in May 2013 with a
licensing proposal. In August 2013 Evercore had discussions with Lenovo about
Lenovo acquiring part of Unwired Planet’s patent
portfolio. Negotiations
continued from then on. The contract was finally agreed in March 2014. The
details of the contract are discussed below as a comparable. Lenovo paid $100m
to Unwired Planet and so under the MSA from that time only the second tier
arrangements apply. Under the contract Lenovo acquired 21 families from
Unwired Planet, 18 of which were already in the Unwired Planet portfolio and 3
more were acquired by Unwired Planet from Ericsson to assign to Lenovo.
Unwired Planet also acquired some further
patents
from Ericsson to add to its
portfolio. After the Lenovo transaction was complete Unwired Planet claimed to
own 30 SEP families.
The litigation
77.
On 10th March 2014 Huawei received an email from Mr Saru stating that
Unwired Planet had decided “to proceed with enforcement in Europe” by suing
Huawei for patent
infringement in the UK and Germany. Mr Saru says in his
witness evidence that his email was to “confirm” that they were suing Huawei in
Germany and the UK, but this was the first Huawei had heard of being sued.
The previous contact between Unwired Planet and Huawei had been about the terms
the NDA, whereby Huawei was waiting to receive comments from Unwired Planet.
78.
On the same day, Unwired Planet issued patent
infringement proceedings
in the UK and Germany against Huawei, Samsung and Google, and against HTC in
Germany. There is an issue about the nature of the relief claimed by Unwired
Planet which I will address in the competition law section below.
79. The April 2014 offer followed. In June 2014, Unwired Planet completed an NDA with Huawei. Discussions continued thereafter. A debate between Unwired Planet and Huawei arose about without prejudice privilege. On 30 July 2014, Unwired Planet made a without prejudice licensing proposal which was later repeated in open correspondence and is referred to as the July 2014 offer. Without prejudice negotiations continued after that.
80. In September 2014, Unwired Planet commenced working on a method of counting and classifying SEPs to use in licensing negotiations. It is called the “modified numeric proportionality approach” (MNPA). It is addressed at length below.
82. Unknown to Huawei, Unwired Planet and PanOptis had been negotiating and on 6 April 2016 the acquisition by PanOptis was announced. On 10 August 2016, Unwired Planet’s solicitors disclosed the 2016 Unwired Planet-Samsung Licence. This licence is addressed in detail below. On any view it has an effective royalty rate far below the ARR. No doubt that is one reason the ARR was removed from the MSA.
FRAND
(i) What is FRAND and what principles apply to it?
83.
The point of FRAND in standard setting is fairly easy to understand.
Standards exist so that different manufacturers can produce equipment which is
interoperable with the result that the manufacturers compete with one another.
So the phone makers compete in the market for phones and the public can select
a phone from any supplier and be sure (for example) that if it is a 4G phone,
it will work with any 4G network. As a society we want the best, most up to
date technology to be incorporated into the latest standards and that will
involve incorporating patented
inventions. While the inventor must be entitled
to a fair return for the use of their invention, in order for the standard to
permit interoperability the inventor must not be able to prevent others from
using the
patented
invention incorporated in the standard as long as
implementers take an appropriate licence and pay a fair royalty. In this way a
balance is struck, in the public interest, between the inventor and the
implementers. The appropriate licence is one which is fair, reasonable and
non-discriminatory. That way a standard can safely incorporate the invention
claimed in a
patent
without giving the inventor or his successors in title
unwarranted power over those who implement the standard. Thus the public
interest is served because telecommunication standards can be set using the
best and most up-to-date technical expedients available and the inventor’s
private interest is served because the FRAND undertaking ensures they or their
successors will obtain a fair reward for their invention.
84.
Telecommunications standards worldwide are formulated and set by SSOs
(Standards Setting Organisations). In Europe the relevant SSO is ETSI. SSOs
require the holders of patents
which are essential to the standards to give an
undertaking to license on FRAND terms if they wish to participate in standard
setting.
85.
In ETSI this process is based on its Directives which include Rules of
Procedure and a Guide to IPRs. Within the Directives, as an annex to the Guide
to IPRs, is an IPR Policy. The policy and the rules have been adjusted over
time but none of the issues before me turn on any differences. Article 4.1 of
the ETSI IPR Policy requires members of ETSI to inform ETSI of "ESSENTIAL
IPRs" in a timely fashion. ESSENTIAL and IPR are defined terms (article
15). A patent
which would inevitably be infringed by operating in accordance
with a standard is an example of an ESSENTIAL IPR. By definition a SEP is an
ESSENTIAL IPR. Once an ESSENTIAL IPR has been declared by its owner to ETSI,
the owner will be requested by ETSI (Article 6.1 of the ETSI IPR Policy) to
give an irrevocable undertaking in writing that it is prepared to grant
irrevocable licences on FRAND terms. In its form applicable to the 2014 offers
the relevant policy is dated 20th March 2013. Article 6.1 in that
form is:
“6.1 When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory (“FRAND”) terms and conditions under such IPR to at least the following extent:
● MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
● sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
● repair, use, or operate EQUIPMENT; and
● use METHODS.
The above undertaking may be made subject to the condition that those who seek licences agree to reciprocate.”
86.
Whether a declarant is an ETSI member or not does not matter in that
undertaking. Under the rules anyone declaring a patent
to ETSI as essential
IPR is asked to give a FRAND undertaking. A question is whether the commitment
to ETSI is enforceable by a third party putative licensee such as Huawei in
these proceedings. This is addressed in the next section.
87. Other relevant terms in the ETSI IPR Policy are:
i) Article 6.1bis which provides that the undertaking should be binding on successors in title.
ii)
Article 6.2 which provides that an undertaking for one patent
applies to
all members of the same
patent
family unless a specific written exclusion is
made at the time. Unwired Planet also pointed out that Mr Cheng of Huawei
agreed that an undertaking restricted to a particular national jurisdiction
would not make much sense [Day3 p125-126]. I accept Mr Cheng’s evidence.
iii) Article 6.3 which provides that so long as the undertaking is not given the relevant committee should be wary of adopting the relevant part of the standard and may suspend work on it.
iv)
Article 8.1 which provides for consequences if the patentee
refuses to
give the undertaking.
88.
A notable feature which is not in the ETSI IPR Policy is any obligation
on ETSI to check whether declared patents
are in fact essential. The only
mechanisms which exist to decide these questions are court proceedings or
arbitration.
(ii) The history and purpose of FRAND
89.
ETSI was established in 1988 and the FRAND undertaking was developed by
it with the close involvement of the European Commission, which reflects the
importance of FRAND from the point of view of competition policy. The first
public formulation by the Commission of a specific requirement for FRAND terms
in the context of IP and standardisation was in a paper “Communication on
Intellectual Property Rights and Standardisation” on 27th
October 1992 (COM (92) 445 final at 4.3.3). Nevertheless the concept has its
origin in US anti-trust law (see “A Brief History of FRAND: Analyzing
Current Debates in Standard Setting and Antitrust Through a Historical Lens”
Jorge Contreras 80 Antitrust Law Journal 39 (2015)). In the US it is sometimes
called “RAND” rather than FRAND but there is no material difference between the
two. The idea of FRAND licences for patents
essential to standards is not
unique to ETSI. It is something other international SSOs require as well (e.g.
the IEEE and ITU referred to by US District Judge James Robart in Microsoft
v Motorola Case C10-1823JLR, 2013 US Dist LEXIS 60233 (W.D. Wash.
April 25 2013 at page 3)).
“For good faith users who are willing to pay reasonable
royalties, holders of standards-essential patents
should not directly refuse to
grant licenses. On the one hand, it is necessary to ensure that
patentees
can
obtain sufficient returns from their technical innovations. On the other hand,
holders of standards-essential
patents
should be prevented from charging
exorbitant royalty rates or attaching unreasonable terms by leveraging their
powerful position forged by the standards. The core of the FRAND obligations
lies in the determination of reasonable and non-discriminatory royalties or
royalty rates.”
[section IV 2nd paragraph (p56 of the translation)]
93. I agree with the Guangdong High People’s Court’s succinct summary of the purpose of FRAND.
94. The same principles have been recognised in other courts internationally, see:
i)
the EU Commission Decision AT.39985 Motorola – Enforcement of
GPRS Standard Essential Patents
of 29th April 2014 at
para 76-77;
ii) the CJEU in Huawei v ZTE at paras 48-55;
iii)
the US courts in Microsoft v Motorola (Judge
Robart) at para 71-72 (p25); Ericsson v D-Link 773 F.3d
1201 (Fed Cir 2014) at page 7-8; In re Innovatio IP Ventures LLC
Patent
Litigation Case No 11 C 9308, 2013 WL 5593609 (N.D. I11 Oct.
3, 2013) pages 14-15.
95.
However eliminating hold up value is not the only consideration to take
into account. The authorities and the economics literature have identified a
countervailing factor called “reverse hold up” or “hold out”. The idea is that
an unscrupulous licensee may use their economic strength to avoid paying
anything to a patentee,
unduly dragging out the process of licence negotiation,
thereby putting the
patentee
to additional cost and forcing it to accept a
lower royalty rate than is fair. The possibility of delaying tactics from a
licensee is recognised in Huawei v ZTE (CJEU) at paragraph
71 and also paragraphs 37-38 (referring to the referring court).
96.
In a paper of which Prof Neven was an author (“Injunctions for
Standard-Essential Patents:
Justice is not Blind” Neven et al
Jnl of Competition Law & Economics 9(2), 285-311.), he showed by economic
modelling that in certain idealised circumstances involving the way
patent
litigation works, a licensee has an incentive to defend
patent
cases in Europe
and end up with a lower royalty than the idealised FRAND rate. The extent to
which that modelling applies to the real world does not matter, neither does
the fact that in economic literature hold up has been discussed more than hold
out. In my judgment what counts is that both hold up and hold out are possible
and both concepts are relevant in analysing a given set of facts. Unscrupulous
behaviour by either the
patentee
or the licensee can lead to unfairness. In
order to arrive at fair, reasonable and non-discriminatory licence terms the
patentee
must not engage in hold up nor must the licensee engage in hold out.
97.
When talking about FRAND economists refer to the idea that the FRAND
rate represents the rate which would be agreed “ex ante”, in other words before
the patented
invention is adopted into the standard. This is another way of
saying that the rate seeks to eliminate hold up and to that extent is
uncontroversial. In the concurrent evidence session Prof Neven explained that
he did not regard FRAND as a scheme which meant the
patentee
could not
appropriate some of the value that is associated with the inclusion of his
technology into the standard and the value of the products that are using those
standards. Dr Niels agreed with that. Neither side disputed this and to the
extent it is a matter for the economists, I accept their evidence. The
economists’ opinions show that it is not necessary to deprive the
patentee
of
its fair share of those two sources of value in order to eliminate hold up and
fulfil the purpose of FRAND. To that extent I may be differing from certain
parts of the decisions in Innovatio IP Ventures and Ericsson
v D-Link in the US but it is not necessary to look into that any
further since neither side before me took the point.
(iii) Enforceability of the ETSI FRAND undertaking and French law
99.
My judgment on the strike-out in April 2015 ([2015] EWHC
1029 (
Pat)
para
29) noted that FRAND could be considered in three relevant legal contexts: (1)
compliance with the FRAND commitment as a matter of contract, (2) compliance
with competition law and (3) the grant or refusal of injunctions (“equitable
refusability”). At this stage I am concerned with the first context.
101. Unwired Planet referred to the judgment of the Court of Appeal from the strike-out judgment ([2016] EWCA Civ 489) in which it was held that:
“38 […] UP LLC and UP were required to give FRAND undertakings and they each did so shortly after the SEPs in issue were transferred to them. It is true that UP is not a member of ETSI but it is just as constrained by the FRAND undertaking it has given as it would be if it were such a member and the judge was right to hold that, as a practical matter, any third party may require UP to grant it a licence under the SEPs on FRAND terms.”
(1) Does making ETSI declaration form a contract at all
108.
In the relevant declaration a patentee
declares to ETSI which
patents
it
contends are essential to the standards. In Prof Fauvarque-Cosson’s opinion it
is the making of this declaration to ETSI by a non-member which leads to that
non-member having a legally enforceable obligation to license on FRAND terms.
Since Unwired Planet is not a member of ETSI, this is crucial.
“1. the consent of the party assuming the obligation
2. capacity to contract
3. a definite object which is the subject matter of the obligation
4. a cause licit”
112. Prof Fauvarque-Cosson analysed the position in the following way:
i) The ETSI IPR declaration form sets out the terms of an offer made by ETSI to IPR holders who wish to declare their IPR as essential to a standard.
ii) The declaration form identifies the conditions on which ETSI will either include or maintain the IPR holder’s IPR in ETSI’s database of essential IPR, namely that the IPR holder must agree to grant irrevocable licences under its IPR on terms and conditions which are in accordance with Clause 6.1 of the ETSI IPR Policy.
iii) The IPR holder accepts the offer made by ETSI when it completes and signs the IPR Licensing Declaration Form and sends it to the Director General of ETSI.
iv) This gives rise to a contract on the terms set out in the IPR Licensing Declaration Form between ETSI and the IPR holder.
v) In addition to its contractual obligation to ETSI, the IPR holder is also contractually bound with respect to any third party who wishes to practice the standard to grant irrevocable licences under its IPR on terms and conditions which are in accordance with Clause 6.1 of the ETSI IPR Policy. This is because the contract between ETSI and the IPR holder is a contract for the benefit of third parties.
(a) whether making the declaration imposes any sufficient obligations on ETSI to form a contract
116.
Prof Libchaber’s view was that no contract was formed by the steps (i)
to (iv) because even if a declaration form which is completed and sent by a
patentee
to ETSI creates obligations for the
patentee
(perhaps because they are
an existing member of ETSI), it does not have any corresponding obligatory
consequences for ETSI.
117.
It is true that the ETSI IPR Policy itself does not purport to impose
anything by way of an obligation on ETSI in return for receiving an
essentiality declaration form from a patentee
but Prof Fauvarque-Cosson
explained that there is a step which ETSI will take after receiving a
declaration, that is to include or maintain the declared essential
patent
on
the ETSI database of essential IPR. Prof Libchaber’s view is that that is not
sufficient to support the theory that making a declaration triggers the
formation of a contract under French law because the entry of the
patent
in the
database is not the counterpart to a declaration but rather a tool designed to
assist interested parties in finding out which
patents
have been declared
essential and are said to be available to license. His view is that it is
artificial to analyse this as if it were a contractual advantage, and he
doubted that a declarant would be able to compel ETSI to enter the declaration
into the IPR database if this procedural step were not taken. He also pointed
out that while the registration procedure may be implicit from the Policy, it
appears nowhere in the Licensing Forms and so while the registration of the
patent
in the ETSI database could be seen as an obligation on ETSI where the
declaration is made by an ETSI member, there will be no such obligation where
the declaration is made by a non-member.
“Unless otherwise specified, all IPRs contained [in the ETSI IPR Database] have been notified to ETSI, with an undertaking from the owner to grant licenses according to the terms and conditions of Clause 6.1 of Annex 6 of the ETSI Rules of Procedure (the ETSI IPR Policy).”
[ETSI Guide on IPRs 19 September 2013; ETSI Directives Version 36, June 2016]
119.
This is a clear statement of ETSI’s registration policy. It shows that
Prof Fauvarque-Cosson is correct to say that after receiving a declaration ETSI
will include or maintain the declared essential patent(s)
on the ETSI IPR
database. Moreover, as the statement explains, unless otherwise stated the owners
of the IPRs on the database will have given a FRAND undertaking. Article 3.1.2
is an express and public statement of what ETSI will do when it receives
declarations. In my judgment the fact it is not mentioned in the declaration
form is irrelevant. On its face this article applies whether the declarant is
a member of ETSI or not and it would make little sense otherwise. I am not
persuaded by Prof Libchaber’s view that at best this might be applicable to
members rather than non-members.
120.
If a contract is formed from the four steps described by Prof
Fauvarque-Cosson (adjusted to include reference to Article 3.1.2) then one can
see that an obligation with far reaching legal consequences for the declarant
(to grant patent
licences to all comers on FRAND terms) is an obligation of
much more weight and significance than the apparently minor counterpart
obligation on ETSI (if it exists) to enter the declaration on the IPR
Database. However English contract law would not weigh up the relative values
of the promise and the consideration for it and neither Professor suggested
French law would do that either. Prof Libchaber’s view is that a requirement
to put the declaration on the database is not “sufficient” to support the
contract but that was not because of its inconsequential nature, it is because
of the Professor’s view that it is not the counterpart of the declaration but
rather a tool to assist interested parties. I accept that placing the
declarations on the public database is a tool to assist interested parties but
I do not accept that this is not a “counterpart” to the declaration. If Prof
Libchaber is just referring to the fact that the database is not mentioned in
the declaration form then I have dealt with that point.
121.
Considering the issue as a matter of substance, the placing of the
declaration on the database is indeed the counterpart to the declaration
because the purpose of the declaration from ETSI’s point of view is to provide
information which will be useful to give notice to standard setters and
implementers. That information involves two important facts: first the
existence of a patent
which is, or at least which the owner contends is,
essential to the standards, and second the fact that the owner is prepared to
grant licences on FRAND terms. A declaration to ETSI which is not made public
on the database is much less useful. Furthermore publication on ETSI’s own
database of the assertion of essentiality and of the undertaking to enter into
FRAND licences has a value to a
patentee
seeking to license its rights and
obtain fair return for the use of its invention.
(b) whether the declaration forms lack sufficient clarity to impose legal obligations on the declarant
“In this regard I note that the declarant may choose to make the declaration: (i) in respect of either IPR relating to contributions made to the standard setting process by the declarant or any of its IPR; (ii) in relation to specific ETSI standards / specifications or all of them; and (iii) subject to a condition of reciprocity. It is also open to the declarant to inform ETSI that it does not wish to make its IPR available for licensing on FRAND terms at all.”
128.
Finally the declarant can refuse to give the FRAND undertaking
altogether. Again this is not unclear. If they do refuse it means that ETSI
will know that there are patents
alleged to be essential for which no FRAND
undertaking is available. This is vital information and the ETSI Directives
have a number of provisions dealing with the possibility (Article 8 of the ETSI
IPR Policy). Broadly in that case ETSI will try and ensure that whatever the
relevant technology is, it is removed from the standards.
(c) whether in truth the declaration is really just a way of giving information to ETSI and the market
“In accordance with Clause 4.1 of the ETSI IPR Policy the Declarant and/or its AFFILIATES hereby informs ETSI that it is the Declarant and/or its AFFILIATES’ present belief that the IPRs disclosed in the attached IPR Information Statement Annex may be or may become ESSENTIAL in relation to at least the ETSI work Item(s), STANDARD(S) and/or TECHNICAL SPECIFICATIONS identified in the attached IPR Information Statement Annex.”
(underlining mine)
“IPR LICENSING DECLARATION
In accordance with Clause 6.1 of the ETSI IPR Policy the Declarant and/or its AFFILIATES hereby irrevocably declares the following (check one box only, and subordinate box, where applicable):
To the extent that the IPR(s) disclosed in the attached IPR Information Statement Annex are or become, and remain ESSENTIAL in respect of the ETSI Work Item, STANDARD and/or TECHNICAL SPECIFICATION identified in the attached IPR Information Statement Annex, the Declarant and/or its AFFILIATES are prepared to grant irrevocable licences under this/these IPR(s) on terms and conditions which are in accordance with Clause 6.1 of the ETSI IPR Policy.
This irrevocable undertaking is made subject to the condition that those who seek licences agree to reciprocate (check box if applicable).
The Declarant and/or its AFFILIATES are not prepared to make the above IPR Licensing Declaration (reasons may be explained in writing in the attached IPR Licensing Declaration Annex).
The construction, validity and performance of this IPR information statement and licensing declaration shall be governed by the laws of France.
SIGNATURE
By signing this IPR Information Statement and Licensing Declaration form, you represent that you have the authority to bind the Declarant and/or its AFFILIATES to representations and commitments provided in this form.
[signature etc] ___________”
132.
These passages are from the form to be used when specific patents
are
identified. The general form is not materially different. The language is
clear and at face value reads as something which would be understood as being
intended to have binding legal force (for example note the reference to the
laws of France and the reference to having authority to bind the Declarant).
The fact that in the earlier part of the form the declarant is “informing” ETSI
about particular IPRs makes sense since ETSI needs to be informed about what IPRs
are the subject of the declaration, not least so that they can be identified on
the database. I reject Prof Libchaber’s idea that all this amounts to is a
means of providing information to the market rather than a formal commitment
capable of binding the declarant. On the contrary the text as a whole is
plainly written in such a way that the person signing it understands they are
making a formal legal commitment on behalf of the declarant.
(2) Art 1121 of the old French Civil Code and stipulation pour autrui
Art. 1205. – A person may make a stipulation for another person.
One of the parties to a contract (the ‘stipulator’) may require a promise from the other party (the ‘promisor’) to accomplish an act of performance for the benefit of a third party (the ‘beneficiary’). The third party may be a future person but must be exactly identified or must be able to be determined at the time of the performance of the promise.
Art. 1206. – The beneficiary is invested with a direct right to the act of performance against the promisor from the time of the stipulation.
Nevertheless, the stipulator may freely revoke the stipulation as long as the beneficiary has not accepted it.
The stipulation becomes irrevocable at the moment when the acceptance reaches the stipulator or the promisor.
Art. 1207. – Revocation may be effected only by the stipulator, or, after his death, by his heirs. The latter may do so only after a period of three months has elapsed from the date when they put the third party on notice to accept the benefit of the promise.
If it is not accompanied with the designation of a new beneficiary, the revocation benefits the stipulator or his heirs, as the case may be.
Revocation is effective as soon as the third party beneficiary or the promisor becomes aware of it.
Where it is made by testament, it takes effect from the moment of the testator’s death.
The third party who was initially designated is deemed never to have benefited from the stipulation made for his benefit.
Art. 1208. – Acceptance may come from the beneficiary or, after his death, his heirs. It may be express or implied. It may take place even after the death of the promisee or the promisor. ”
Art. 1209. – The stipulator may himself require the promisor to perform his undertaking towards the beneficiary.”
i) Where an IPR holder gives an undertaking under Clause 6.1 of the ETSI IPR Policy, the IPR holder is the “promisor”; and ETSI is the “stipulator”. A person wishing to implement the standard is the “beneficiary”.
ii) The primary effect of the declaration is to create a contract between the promisor (the IPR holder) and the stipulator (ETSI), the terms of which require the promisor to grant a right (a licence on FRAND terms) to the beneficiaries (the implementers of the standard).
iii) Once it has exchanged consent with the stipulator (ETSI), the promisor has entered into a contract by virtue of which it is bound under French law to be prepared to grant the licence on FRAND terms.
iv) The fact that the precise FRAND terms and conditions are yet to be agreed between the promisor (the IPR holder) and the beneficiary (the implementer) and that there is no licence does not detract from this. The promisor’s undertaking suffices, as a matter of French law, to create a contract between ETSI and the promisor.
v) The fact that an IPR holder may be a non-member of ETSI is not relevant to this analysis.
137. Prof Libchaber’s next objection was as follows:
“If Professor Fauvarque-Cosson’s analysis is correct, the same Licensing Form would be considered as: (i) the offer made by ETSI; (ii) the acceptance by the IPR holder; and (iii) setting out the key terms of future contracts to be formed with interested third parties. As a matter of French contract law this plurality is unconvincing and does not allow for the identification of the various different components of those separate legal operations: a first contract between ETSI and an IPR holder, and a second between the IPR holder and a third party implementer.”
139.
I sympathise with Prof Libchaber’s observation that the doctrine is not
commonplace in French law. However that is no reason not to apply it to the
relatively new problem of how to facilitate the setting of standards in rapidly
developing areas of technology and balance the public benefit of access to the
latest and best technology for these standards with the appropriate incentives
for inventors and investors in technological innovation. The FRAND undertaking
sought by ETSI when a patentee
declares its
patents
as essential to an ETSI
standard is an undertaking given in terms to confer a benefit on third
parties. I accept Prof Fauvarque-Cosson’s analysis and find that the doctrine
of “stipulation pour autrui” applies to the FRAND undertaking and
renders it enforceable by third parties.
(3) The nature of any obligation which does arise
142.
Neither side before me suggests that the FRAND undertaking is
specifically enforceable in the sense I have described. For my part I doubt
that the FRAND undertaking can be specifically enforced in such a way that
either party could legally be compelled to enter into a contract against their
will. Certainly the implementer could not be so compelled and I doubt the
patentee
could be either. However a proper analysis of the full legal
situation needs to have regard to the intellectual property rights which the
FRAND undertaking relates to as well as the contractual position. It also
needs to take into account competition law.
143.
I do not believe it is necessary in order for the FRAND undertaking to
be legally effective, for it to be true that the undertaking is specifically
enforceable in such a way that the IPR holder could be compelled to enter into
a contract against their will. In other words, even if a patentee
cannot be
compelled to enter into a contract by specific performance of the FRAND
undertaking, that undertaking can still have substantive legal effect. As
mentioned already FRAND is an objective standard. Courts concerned with
patent
cases in a number of countries around the world have set FRAND rates and this
court will do so too. If a
patentee
refuses to enter into a licence which a
court has determined is FRAND then, subject to the Vringo
problem which I will consider below, a court can and in my judgment should
normally refuse to grant relief for
patent
infringement. The converse applies
to an implementer who refuses to accept a FRAND licence. In that case the
normal relief for
patent
infringement should normally follow. Thus there is no
need for contract law to go as far as creating a power to compel parties to
enter into FRAND licences against their will because
patent
law already has the
tools available to give legal effect to the FRAND undertaking.
(4) The efficacy of a unilateral commitment under Article 1100-1 of the French Civil Code.
Enforceability of the FRAND undertaking – looking overall.
(iv) Can there be more than one set of FRAND terms?
149.
In Vringo v ZTE (both [2013] EWHC
1591 (
Pat)
and
[2015]
EWHC
214 (
Pat))
and in earlier judgments in these proceedings I
considered what happens if each side in a
patent
dispute makes a FRAND offer.
As those judgments indicated, it may be that competition law, the contractual
basis of the ETSI FRAND undertaking and the English court’s equitable
discretion which relates to injunctions deal with these problems in different
ways. This problem (the Vringo problem), in which offers
presented by each party differ but are both FRAND, necessarily presupposes that
different terms can both be FRAND. If that is possible then competition law
and the contractual FRAND undertaking may be satisfied but the problem then may
have to be resolved by the grant or refusal of an injunction. In Vringo
I described as “international coercion” the effect which might arise if a court
granted an injunction in its territory on the basis that a putative licensee
had no licence when the reason the licensee had no licence was because the only
terms on offer were a global licence which the licensee did not want.
150.
The question is what to do once a court has decided that a given patent
is valid, essential and infringed by an implementer and in which both the
patentee
and the implementer have offered licence terms but those terms
differ. That is this case. Even if the dispute is only about a royalty rate
then the problem still arises because if there can be a range of FRAND rates
then asking if a rate is FRAND does not provide the court with a basis for
resolving the dispute. If there can be a FRAND range then in order to
adjudicate that a particular rate is the “right” rate in the circumstances
either there needs to be some further principle to apply aside from FRAND or
the parties would have to agree to accept whatever rate the court chooses in
the exercise of its discretion. The equitable discretion relating to the
injunction does not solve this problem. All that can be achieved in effect is
enforcement of a determination made by the court as to what licence terms are
acceptable but that does not indicate which set of terms should be accepted.
151. Before me the parties’ cases were diametrically opposed:
i)
Unwired Planet submitted that if each side made a FRAND offer then the
patentee’s
offer wins in the sense that, all other things being equal and
assuming there is no defence to an injunction, the court should grant an
injunction against the defendant. That is because by making a FRAND offer the
patentee
has discharged its obligations under the FRAND undertaking – which
obligations are said to be limited to making FRAND offers as distinct from
being obliged to accept FRAND terms offered by the putative licensee.
ii)
Huawei submitted that if each side made a FRAND offer then the
implementer should win and the injunction should be refused. That is because
the patentee
in this circumstance would not be accepting the licensee’s FRAND
terms. The implementer’s terms are the ones which should be accepted because
the FRAND system is for the benefit of implementers in order to allow them
access to the technology.
A single set of FRAND terms and the Vringo problem
158.
The concept of a single set of FRAND terms also eliminates the Vringo
problem. That is a significant virtue. If more than one set of terms can be
FRAND then the Vringo problem of rival FRAND offers cannot
be solved in a fair way. I do not accept either party’s submission about what a
court should do if presented with rival terms both of which are FRAND. I
reject Unwired Planet’s submission that the patentee
should win in that case
because the
patentee’s
obligation is simply to make a FRAND offer. This
argument derives from too narrow a view of the wording of the FRAND undertaking
and the reference to being “prepared to grant irrevocable licences” on FRAND
terms. These words are not apt to distinguish between Unwired Planet’s
interpretation, which sets the limit of a
patentee’s
obligations as being
merely to make offers, and a wider interpretation which would oblige a
patentee
to enter into licences on FRAND terms.
159.
The wider interpretation is preferable for another reason too. It is
more consonant with the purpose of the FRAND undertaking itself. An obligation
focussed only on making FRAND offers (my emphasis) is unrealistic since
a process of fair negotiation will usually involve some compromise between the
parties’ rival offers. If the ETSI undertaking demands that offers made by a
patentee
must themselves consist of FRAND terms, then that would condemn
patentees
to always end up with negotiated rates below a FRAND rate. Therefore
it makes much more sense to interpret the ETSI FRAND obligation as applicable
primarily to the finally agreed terms rather than to the offers. In other
words, it is an obligation to enter into FRAND licences. The same logic also
applies to implementers: an obligation on implementers to make FRAND offers
as opposed to enter into FRAND licences would have them paying rates higher
than the FRAND rate.
160.
I have referred to an obligation on implementers because I believe the
ETSI FRAND undertaking does impose duties on them too. Although the ETSI FRAND
undertaking is an obligation imposed on the patentee,
I agree with Unwired
Planet that it also has the effect of creating an obligation applicable to the
implementer, as follows. Although some implementers are themselves ETSI
members, the ETSI FRAND undertaking must work in the same way whether the
implementer is a member of ETSI or not. The implementer, as an implementer,
owes no contractual duties to ETSI at all and the implementer has no duty to
ETSI to offer FRAND terms to a
patentee.
However the logic of the FRAND
undertaking means that an implementer must negotiate fairly if it wishes to
take advantage of the constraint which the
patentee’s
FRAND undertaking places
on the
patentee’s
rights. Just as an implementer is entitled to demand FRAND
terms in a licence from a
patentee
subject to the ETSI FRAND undertaking, so a
patentee
is entitled to demand FRAND terms in the same licence. In other
words, an implementer who does not negotiate fairly is not a willing licensee
and may ultimately be subject to an injunction.
161.
I also reject Huawei’s proposed solution to the Vringo
problem that the implementer’s offer is necessarily the one which must be
accepted. All the reasons which apply to the patentee’s
terms apply just as
much to the implementer’s terms and it is not correct to say that the FRAND
undertaking is simply for the benefit of implementers. Its purpose is to
strike a balance between the respective rights of
patentees
and implementers.
FRAND as a process
“…a FRAND commitment is not simply a commitment to abide by the terms of a court-determined FRAND licence and / or FRAND rate, but requires the SEP holder to behave in particular ways (and for instance to make (or at least attempt to make) offers capable of being FRAND).”
(para 41)
163.
I agree with the sentiment expressed by Prof Neven. Both patentees
and
implementers should take a FRAND approach to the negotiation of a licence under
a SEP or SEP portfolio governed by a FRAND undertaking. The
patentee
is
obliged by contract to take a FRAND approach to the negotiation and to grant a
licence on FRAND terms. The implementer must take a FRAND approach to the
negotiation and accept a licence on FRAND terms if it wishes to take advantage
of the constraint on the
patentee’s
rights imposed by the FRAND undertaking. A
FRAND approach to negotiation does not mean that parties cannot negotiate in
good faith and a FRAND approach will allow for starting offers which leave room
for negotiation. The fact an opening offered rate is higher than the true
FRAND rate does not mean of itself that a
patentee
has failed to take a FRAND
approach any more than the converse could be said about an implementer. On the
other hand, making extreme offers and taking an intransigent approach which
prejudice fair, reasonable and non-discriminatory negotiation is not a FRAND
approach.
A single set of FRAND terms - conclusions
166.
A patentee
who refuses to accept those terms would be in breach of its
FRAND undertaking. Even if a court cannot go as far as directly enforcing the
FRAND undertaking by compelling a
patentee
to make an offer in those terms (see
the section on French law), I think an English court would at least refuse to
grant a
patentee
an injunction if it refused to accept FRAND terms. That would
be a proper exercise of the court’s equitable jurisdiction to grant or refuse
an injunction.
167.
A defendant who had already been found to infringe a valid patent
cannot
be compelled to accept an offer of a licence but a defendant with no licence,
who had refused to accept terms on offer which had been found to be FRAND,
would not be entitled to the protection from injunctions provided for by the
patentee’s
FRAND undertaking. An injunction would follow and to grant it would
be a proper exercise of the court’s equitable jurisdiction. The only coercion
in that case would be to enter into a licence on FRAND terms. It would apply
to both sides with equal force.
168.
Before finally concluding on this issue I will return to the factor
which concerned me most. That is the diversity of terms in the real agreements
in the industry. Does a conclusion that only one set of terms is FRAND mean
that most or all of these agreements are not FRAND? I have answered this
already but given the importance of the point I will repeat the answer I have
arrived at in a different way. For concluded agreements between patentees
subject to an ETSI FRAND undertaking and implementers, the importance of the
FRAND undertaking will be historic. The process aspect of FRAND was important
in requiring both sides to approach the negotiations appropriately and the
requirement that a royalty rate had to be FRAND would be something to be prayed
in aid during the negotiations. However once the agreement has been reached
the contract must be the thing which governs the rights and obligations of the
two parties with respect to each other while it is in force. Competition law
must leave latitude to the parties to agree and cannot draw the line between
acceptable and unacceptable contract terms in the same place as the line
between whether a term is ETSI FRAND or not.
(v) Can the court set a FRAND rate or other FRAND terms?
169.
Having now heard this trial I remain of the view that the court cannot
craft a set of FRAND terms out of thin air. That is what I described in Vringo
as a Copyright Tribunal type exercise although it may be noted that even in the
Copyright Tribunal there must be a licensing scheme in order for the Tribunal’s
jurisdiction to be engaged. However courts all over the world have now set
FRAND rates. I am sure the English court can do that as well. I decided at
the CMC in March 2015 that the court could declare that a given set of terms were
FRAND and also, within that framework, can decide that certain terms need to be
adjusted in order to make a set of terms FRAND. I am sure this applies to a
royalty rate. After all, arriving at a FRAND royalty rate is not different
conceptually from assessing what a reasonable royalty would be in a patent
damages enquiry albeit the particular factors applicable in setting a FRAND
royalty for a licence to be FRAND and their application may differ from
assessing damages. So the court’s jurisdiction is not restricted to the binary
question of assessing a given set of terms but extends to deciding between
rival proposals and coming to a conclusion different from either side’s case on
such a proposal.
(vi) How to assess what is FRAND
172.
In relation to comparables generally Huawei submit that the approach to
be followed is that set out by Lloyd LJ in Smith Kline & French
Laboratories Ltds (Cimetidine) Patents
[1990] RPC 203 as follows:
“The object of the comparability exercise, in this as in any other branch of the law, is to find the closest possible parallel. If there is an exact parallel, there is no point in looking any further. If there are slight differences, an allowance may be made. But once you have found your comparables, whether one or more, which enable you to arrive at the appropriate figure, it would surely be erroneous to modify that figure by reference to other cases which are not truly comparable at all, so as to bring the case into line with a predetermined range. This was, with great respect, the mistake which the hearing officer made.”
175.
Huawei also submit that the comparables selected should include some, or
ideally all, of three criteria: (a) the licensor is Unwired Planet or Ericsson,
(b) the licensee is Huawei, or a similarly situated company such as Samsung and
(c) the licence is recent. I agree with (a) and subject to what “recent” means
I agree with (c). However I am not convinced that (b), the identity of the
licensee, should be a strong factor in determining what comparables are useful
for determining the FRAND rate aside from the hard edged non-discrimination
point addressed below. FRAND is supposed to eliminate hold up as well as hold
out. Different licensees will have differing levels of bargaining power. That
is another way of saying their ability to resist hold up and their ability to
hold out will vary. It would be unfair (and discriminatory) to assess what is
and is not FRAND by reference to this and other characteristics of specific
licensees. In my view, it would not be FRAND, for example, for a small new
entrant to the market to have to pay a higher royalty rate than an established
large entity. Limiting comparable licences to those where Huawei or a similar
company like Samsung is the licensee is therefore unjustified. In my judgment
the FRAND rate ought to be generally non-discriminatory in that it is
determined primarily by reference to the value of the patents
being licensed
and has the result that all licensees who need the same kind of licence will be
charged the same kind of rate.
(vii) A hard-edged non-discrimination aspect of FRAND
(viii) Concepts used to derive a FRAND rate with telecoms standards
178.
The FRAND royalty rate reflects an assessment of the value of the
licensor’s patent
portfolio under licence. Two approaches to this have been
taken both in this case and in other cases. One approach (referred to as “top
down”) starts with a number representing what the appropriate total aggregate
royalty burden should be for a given standard (call it T). One can take a view
about what the total royalty burden for all the intellectual property relating
to the standardised telecommunications technology in a handset should be and
indeed various companies have made public statements about this. Starting from
this figure T one can then share out the royalty across all licensors in
proportion to the value of each licensor’s
patent
portfolio based on assessing
that value as a share (call it S) of the total relevant
patent
portfolio
essential to that standard. The FRAND rate is the product of the two (TxS).
179.
The other approach is to use comparable licences. These are licences
which have already been entered into. The most directly comparable licences
will be licences the patentee
has already entered into for the portfolio in
question. There are two in this case, the Unwired Planet-Lenovo 2014 licence
and the Unwired Planet-Samsung 2016 licence. One might assume directly
comparable licences would represent the best evidence of the value of the
portfolio in issue. However the rates in these two licences are very different
from each other and each side contends that one of them is not a useful
comparable at all. I will return to those licences below.
180.
Given that at one time Ericsson, Samsung and Huawei were all parties to
these proceedings and they are all major telecommunications companies, a large
number of further patent
licences were in disclosure. (The disclosure had been
managed to keep the numbers under control but it was still substantial.) The
comparison with third party licences is indirect and the relationship between
those licences and the value of the portfolio in issue will depend on the
evidence. In order to use them a view has to be formed about the relative
value of the portfolios licensed in them as against Unwired Planet’s portfolio.
Since the relevant Unwired Planet
patents
all came from Ericsson, the Ericsson
licences at one time included all the SEPs in issue. That alone makes Ericsson
licences relevant. So if the rate for Ericsson’s portfolio is E and the
relative value of Unwired Planet’s portfolio to Ericsson’s portfolio is R, the
Unwired Planet rate is ExR.
181.
The factors S and R are measures of the value of a licensor’s patent
portfolio relative to the industry as a whole and to another licensor. It is
clear that in negotiating licences in this field the parties seek to make an
assessment of this value. Tools for doing this were sometimes called portfolio
strength metrics. One might think that in order to do this it would be
necessary to examine the value of the contribution made to the standard by the
invention claimed in each
patent.
Obviously as a portfolio increases in size
the burden of that increases too but one of the reasons this trial was docketed
to the same judge who heard the technical trials was because I would be
familiar with some of the
patents
chosen by Unwired Planet to litigate, which
one might expect would be the good ones. However the exercises conducted by
both Unwired Planet and Huawei for this trial, subject to a point on Ericsson,
have been based on categorising and counting
patents.
The techniques treat all
patents
in a given category as of equal value.
182.
There was ample evidence before me that apart from Ericsson (see below),
parties negotiating SEP licences in fact use methods which are based on patent
counting. That is evidence which supports a finding that a FRAND approach to
assessing a royalty rate is to engage in some kind of
patent
counting. Indeed
when one thinks about it some sort of
patent
counting is the only practical
approach at least for a portfolio of any size. Trying to evaluate the
importance of individual inventions becomes disproportionate very quickly.
183.
It may be that other technology standards are different but I am not
surprised that patent
counting is the approach taken for GSM, UMTS and LTE
telecommunications standards. Each standard defines a system with a large
number of different parts all of which have to interact with each other. The
interactions and interdependencies are complicated. To make a coherent system
which works at all, let alone one which delivers the performance demanded of
these systems, is difficult and demands insight and creativity on the part of
the engineers involved. It is unsurprising that many inventions (and therefore
many
patents
and SEPs) will be involved. Short of the disproportionate task of
evaluating every single
patent
thoroughly in order to compare each one with all
the others, one can only ever hope to analyse SEPs in broad categories and it
is not meaningful to attempt to weigh the value of individual
patents
within
these categories against one another.
184.
I suppose in some cases it may be possible to identify a patent
as an
exceptional sort of keystone invention underpinning the entire technical
approach on which a standard is based but that is not this case. There was
unchallenged evidence that Unwired Planet’s
patents
made an “average”
contribution to the standards. I am satisfied that none of the Unwired Planet
patents
are in the exceptional keystone category.
185.
The evidence is that Ericsson sought to deploy a different technique in
licensing negotiations based on evaluating a party’s technical contributions to
the standard setting process as a way of valuing their portfolio and Mr
Lasinski used this method for “unpacking” Ericsson’s licences (see below).
Using it as a technique to address Ericsson’s licences is logical since it is
an Ericsson technique, and Mr Bezant and Mr Lasinski were in agreement that it
made more sense to use a metric of strength for unpacking which was available
to the parties negotiating a licence at the time rather than one which was not
available. However the Ericsson technique has problems if applied more
generally and neither side suggested that it should be. For one thing it is
already at one remove from the legal rights, which derive from patents
not
technical contributions. Also the technique cannot handle a portfolio of
patents
acquired after the standards were set – e.g. the Unwired Planet
portfolio. Ericsson have been closely involved in the standard setting process
and that may be why they like this method, I do not know. In any case the fact
that Ericsson advanced arguments on this basis during negotiations does not
mean it is accepted as a method by the counterparty.
186.
The patent
counting approach works in the following way. Starting from
a portfolio of declared SEPs the first task is to derive a number representing
the Relevant SEPs. “Relevant SEPs” is my term, coined after the trial had
finished and intended to avoid language used in the case which can be confusing
such as “truly essential
patents”
or “deemed”. Both sides’ approaches require
making an assessment of the Relevant SEPs somehow. The parties do not agree
how it should be done but one way or another a number is produced. Armed with
that information it is possible to scale one company’s rates relative to
another to derive the factor R or to find the share of the total and derive S.
“Unpacking” licences
187.
A significant dimension to the task to evaluating comparable licences is
the fact that many patent
licences in this industry have terms which make the
comparison difficult. The two major problems are that they may be based on a
lump sum rather than a running royalty and they may be cross-licences with a
balancing figure which may be a rate or a lump sum. They may well also have
other complications such as multiple rates which are different for a variety of
reasons such as different standards or different regions, and royalty floors
etc. The overall agreement may also include aspects which are not
patent
licences at all, such as
patent
sales or technology transfer.
189.
The unpacking of a cross-licence can resolve two one-way royalty rates
from a single balancing figure based on the notion that the single figure
represents the effect of balancing the value in royalty terms of each party’s
patent
portfolio. If the balancing figure is a lump sum then unpacking will
involve net present value assessments for each party with the attendant
uncertainties. In any event there also needs to be some means for assessing
the relative value of each party’s portfolio unless one has a figure for one or
other party directly. To achieve this takes one back to the Ericsson
contributions technique and/or counting
patents.
For a cross-licence between A
and B, if A has 100 Relevant SEPs and B has 200 then the ratio is 1:2 and that
allows one mathematically to derive figures for the underlying one way rates.
Inevitably this introduces yet more uncertainty.
“the details of the unpacking process make little significant difference to the implied Ericsson rates: the rates ascertained by Mr Bezant, Mr Lasinski or Dr Leonard were all in a relatively close range ([…]), whichever unpacking method was used {U1/6/1}. As Mr Lasinski explained, the portfolio strength metrics employed by the three valuation experts have a minimal effect on the effective rates they derive from the 2014 Ericsson-Samsung Licence because Samsung’s business is so large as against Ericsson’s that this factor swamps almost everything else.” [closing paragraph 77]
192. A number of points emerge from this. The parties’ experts (Dr Leonard was to have been Samsung’s expert) had analysed this licence in order to derive an implied 4G/LTE royalty rate charged by Ericsson as licensor and accepted by Samsung as licensee for Ericsson’s portfolio of SEPs. The parties have come to figures for the effective implied royalty rate for Ericsson’s portfolio using very different techniques but the answers all came to a number which Huawei characterise as a relatively close range. The only aspect of the submission I do not accept is the qualification “relatively”. In my judgment bearing in mind all the uncertainties and assumptions which go into these unpacking exercises, the spread of these figures is remarkably close. The spread is about ±20% around the midpoint ([…]).
“The differences are not that great on the unpacking, in the context of the exercise. […] And, indeed, given the uncertainty of unpacking cross licences. It's not as if one number is strong and another it is weak. They are -- they are all somewhat fragile when you're unpacking a cross licence.”
and
“But I'm just signalling that when I say not sensitive that's partly the numbers don't move very much, but it's also partly a recognition that the numbers themselves are inherently uncertain.”
195.
Part of the point Mr Bezant was making was that the rival patent
counting methods do not have a major impact on unpacking. That is because in
the unpacking process the experts use the methodologies consistently. One also
needs to bear in mind that the numbers themselves are inherently uncertain. I
accept Mr Bezant’s evidence about that (which was not in dispute). There is
an exception on unpacking methodology which relates to the two Ericsson/Huawei
licences but for reasons addressed below, in the end that does not matter.
FRAND on the facts of this case
(i) Relevant SEPs – shares and ratios
199.
For Huawei’s case both the numerators and the denominators in these
ratios are derived using the same patent
counting technique called the Huawei
Patent
Analysis (HPA). Unwired Planet’s
patent
counting method is called the
Modified Numeric Proportionality Approach (MNPA). The MNPA was revised during
the proceedings and so there are references to the Original and Revised MNPA.
Another aspect of Unwired Planet’s case employs what was referred to in
argument as the 80:20 rule. It is an adjustment which Unwired Planet contend
gives some value to
patents
in a category which would otherwise be disregarded.
200.
It is common ground that some kind of appropriate methodology is needed
beyond simply adding up patents
on the register or the ETSI database. One
needs to cater for the different jurisdictions, divisionals and other things.
Some of this can be dealt with by focussing on families rather than
patents
(but that is not perfect either) however a very significant reason why one cannot
just count up declared
patent
families is recognition of the problem of over
declaration. There was no dispute this exists. The debate is as to its
extent.
201.
The over declaration problem is the following. Very many more patents
are declared to be essential than in fact are essential. This can be for many
reasons. For ETSI members Art 4.1 of the IPR Policy requires members to
declare essential
patents
in a timely fashion and creates an incentive to err
on the safe side and so, if in doubt, declare. Also determining essentiality
for certain is not easy. The technology can be difficult and the
patents
and
the standards can be hard to interpret.
Patent
claims are also amended over
time and in a single family the different national
patents
will vary in scope
around the world; standards themselves can also vary over time. Keeping track
of all this would be time consuming and costly, and if reasonable royalty rates
can be agreed without determining essentiality for certain, it is a
disproportionate task. Notably also no-one tries to take account of validity.
Various studies have been done on over-declaration and rates of
over-declaration quoted in the literature. Each side criticises the other’s
counting techniques and specifics over over-declaration are addressed in the
sections below dealing with the alleged flaws in the techniques. It is just
too difficult.
202.
Nevertheless it must also be recognised that the fact that rates are
negotiated by counting patents
creates a perverse incentive to declare as many
patents
as possible, making over-declaration worse.
203.
A further point is that Unwired Planet’s approach only uses patent
counting for the denominators. The numerators, in other words the numbers
representing Unwired Planet’s own Relevant SEPs for a given type of technology,
are the result of a detailed assessment of the individual
patent
families.
Unwired Planet say that is the appropriate thing to do and it is inappropriate
to take the approach advanced by Huawei by using the same counting technique for
both numerator and denominator. Huawei say the opposite and Unwired Planet’s
approach is inconsistent whereas their approach is the correct thing to do. I
will deal with that at the same time as other criticisms, below.
204.
The parties are very close on the numerators and far apart on the
denominators. In other words, at least superficially, they are close on the
number of Relevant SEPs in Unwired Planet’s portfolio. In any event they are
far apart on the number of Relevant SEPs in other companies’ patent
portfolios
or as a whole.
The numerator
205.
For example each side contends Unwired Planet have 6 relevant LTE SEP
families for handsets. They arrive at this number in different ways but they
both arrive at 6. The complete set of relevant numbers for Unwired Planet’s
patents
are shown in these tables:
Huawei’s case:
|
Handsets |
RAN infrastructure |
Total |
2G/GSM |
1 |
1 |
2 |
3G/UMTS |
2 |
4 |
4 |
4G/LTE |
6 |
5 |
7 |
Unwired Planet’s case:
|
Handsets |
RAN infrastructure |
2G/GSM |
2 |
1 |
3G/UMTS |
1 |
2 |
4G/LTE |
6 |
7 |
206.
RAN stands for Radio Access Network. It is a major part of the
infrastructure of these systems. There is another kind of infrastructure which
relates to the core network but it is common ground that this is a totally
different market. Note that in the Huawei table the total column is not a
simple sum of the numbers for handsets plus RAN infrastructure because one
patent
can cover both.
207.
Two detailed assessments have been made of Unwired Planet’s patents.
First, as part of their licensing efforts Mr Saru explained that they (Unwired
Planet) carried out their own detailed assessment of the
patents
in their LTE
portfolio (Mr Saru I para 51). There were 19 LTE families to start with and
Unwired Planet decided they held 9 of what they called the True LTE families.
Second, in these proceedings Dr Cooper carried out a detailed assessment of
some Unwired Planet
patents.
For LTE the
patents
assessed were 7 of the 9
(because the other 2 had been litigated in trials A and B and found to be
essential). The detailed assessment Dr Cooper carried out was the same as he
carried out on certain Samsung and Huawei
patents
which come up below in the
context of the MNPA. I accept Dr Cooper’s assessment. As for the two
litigated
patents,
Huawei submitted the Trial B
patent
should have been classed
as optional rather than mandatory because it relates to ANR (Automatic
Neighbour Relations). The ANR point is not simple. I accept ANR is optional
at the network level but it was not established that it is optional for handsets,
because handsets ought to be able to function with all kinds of network.
Accordingly, ignoring validity, I find that for the purposes of assessing a
FRAND licence Unwired Planet have 6 LTE handset
patent
families and 7 LTE
infrastructure
patent
families which are essential to mandatory aspects of the
LTE standards used in the MNPA.
208.
For 2G/ GSM and 3G/UMTS the position is more complicated. I find that
for the purposes of assessing a FRAND rate for 3G UMTS in these proceedings,
Unwired Planet have 1 handset and 2 infrastructure patent
families which are
essential. The corresponding numbers for 2G/GSM are 2 handset
patent
families
and 1 infrastructure
patent
family. There is an issue about the way Unwired
Planet deal with 2G/GSM and 3G/UMTS in relation to the Original MNPA because
Unwired Planet included as essential
patents
which did not meet the MNPA cut
offs. That may make a difference with regard to the FRAND status of the 2014
offers and I will address that in context if necessary.
The denominators and the resulting fractions
Huawei’s case:
|
Handsets |
RAN infrastructure |
Total |
2G/GSM |
1/350 = 0.29% |
1/305 = 0.33% |
2/389 = 0.51% |
3G/UMTS |
2/1089 = 0.18% |
44/886 = 0.45% |
4/1215 = 0.33% |
4G/LTE |
6/1812 = 0.33% |
5/1554 = 0.32% |
7/2054 = 0.34% |
Unwired Planet’s case:
|
Handsets (revised MNPA) |
RAN infrastructure (original MNPA) |
2G/GSM |
2/102 = 1.96% |
1/85 = 1.18% |
3G/UMTS |
1/324 = 0.31% |
2/274 = 0.73% |
4G/LTE |
6/355 = 1.69% |
7/306 = 2.29% |
210.
Now the major differences between the parties can be seen. Unwired
Planet contend their patents
represent 1.69% of the Relevant SEPs for handsets
in LTE, in other words S = 1.69% whereas Huawei say the portfolio only contains
0.33% of those SEPs and so S= 0.33%. In other words, on Unwired Planet’s case,
the value of their
patents
for handsets in LTE is five times the value
contended for by Huawei. A dimension which I have not mentioned yet is how to
deal with multimode devices, that comes in the next section.
212.
What accounts for the difference here is the degree to which the rival
techniques reduce the number of relevant patents.
The starting points are
similar but the end points are different. Huawei suggest that the total number
of
patent
families declared essential to 4G/LTE, making certain assumptions, is
6027. Unwired Planet used a corresponding figure of 5917, produced in a
different way. However the outcome of the HPA, for the number of Relevant SEP
families for 4G/LTE handsets is 1812 while Unwired Planet’s equivalent is 355.
213.
It will be recalled that by numbers Unwired Planet’s patents
represented
about 5% of Ericsson’s portfolio when they were assigned. Huawei contend this
5% size ratio acts as an anchor point for testing the credibility of each
side’s case on relative E:UP portfolio strength R. Conceptually Huawei is
correct although one needs to take care with inherent uncertainties in many of
these numbers and with the fact that a small sample size from a large population
may not be representative.
Huawei’s case:
|
2G/GSM |
3G/UMTS |
4G/LTE |
UWP [A] |
2 |
4 |
7 |
Ericsson [B] |
34 |
69 |
112 |
Strength Ratio R (=[A]/[B]) |
5.88% |
5.80% |
6.25% |
i) post-MSA, pre-Lenovo: GSM 6.25%, UMTS 6.35%, LTE 6.86%
ii) post-MSA, post-Lenovo: GSM 6.25%, UMTS 6.35%, LTE 6.93%
217.
Huawei also produce a similar set of values for R using numbers of
declared patents
(making certain assumptions). Huawei submit these numbers are
not irrelevant but are not the ones to place much weight on. I include them in
the judgment to illustrate the differences which can arise when declared
numbers are used. The table for pre-MSA is:
Huawei’s case:
Declared basis |
2G/GSM |
3G/UMTS |
4G/LTE |
UWP [A] |
2 |
17 |
17 |
Ericsson [B] |
134 |
454 |
398 |
Strength Ratio R (=[A]/[B]) |
1.49% |
3.74% |
4.27% |
Unwired Planet’s case:
|
2G/GSM |
3G/UMTS |
4G/LTE |
UWP % of standard [A] |
1.96% |
0.31% |
1.69% |
Ericsson % of standard [B] |
19.62% |
18.71% |
9.58% |
Strength Ratio R (=[A]/[B]) |
9.99% |
1.65% |
17.65% |
219.
The figure for 4G is about three times higher than the numerical size
ratio of 5% while the figure for 3G is three times lower. This is the sort of
variability which Unwired Planet submit indicates the caution which must be
exercised when comparison is made to the 5% figure. Unwired Planet also
contend that they do not rely on these individual strength ratios but submit
that the right strength ratio to use, if one takes this approach, is a blended
ratio taking into account multimode, which is dealt with in the next section.
Huawei contend that the idea that Unwired Planet acquired 17% of Ericsson’s
relevant SEPs for LTE is fanciful and this is evidence which shows the flaws in
Unwired Planet’s approach to patent
counting.
Multimode weighting
Huawei’s case:
|
Handsets |
RAN infrastructure |
Total |
UMTS/GSM 3G/2G |
0.22% |
0.41% |
0.36% |
LTE/UMTS/GSM 4G/3G/2G |
0.30% |
0.35% |
0.36% |
Unwired Planet’s case:
|
Handsets |
Handsets (80:20) |
RAN infrastructure (no 80:20) |
UMTS/GSM 3G/2G |
0.86% |
0.83% |
[0.88%] |
LTE/UMTS/GSM 4G/3G/2G |
1.44% |
1.25% |
[1.88%] |
224.
The 80:20 approach derives a ratio which consists of 80% of Unwired
Planet’s share of Relevant SEPs and 20% of Unwired Planet’s share of the
residue of patents
in the starting pool which had not been identified as
relevant. Unwired Planet say this is an application of the “Pareto principle”
from general economics. The table below shows how the values for S for
handsets are derived on Unwired Planet’s case in this way [C2/13/9]. It
repeats some of the figures set out already:
Unwired Planet’s 80:20 approach
|
||||
|
2G/GSM |
3G/UMTS |
4G/LTE |
Multimode |
Relevant SEPs – whole |
102 |
324 |
355 |
|
Relevant SEPs – UP |
2 |
1 |
6 |
|
UP share S |
1.96% |
0.31% |
1.69% |
|
4G Multimode S |
|
|
|
1.44% |
3G Multimode S |
|
|
|
0.86% |
|
|
|
|
|
Residue SEPs – whole |
260 |
833 |
2983 |
|
Residue SEPs – UP |
1 |
7 |
12 |
|
UP share S |
0.38% |
0.84% |
0.40% |
|
4G Multimode S |
|
|
|
0.49% |
3G Multimode S |
|
|
|
0.69% |
|
|
|
|
|
80/20 approach |
|
|
|
|
Single mode UP S |
1.65% |
0.41% |
1.43% |
|
4G Multimode S |
|
|
|
1.25% |
3G Mulitmode S |
|
|
|
0.83% |
(for example 1.25% = 80% x 1.44% + 20% x 0.49%)
Huawei’s case (C13/3/2, in part in databook p8)
|
Pre-MSA |
Post-MSA Pre-Lenovo |
Post-MSA Post-Lenovo |
UMTS/GSM 3G/2G |
5.83% |
6.32% |
6.32% |
LTE/UMTS/GSM 4G/3G/2G |
6.12% |
6.70% |
6.75% |
Unwired Planet’s case:
|
Multimode (no 80:20) |
Multimode (80:20) |
UMTS/GSM 3G/2G |
Not given |
Not given |
LTE/UMTS/GSM 4G/3G/2G |
11.61% |
10.50% |
The numerical evidence generally and rounding
(ii) The parties’ rival submissions on royalty rates
i) for 4G/LTE: infrastructure 0.041%; mobile devices 0.040%;
ii) for 3G/UMTS: infrastructure 0.031%; mobile devices 0.031%;
iii) for 2G/GSM single mode: infrastructure 0.030%; mobile devices 0.030%.
Huawei’s case on rates
[chart redacted]
236.
The dashed grey and red solid lines are Unwired Planet’s proposals (the
October 2016 rates are the same as in July). The directly comparable Unwired
Planet-Samsung 2016 rate is shown as a green block, three comparable Ericsson
licences are shown as blue blocks and the top-down aggregate royalty burden
rate is yellow. It is marked “Patent
Analysis” or “Huawei
Patent
Analysis”.
Unwired Planet’s case on rates
2G/3G/4G multi-mode royalty rates based on the comparables that Mr Bezant considers to be most relevant, based on UP’s Updated MNP and adjusted for the 80/20 Rule
[Chart redacted]
A striking correlation – aggregate royalty
261.
In closing I pointed out to the parties that there seemed to be a broad
equivalence about their rival cases at least in one respect. It can be seen in
the implied aggregate royalty rate. Huawei contend the benchmark multimode
4G/LTE handset Unwired Planet rate should be 0.040% and Huawei contend that
Unwired Planet’s share S of multimode LTE handset patents
overall is 0.30%.
Conversely Unwired Planet contend the final royalty rate should be 0.13% and
contend their share S overall is 1.25%. The ratios of these two pairs of
figures are close and the similarity can be expressed in terms of the implied
total aggregate royalty burden T. On Huawei’s figures the implied total
aggregate royalty burden T would be 13.3% while for Unwired Planet it would be
10.4%.
263.
This has caused me to address the question of whether the total
aggregate royalty approach is better used as a top down method or as a
cross-check. To apply a top down approach one needs to decide on the total
royalty burden T as a starting point. The evidence from which Huawei submit an
inference should be drawn is evidence of statements by patent
owners about what
they say the aggregate royalty burden for a given standard should be.
i) An Ericsson press release in April 2008 referred to a public statement by “wireless industry leaders” (Ericsson, Alcatel-Lucent, NEC Corporation, NextWave Wireless, Nokia, Nokia Siemens Networks and Sony Ericsson) that they had “agreed a mutual commitment to a framework for licensing IPR” relating to LTE and supported the idea that a reasonable maximum aggregate royalty level for essential IPR in handsets is a “single-digit percentage of the sales price”.
ii)
Another Ericsson press release in 2008 states that they expect to hold a
relative patent
strength of 20-25% of all standard essential IPR for LTE and
that Ericsson believes the market will drive all players to act in accordance
with these principles and to a reasonable maximum aggregate royalty level of
6-8% for handsets. Ericsson’s fair royalty rate for LTE is therefore expected to
be around 1.5% for handsets.
iii)
A Huawei press release in 2009 states that Huawei “anticipates and
supports a low single-digit percentage of sales prices as a reasonable maximum
aggregate royalty rate applicable to end-user devices”. Huawei believe they will
hold 15-20% of all essential patents
relating to LTE standards therefore a
royalty rate with some flexibility, but not to exceed 1.5%, is expected.
iv) In 2009 Alcatel-Lucent said it expects to license its LTE SEPs for handsets at a discounted royalty of no greater than 2%.
v) In an undated press release Nokia stated that it believes it will have 20-30% of all LTE standards-essential IPR and that it expects its single-mode and multi-mode LTE rates to be in a range of 1.5% and 2.0% of the sales price of an end-user device, respectively.
vi)
In an undated press release Nokia Siemens Networks believes it will hold
approximately 10 to 15% of all LTE standards-essential patents
and that it
anticipates its LTE royalty rate for end-use terminal devices will be in the region
of 0.8% of the selling price.
vii) In a December 2008 press release Qualcomm states that it does not agree with cumulative royalty caps or proportional allocations of such royalty caps.
viii) In an undated press release Motorola states that it expects that its essential royalty rate for LTE systems and equipment (e.g. infrastructure and subscriber handsets) will be approximately 2.25%.
265.
For 4G/LTE Huawei contend that the total royalty burden T should be 8%
based on the first three statements (the two from Ericsson in 2008 and the one
from Huawei). For 3G Huawei rely on a further statement by Ericsson, Nokia,
Siemens and NTT DoCoMo that they had, as the owners of “the clear majority” of
SEPs for W-CDMA reached a “mutual understanding” to license “…at rates that are
proportional to the number of essential patents
owned by each company”, which
would “…enable the cumulative royalty rate for W-CDMA to be at a modest single
digit level”, meaning 5% or less.
266.
Huawei point out that the April and July 2008 statements by Ericsson
were regarded as so important that they were formally scheduled as encumbrances
on the Cluster patent
portfolio when it was transferred to Unwired Planet and
also point out that Mr Robbins accepted that Ericsson’s statements about
aggregate royalty were obligations Unwired Planet was obliged not to violate.
267.
Huawei submit that the court should attach particular weight to early
declarations by major patent
owners who were predicting what their ownership
would be and what the total stack should be. Huawei refer to the evidence of
Prof Neven on this (paragraph 14 of his 2nd report) however the
Professor’s evidence does not align completely with the submission. Prof Neven
recognised a top down royalty stack approach as one way of implementing an ex
ante benchmark. He contemplates various ways of arriving at a total stack
(which I call T) including using comparable agreements. Prof Neven then
expresses the view that early declarations by
patent
owners about what the
total royalty stack should look like are highly relevant because they determine
potential users’ expectations and hence their decision to choose among the
alternative technologies. He goes on to recognise that for a stack determined ex
ante (i.e. before adoption of the standard by implementers) one needs a
method for sharing out the stack ex post. A virtue of a total stack
method is that in such a system there is no incentive for
patent
holders to
divest their
patents
ex post to achieve a higher return since the total
stack remains fixed.
(iii) The MNPA and HPA techniques
273.
I will now address each party’s patent
counting techniques (the MNPA and
HPA), explain the criticisms which are made and then address them. Rather than
focus on one technique completely and then the other, the two methods need to
be explained and evaluated side by side so that the assessments of each can be
understood in context.
The MNPA technique
(1) Identifying all declarations using a list of declared SEPs from the ETSI IPR database as of 12 March 2014.
(2) Defining LTE and then limiting the declarations to LTE-specific declarations.
(3) Grouping patents
into
families and removing duplication.
(4) Filtering down to
“Live” families. This removes patents
and applications that have been
abandoned or expired and filters out families which do not have a pending or
issued US or EP
patent.
(5) Separating out what
Unwired Planet called “Core” LTE. Here the word core connoted importance. It
is not drawing the distinction drawn elsewhere between different kinds of
infrastructure (RAN and Core network). Core in this sense is identified using
a simple pre-2009 cut off. Any patent
with a priority date after 31st
December 2008 was non-Core.
(6) Separating out handset
families from infrastructure only families. If a patent
has a handset claim it
is in the handset family even if it also has infrastructure claims. The
resulting sets were called “Handset Candidate Families” and “Infrastructure
Only Candidate Families”.
(7) Applying essentiality filters, which in the original MNPA involved three percentages:
a. 28% to represent over-declaration (i.e. on the basis of published studies by Fairfield/ Goodman and Myers (mentioned below) which indicate that only 28% of declared SEPs are truly essential);
b. 90%
to take account of patents
which are essential to options in the standard;
c. 80%
to take account of patents
essential to features in the standard which are not
deployed.
276. The numbers produced by the original MNPA are the following:
Step |
Original MNPA |
||||
1 – 3 |
5915 |
||||
4 Live LTE families |
4941 |
||||
5 Core LTE |
Core 3280 |
Non-Core 1661 |
|||
6 Handset |
2071 |
1049 |
|||
7 Apply 28% |
Essential 580 |
Non-essential 1491 |
|
||
7(b) Apply 90% |
Mandatory 522 |
Options 58 |
|
|
|
7 (c) Apply 80% |
Deployed
418 |
Non- deployed 104 |
|
|
|
Final TOTALS: |
“True LTE handset families” 418 |
Residue
2702 |
|||
277.
On this basis a starting list of 5915 patents
is reduced to 418 Relevant
SEPs for the LTE standard and for handsets and a residue of 2702 other
patents
relevant to handsets which were declared as essential.
Step |
Revised MNPA |
||
1 – 3 |
6619 |
||
4 Live LTE families |
5296 |
||
5 Core LTE |
Core 3377 |
Non-Core 1919 |
|
6 Handset |
2128 |
1209 |
|
7 Apply 16.6% |
355 |
Core non-true LTE handset 1773 |
|
Final TOTALS: |
Core True LTE handset 355 |
Residue
2983 |
|
279.
On this basis a starting list of 6619 patents
is reduced to 355 Relevant
SEPs for handsets and a residue of 2983 other
patents
relevant to handsets
which were declared as essential. Note that the number of Relevant SEPs (355)
is not exactly 16.6% of 2128. That number would be 353. The difference is
explained in a footnote to Mr Bezant’s third report. I am satisfied 355 is the
appropriate number to use.
280.
Both the Original and Revised MNPA produce numbers for the industry as a
whole. The way Unwired Planet derive figures for individual companies (apart
from Unwired Planet itself) is by identifying the patents
at step 6 by company
and then applying the relevant fractions to those totals. This gives figures
for individual companies.
281.
The 80/20 approach seeks to attribute some value to the other handset
patents
in the residue. It does so in a mathematically simple way by
attributing 80% of the royalty to a company’s Relevant SEPs in these tables and
20% of the royalty to a company’s figure for the residue.
The MNPA and infrastructure
282.
Unwired Planet use the same MNPA approach to derive a total number of
Relevant SEPs for infrastructure (by which they mean the air interface and
eNode Bs rather than core network). The original produces a total of 3280
which Unwired Planet confusingly call the “Core LTE” (see step 5 of the
Original MNPA table above). From this 2071 were identified as having handset
claims (see step 6) which leaves 1209 families as infrastructure only (3280 =
1209 + 2071). From the 1209 Unwired Planet estimate most will be core network
(i.e. not air interface or eNode Bs) and only 15% will be relevant
infrastructure. 15% of 1209 is 181. To this 181 has to be added the share of
the handset families which also includes relevant infrastructure. That is 1337
giving a total of 1518. That figure is treated in the same way as the handset
figure at step 7 to produce 306 as the number of Relevant SEPs for
infrastructure. As I understand it when Unwired Planet revised their approach
to counting patents
they did not revisit the numbers for infrastructure but
simply reduced the infrastructure offer in the same proportion as the handset
offer.
Unwired Planet’s approach to 2G and 3G
283.
The way Unwired Planet deal with 2G and 3G is simpler than the MNPA
technique. They start with a figure for the total pool of Relevant SEP
families for 2G or 3G based on a published report. For 2G Unwired Planet use
the report “Analysis of Patents
Declared as Essential to GSM as of June 6,
2007” by Goodman and Myers of Fairfield Resources International published
on 31st December 2008. For 3G Unwired Planet use a similar paper
published by the same group on 6th January 2009 entitled “Review
of
Patents
Declared Essential to WCDMA Through December, 2008”. In these
papers the authors report the outcome of detailed reviews by a team of
experienced engineers of the
patents
declared essential to wireless standards
with a view to determining how many are actually essential.
284.
The figure from the Fairfield report for the total number of truly
essential 2G patent
families is 158 while the Fairfield report for 3G reports
the equivalent number as 529. Unwired Planet then subtract from these totals a
number for the
patent
families which solely relate to infrastructure. That
produces a total for handsets which is 102 for 2G and 324 for 3G.
285.
For infrastructure Unwired Planet used the figures from the reports,
identified patents
relating to infrastructure both alone and with handsets in
the same way as for the approach to infrastructure with the MNPA and came up
with figures for the total Relevant SEPs for 2G and 3G. Those numbers are 85
for 2G and 274 for 3G.
The HPA technique
(1) “Identification and
De-duplication”: a list of declared essential patents
and
patent
applications
was created using the ETSI database and also making reference to the Korean
Telecommunications Technology Association database. The list was
de-duplicated.
(2) “Family members not
expressly declared to ETSI”: Since the ETSI IPR Policy a declaration applies to
a patent
family as a whole, additional family members not expressly declared to
ETSI were identified. This was done using the public INPADOC database.
(3) “Grouping families in
five categories”: the patents
and applications were collected into families.
The families were collected into five groups. Only group 1 was selected for
further analysis. The five groups were:
Group 1 – at
least one issued and non-expired patent
and an English or Chinese language
member;
Group 2 – at
least one issued and non-expired patent
but no English or Chinese language member;
Group 3 – only expired members
Group 4 – no
issued patents
(“issued” means granted)
Group 5 – family information not available on INPADOC
(4) “Grouping families into standards”: the families were classified into three classes: LTE/4G, UMTS/3G, GSM/2G by reference to the standards to which they were declared on the ETSI website. The families were also classified as relevant either to RAN (which in this study includes handsets) or core network (“CN”). This was also based on the standards to which they were declared.
(5) “Essentiality analysis
of Group 1 families”: The Evaluators reviewed the essentiality of a patent
in
each Group 1 family. The review took about 30 minutes per family. The
patent
and relevant standard were selected in accordance with given rules. The claims
of the
patent
were compared to the relevant standard specification to determine
if the standard required all the elements of the claims. If the Evaluator
determines that the specification does not provide a clear reason to rule out
the
patent
as being essential, then the family is deemed essential. If the
family provides a clear reason to rule out the
patent
being essential, the
family is deemed not essential. The given rules are:
a. Patents
in the family are reviewed in the following order until a
patent
is deemed
essential or the categories are exhausted. If multiple
patents
are in the
categories then the earliest is looked at first. The categories are:
i.
US issued patent
ii.
EP issued patent
iii.
Any other English language issued patent
iv.
Chinese issued patent
v.
English-language expired patent
or subsequently English language
application (where there is no English language or Chinese language issued
non-expired member but there are members from other jurisdictions that are
issued and not expired).
b. For each family both representative handset and infrastructure claims are identified.
c. If
the family is declared to more than one of LTE/4G, UMTS/3G, and GSM/2G then the
family analysis is continued until a patent
or application is found essential
to each of these three standards or the categories are exhausted.
287.
Once these five steps were completed one could derive numbers
representing Unwired Planet’s “deemed” essential patents
identified this way.
They are the basis for Huawei’s case on how many Relevant SEPs are held by
Unwired Planet. One could also derive numbers for the industry as a whole and
for other companies such as Ericsson and Huawei. They are the basis for the
figures set out above. There are various different ways of deriving these
figures but there is no need to get into that detail.
288. The totals produced by the HPA are the following:
Step |
HPA |
||||||
1 Extraction and de-duplication |
109,662 |
||||||
2 non-ETSI family members |
141,666 |
||||||
3 Grouping |
1 11,384 |
2 545 |
3 3,035 |
4 2,899 |
5 1,075 |
||
4 Standards |
LTE 7,077 |
UMTS 5,158 |
GSM 1525 |
|
|
|
|
5 Essentiality: |
2535 |
1639 |
629 |
|
|
|
|
RAN |
1585 |
937 |
312 |
|
|
|
|
Total UE |
1862 |
1154 |
362 |
|
|
|
|
Total UE (UE means user equipment, i.e. handsets).
Summary of the criticisms of the rival methods
291.
Huawei’s external attacks on the MNPA characterise it as “patently
unreliable and self-serving”. They submit that in cross-examination Mr Saru
accepted that it was never designed for the purposes for which it has been
pressed into service in this trial. They submit the results it produces are
counterintuitive and contrary to both Unwired Planet’s own fact evidence and
the available third party studies. They contend that the relevant experts for Unwired
Planet, Dr Cooper and Mr Bezant, were both keen to emphasise that they had no
hand in its creation and that “neither sought with any conviction to defend its
results”.
293.
Unwired Planet mounted a significant attack on the HPA and its status in
these proceedings. In its FRAND Statement of Case (para 132) Huawei had
presented the HPA as something which was undertaken given the flaws in Unwired
Planet’s methodology. However during the trial it emerged that this was not
true, as Huawei now accept. The HPA was in fact carried out for the
arbitration between Ericsson and Huawei which led to the 2016 Ericsson-Huawei
licence and in which Dr Kakaes and Mr Lasinski were both witnesses. Unwired
Planet also submitted that the HPA depends on an extremely cursory 30 minute
analysis and contains an inbuilt presumption of essentiality. Unwired Planet
ties this in to the arbitration point because, they submit, what also emerged
was that in the arbitration the HPA was no more than a filter to identify
patents
that Dr Kakaes should look at properly. They argued that for Huawei to
put the HPA forward as the actual assessment of analysis was regrettably
misleading.
The external criticisms of the MNPA
296.
I have no doubt that the exercise of devising the original MNPA involved
a degree of self-interest on the part of Unwired Planet. The idea that it was
devised in an entirely objective fashion is fanciful and if Mr Saru’s evidence
was intended to persuade me that is was, then it did not succeed. That said I
also reject the idea that the whole thing was a cynical exercise designed
purely to attempt to justify Unwired Planet’s pre-ordained licensing policy.
Unwired Planet knew they needed to come up with some method of assessing the
value of their patent
portfolio by reference to the industry as a whole. The
original MNPA was devised with that in mind but as an exercise, its utility
depends on its objective characteristics which are addressed below. If it is
objectively reasonable then the fact it was devised with a degree of
self-service does not justify rejecting it as relevant evidence.
299.
The more significant external criticism made by Huawei is that it
produces results which are counterintuitive and contrary to other, reliable,
evidence. The highpoint of this is the comparison of what Huawei call “implied
essentiality rates”. These rates represent the application of the MNPA to a
particular company’s patents.
For reasons explained below I will not use the
label “implied essentiality rate”. I will call these rates the “MNPA Relevant
SEP ratio” for a given company. Huawei produce a table for all the
patent
families in the original 6619 pool used by the Revised MNPA. For example,
Ericsson has 392
patent
families in that pool and applying the Revised MNPA to
those
patents
produces the number 28 for Ericsson. Therefore, the MNPA
Relevant SEP ratio for Ericsson is 8.00% (28/392) and so on. The figures are
derived for the whole industry but it is only necessary to mention the MNPA
Relevant SEP ratios for Samsung (6.72%), Qualcomm (7.41%), Huawei (3.24%) and
Nokia (8.07%). Using the same approach, the MNPA Relevant SEP ratio for
Unwired Planet is 12.00%. That is different from the ratios for Unwired
Planet’s portfolio deployed by Unwired Planet in argument because the 12% comes
from applying the MNPA to both the numerator and the denominator (the numbers
are 3/25).
301.
In argument for comparison with the MNPA Relevant SEP ratios for third
parties Huawei used a ratio for Unwired Planet which would be produced using
Unwired Planet’s preferred numerator (the ratio is 24%) but I do not accept
that is a fair test. It is the same point which I will address in another
context below about whether it is fair to use a different method for deriving
the numerator and the denominator. However Huawei’s submission still has force
since 12% is much higher than the ratios for Ericsson, Nokia, Qualcomm and
Samsung (and indeed is higher than any company with at least 100 patents
in the
MNPA starting pool (see U1/6/4)).
302.
Mr Bezant’s view was that this could be explained as an artefact of
Unwired Planet’s small portfolio size. There is something in this. One would
expect that as portfolios get smaller the relative effect on the ratios of
small changes in absolute numbers will increase. That is borne out by Huawei’s
analysis as a whole. All the MNPA Relevant SEP ratios over 10.00% are in the
smaller portfolios (below 100 in size). The same point can be made another way
– if the numerator for Unwired Planet had ended up at 2 instead of 3 the MNPA
Relevant SEP ratio would have been 8.00% (identical to Ericsson) rather than
12.00%. So I accept that one cannot place much weight on the fact that a
company with a small portfolio like Unwired Planet has an MNPA Relevant SEP
ratio which is larger than the company from whom their patents
were selected.
303.
Nevertheless this still does not mean Huawei do not have a real point.
They do. These numbers expose a fallacy in the way Unwired Planet present the
results of the MNPA both in argument and in evidence. Huawei’s name for this
ratio (“essentiality rate”) was reasonable because Unwired Planet use similar
language to describe the same thing. Unwired Planet have presented the number
produced by the MNPA which is used as a denominator as if it represents the
number of “truly essential LTE patents”
or words to that effect. Unwired
Planet’s FRAND Statement of Case calls this number the “True LTE handset
pool”. These descriptions are wrong and misleading. The MNPA includes rates
for the essentiality rate (28% in the original method and 16.6% in the revised)
but it also has other features. The justification for the cut offs in the
method apart from the essentiality rate, such as the pre-2009 cut-off, is not
essentiality. It is an attempt to differentiate between the value to a
licensee of two different categories of
patents
even though both may be truly
ESSENTIAL within the meaning of the ETSI IPR policy. That is a key conceptual
difference between the MNPA and the HPA. The reason different companies have
different MNPA Relevant SEP ratios is not because their implied essentiality
rates differ, it is because of the kinds of
patents
they have relative to
things like the particular LTE standards to which they are declared, the
priority date, and the presence of handset claims, differ. So the low rate
for Huawei relative to Samsung and Ericsson is explicable by the combined
effect of steps (4) and (5) whereby families with no EP/US member and the
pre-2009 cut off has more impact on Huawei than Samsung or Ericsson, which in
turn is consistent with the phenomenon that Chinese companies have increased
their
patent
filings outside China only in recent years.
The internal criticisms of the MNPA
Step (2)
305.
The first point is about step (2). The MNPA does not look at all
patents
declared to LTE in general, rather the MNPA takes a defined list of
particular standards and deals with
patents
declared to those. Unwired Planet
started with a list of 49 standards from a licensing pool called VIA known as
the VIA 49. The VIA pool includes industry giants AT&T and NTTDoCoMo. Mr
Saru was cross-examined about the decision to use it. While I agree the choice
had an element of being self-serving, I was not persuaded it was an
unreasonable choice to make. The list had been made by a third party. Later
in the proceedings following criticism Unwired Planet used a much longer list
of standards but this did not make a major difference to the end result in the
light of the other filters which were used. By the closing there was less to
this issue than at earlier stages in the litigation. It is not in dispute that
there is no generally accepted view of what constituted a correct list of LTE
standards. Part of Unwired Planet’s rationale for doing something along these
lines was to focus on the parts of LTE which they thought licensees would be
interested in. That was not unreasonable. I reject the point on step (2).
The other criticisms are lesser points in any event nor do they make enough of
a difference to matter.
Step (4)
306.
The point on step (4) is that the patents
chosen were restricted only to
families containing a US or EP member. This was justified by Mr Saru on the
basis that serious industry players would seek
patents
in Europe and the USA as
major markets if they thought the
patents
were essential. Huawei disputed
this, submitting that Dr Kakaes was obviously right not to agree in
cross-examination that other markets such as China are not valuable and
important. Huawei pointed out that the MNPA excluded around 709
patents
for
having no US or EP member.
307.
Dr Kakaes was correct in cross-examination, all the same the evidence
was clear that the licensing rates in the US and Europe are higher than
elsewhere. Both the MNPA and HPA have a step like step (4) because it is a
sensible thing to do. The difference is that the HPA includes a family if it
has a Chinese member even if there is no US or EP. One can understand why that
might be done given that Huawei is Chinese and also given the evidence that
many Chinese companies will only file in China for many applications. Based on
Mr Cheng’s evidence I would expect Huawei today to file SEPs internationally
once the first application was made in China, given their importance. In the
end I am not satisfied that this difference between the MNPA and the HPA makes
any material difference to the issues I have to decide. A serious player in
the telecommunications market, including a major Chinese company, would likely
file SEPs in the US and/or Europe. A method which included Chinese patents
when the family had no US or EP member at this stage would present a more complete
picture of the landscape but the differences overall are modest. In my
judgment no significant systematic error is introduced by not doing so. The
nature of Huawei’s portfolio means that it will have an effect on that
portfolio but I am not satisfied this matters. If the differences between
unpacking methods mattered, this would be important, but they do not.
Step (5)
308.
The debate about step (5) of the MNPA is important. At this step
Unwired Planet select only patents
with a pre-2009 priority date to take
forward. Unwired Planet’s rationale is that there is an inevitable time-lag
between the priority date of a
patent,
the invention making its way into a
frozen release of a standard and then that standard being implemented. Unwired
Planet say the fundamentals of LTE as a system were determined in LTE Release 8
and that was fixed at the end of 2008. So only
patents
with pre-2009 priority
can be part of it. A later dated
patent
could not be valid and essential to
this “core” system. Huawei point out that this step excludes well over 1,500
LTE families from the pool and argue it is completely unjustified.
311.
Mr Saru explained that the cut-off was justified in a licensing context
because technology in later releases was not as critical to LTE as implemented
in the products on the market at the time (by which he meant 2013/14 but the
point is general, that there is a lag). In his oral evidence Mr Saru
distinguished between what technology has been released in a standard and what
drives the market. Huawei pointed out that Mr Saru accepted that this filter
had been chosen by Unwired Planet knowing that it would have a relatively
minimal effect on the Unwired Planet portfolio. Unwired Planet sought to
mitigate this on the basis that Mr Saru’s view was that it was simply a
reflection of the fact that Unwired Planet had deliberately selected good
patents
which would be strong from a licensing perspective. However I do not
accept that that would justify the step even if it is really what Unwired
Planet thought.
From an August 2015 paper by consultants Analysys Mason.
317.
Dr Kakaes’ view about the pre-2009 filter was that it unreasonably
excluded things which by 2013/14 were being frozen into the standards and implemented.
Nevertheless he also accepted that there are features in standards which are
not commercially implemented, for a range of reasons, and implementers commonly
will decline to license patents
relating to features they do not implement.
Unwired Planet submitted that Dr Kakaes accepted that if it was possible to
take account of these commercial realities then it was better to do so, and he
accepted that the HPA did not try to do this at all. The latter submission is
correct. The former submission does not precisely reflect what Dr Kakaes said
in the cross-examination relied on but taking his evidence as a whole, a fair
reflection of Dr Kakaes’ position was that it was reasonable to take account of
the reality that there are features in standards which are not implemented.
319.
There is more to these arguments than this summary but I have dealt with
the major points. In my judgment LTE Release 8 does represent the fundamental
technology on which LTE is based and FRAND licence negotiators would take that
into account in assessing the value of patents.
Later Releases of LTE are
still based on the fundamentals of what is in that first working Release.
Taking a cut-off of
patents
with a pre-2009 priority date is a FRAND approach
to licensing Release 8.
321.
For LTE, assessed as at 2014, I find that the absence of value for post-2009
patents
is not significant (either in Europe or anywhere else). However
assessed today (2016/
2017)
the absence is significant given the way LTE-A has
been implemented over time. For LTE some value has to be given in assessing
the FRAND value of a portfolio for
patents
essential to later releases (and
which therefore may have been excluded by a pre-2009 cut off). On the other
hand, a method which gives equal value to any
patent
essential to anything in
Releases 9 to 11 will inevitably overstate that value. Release 8 is still the
fundamental technology in LTE and while carrier aggregation is important in the
later releases, other aspects are not.
322.
There are a limited number of ways in which one can deal with this.
Unless one is going to make a list of Releases 9 to 11 features and identify
each patent
relevant to that feature, which would be impractical, the only
alternatives are broad brush. One can include all
patents
knowing that this
overstates the value of post-2009
patents,
which is the HPA method, or exclude
them all knowing this understates the same value, which is the MNPA. The 80:20
approach by Unwired Planet is an attempt to mitigate this problem, among
others, because it gives some value for
patents
put to one side by the pre-2009
cut-off. In that sense the intention behind the 80:20 approach is sensible but
I am concerned that it is so crude as to be arbitrary.
Step (6)
Step (7)
326.
However as Unwired Planet point out, Huawei’s own HPA produces a lower
overall essentiality ratio than the 50%+ rates from Cyber Creative and
Fairfield. Dr Kakaes reported overall essentiality ratios for 4G of 35.8% and
34.1% from the HPA on slightly different bases (the differences do not
matter). In his third report Dr Kakaes set out a table for sixteen individual
companies’ 4G essentiality ratios derived from the HPA. They range from 18.6%
for Google’s patents
(338 declared, 63 deemed essential by the HPA) to 82.3%
for Sharp’s
patents
(79 declared, 65 deemed essential by the HPA). Most of the
companies in the table (13) have ratios within 22%-50%. The portfolios range
from 64 to 771 declared and 14 to 228 deemed. The ratio for Huawei is 43.5%
and the ratio for Samsung is 23.5%.
330.
A further point which relates to this but is convenient to address now
is Dr Kakaes’ opinion that using a different method to assess the numerator and
the denominator in the strength ratios is not appropriate. It will be recalled
that Unwired Planet do this whereas Huawei do not. Although superficially it
might appear to be a sound criticism, in my judgment it is not a valid point in
these proceedings. Of course in general one usually seeks to compare like with
like. Therefore it is meaningful to present a ratio for Unwired Planet against
another company or the pool as a whole based entirely on figures provided by
the same technique – as in the HPA. This is particularly so when the technique
does involve some consideration of each patent
rather than figures applied
across the board as in the MNPA. However it is also meaningful when one wants
to make a comparison between an identified collection of
patents
and the pool
overall to do what Unwired Planet did and analyse the identified collection
individually while applying a broader brush technique like the MNPA to the
wider pool, since after all it is entirely impractical to analyse the whole
pool with that same rigour. Moreover this is all the more legitimate when the
identified portfolio is small, since an average is less likely to be accurate
when applied to a small pool than a large one.
333.
The Revised MNPA was devised with the criticisms of the original MNPA in
mind. At step (7) the Revised MNPA uses a single fraction of 16.6% derived by
Dr Cooper. It arose as follows. Dr Cooper was asked to review the findings of
a sample of the patents
which the HPA deemed to be essential to an LTE handset
that had a pre-2009 priority date. Dr Cooper randomly selected a sample of
patents
of a size that would allow him to draw conclusions with at least 90%
confidence about the pool from which the sample was drawn. This resulted in Dr
Cooper reviewing 38 Samsung and 30 Huawei
patents
and he spent 5-6 hours per
patent
family. He concluded that the essentiality rate of the Samsung
patents
(excluding optional features) was at most 16.6% and then revised that further
to 15.9%. For the Huawei
patents
he concluded that the essentiality rate (excluding
optional features) was at most 9.4%. Unwired Planet used that 16.6% figure at
step (7) of the revised MNPA.
334.
Unwired Planet point out that in his second statement Dr Kakaes was not
surprised that having spent 5-6 hours per patent
family, Dr Cooper had found a
number of
patents
not essential which the HPA had deemed to be essential. They
point out that Dr Kakaes went on to agree with Dr Cooper about a substantial
number of the
patents
in his study. The major criticism made by Dr Kakaes was
about the sampling process. I will deal with that after the other points.
335.
The detailed points were these. First, there were patents
excluded based
on Dr Cooper’s definition of LTE. However I am satisfied that at best this
would make little difference to the end result. At best the point changes the
result for two
patents.
The impact of that can be seen from the fact that
changing the result for one
patent
moves the answer from 15.9% to 16.6%. The
point does not undermine Dr Cooper’s position as a witness. Second, there are
patents
which Dr Cooper found were not essential because they were not
implemented (optional). As Dr Kakaes explained that was not part of his
approach. If Unwired Planet had then tried to use the crude fractions for
options applied in the Original MNPA as well there would be more to this
point. I find Dr Cooper was justified in doing this although one needs to keep
in mind that excluded this way are LTE TDD, which is used in China, MIMO and
carrier aggregation. Third, there were cases in which Dr Cooper and Dr Kakaes
maintained their disagreement about particular
patents.
I am not asked to
resolve technical disagreements at the level of individual
patents.
Based on
my assessment of both experts, I am sure the disagreement represents cases in
which reasonable people can differ.
337.
Huawei also submitted that it was inappropriate to use a figure derived
from the HPA in the MNPA. This was for three reasons. First because the
filters in the MNPA produce a different starting pool of patents
from that in
the HPA. Second because the different approach to LTE means many Samsung
families found essential in the HPA would not have made it through the filters
in the MNPA but were then chalked up as inessential. Third because the way of
identifying a family as a handset family differs. In substance these are
either another way of putting the detailed points I have already considered or
they relate to the major sampling issue which comes next.
338.
For Dr Kakaes the key problem with Dr Cooper’s approach was that while a
random sample had been taken from the pool which was sampled, the pool which
was sampled was skewed. This was in two respects: first the pool from which
the sample was taken consisted of the patents
deemed essential (and held by
Huawei or Samsung); and second the pool was actually only a subset of that
because it was also limited to
patents
which met certain MNPA filters such as
the pre-2009 cut-off. I have already dealt with the second point above but
that does not address the first point. As to this, Dr Kakaes acknowledged that
there will inevitably be errors in the evaluation process in the HPA but he
said those errors would point in both directions, i.e. essential
patents
could
be deemed not essential as well as not essential
patents
deemed essential.
Therefore sampling only from the pool deemed to be essential was skewed. To do
something like this sort of sampling appropriately, a random sample should have
been selected from the pool as a whole, before evaluation. For Dr Kakaes this
undermined the exercise entirely. Dr Cooper had sampled from what Dr Kakaes
called a very, very, very biased universe.
339.
The strength of Dr Kakaes’ view about this point came across in his oral
evidence. However to resolve this issue I need to address the most important
aspect of Unwired Planet’s attack on the HPA. That is because Unwired Planet’s
answer depends on its case that the essentiality evaluation in the HPA was a
coarse filter designed to screen out non-essential patents
and had a tendency
built into it in favour of increasing the number of
patents
in the pool deemed
to be essential. Huawei disagrees.
The criticisms of the HPA
342. Huawei maintained in closing that:
“The exercise was overseen by Dr Kakaes and a team of engineers from Thomson Reuters. The evaluators were not informed of the identity of the ultimate client (i.e. Huawei) or of the opposing party in the dispute for which the analysis was originally prepared (i.e. Ericsson), so as to preserve neutrality.”
344.
Unwired Planet take a number of points about the HPA but in my judgment
none of them matter except one, which is the submission that the evaluation
step (5) was in fact no more than a coarse filter to identify patents
that Dr
Kakaes should look at properly later and has a tendency built into it in favour
of increasing the number of
patents
in the pool deemed to be essential. The
other points taken by Unwired Planet (about the initial dataset and technology
categories) are similar to the points I have rejected which Huawei took against
the MNPA. If the coarse filter point succeeds Unwired Planet do not need to
place further emphasis on the other issues and if it fails, they are not
significant enough to undermine the HPA outright. Just as they do for the
MNPA, the extra points serve to emphasise the inherent uncertainties in the
exercise.
345.
The evaluation exercise which was carried out was a huge undertaking.
Even then the average time per family was ½ hr. In a much smaller exercise on
a small subset of patents
which Dr Cooper conducted he spent 5-6 hours per
family. He was not wasting time. Unwired Planet detected that in
cross-examination Dr Kakaes tried to resile from the onerous nature of the
task. I do not believe that is what he was doing. He was simply emphasising
that in parts some of the elements of the task may not be that difficult. In
his reports Dr Kakaes had emphasised that the analysis was not a rigorous and
thorough assessment of essentiality of all declared SEP families in the
relevant group, since carrying that out was not plausible without employing
vast resources. The exercise was based on what he called a “relatively quick
assessment”. In my judgment, given the number of families to deal with, and
the inherent complexities of the
patents,
standards and the task itself, it would
not be possible to make a definitive assessment of essentiality for the number
of
patents
in issue in the time available. I do not believe Dr Kakaes
suggested otherwise.
“31. Accordingly, the second stage of the study was to
analyse the 11,384 Group 1 patent
families to seek to determine whether or not
a
patent
that was declared essential to ETSI is, in fact, “essential”.
Conclusively confirming actual essentiality is a complicated and involved legal
and technical task. In this document, I use the term “is essential” (and
similar terms) to mean that, after evaluation, we have determined that there is
a reasonable basis for treating a
patent
as essential. In each such instance,
we reviewed the
patent
specification and claims and did not identify an
apparent reason to exclude the
patent
from being essential. Thus, a more precise
interpretation of this phrase is that such a
patent
has passed a screen to
exclude non-essential
patents.”
347.
Unwired Planet say this shows that patents
were deemed essential as long
as there was a reasonable basis to treat it as such and only excluded if an
apparent reason to exclude it had not been identified. The method was in Dr
Kakaes’ words a screen to exclude non-essential
patents.
On its face this
description accords with Unwired Planet’s submissions.
348.
In paragraph 41 of the same statement Dr Kakaes explained that if the
standard being considered required all the elements of one of the claims being
considered, then the patent
family was deemed essential. Expressed that way
there is no tendency either way but in a footnote to this paragraph Dr Kakaes
then said: “To be more precise, the reviewers determined that the declared
standard specification(s) did not provide a clear reason to rule out the
patent
as being essential.” Unwired Planet say this reflects the same tendency they
contend can be seen in paragraph 31.
“Compare the selected claims with the declared standard specifications and determine whether the standard specifications substantially require all the elements of the claim.”
(my emphasis)
351.
I accept Dr Kakaes’ testimony that he checked numerous entries and found
errors going both ways, including patents
the evaluators should have placed in
the deemed essential collection but had not done so, perhaps because they read
the claims too narrowly or missed additional standards. I also accept that he
spent hundreds of hours checking results and answering queries from the
evaluators. This supports Huawei’s submission that the aim of the HPA was to
apply a consistent approach to all the
patents
considered. I am sure a
consistent approach was applied. The debate is to properly characterise what
the approach was.
352.
Unwired Planet also put to Dr Kakaes something he said about Dr Cooper’s
detailed analysis of the sample deemed essential by the HPA. Dr Kakaes had
said he was not surprised that Dr Cooper’s more detailed studies had found that
a number of patents
deemed essential in the HPA were not in fact essential.
That lack of surprise supports Unwired Planet’s point but when asked about it
Dr Kakaes said he just meant that he was not surprised Dr Cooper had reached
different views. I do not accept that explanation. The point was not simply
that Dr Cooper had reached different views, the point was that for
patents
deemed essential, Dr Cooper had found quite a number of them not to be.
354.
Weighing up the evidence I prefer to place weight on Dr Kakaes’ written
evidence. It was clearly written taking care to present a balanced explanation
of the exercise and its limitations. It is also inherently credible that an
exercise of this scale, which could only ever be a “relatively quick
assessment”, would err on the side of placing a patent
family in the deemed
essential collection unless there was a sufficient basis not to. There is
nothing wrong with that provided it is understood that that is what is
happening. It is a sensible way of proceeding. Dr Kakaes felt a personal
ownership of the HPA and I think in the cross-examination he regarded the
questions on this topic as implying that the HPA was flawed. Therefore he
sought to defend it.
355.
I find that it is accurate to describe the evaluation step in the HPA as
a step which errs on the side of including a patent
in the deemed essential
pool.
356.
I turn to consider the significance of Unwired Planet’s case about the
HPA’s role in the arbitration. The submission is that in truth the HPA was
designed to be just a coarse filter to identify patents
that Dr Kakaes should
then look at properly, or in other words a screen to exclude clearly
non-essential
patents.
If that is right then it enhances Unwired Planet’s case
on the nature of the evaluation step.
357.
In cross-examination it was put to Dr Kakaes that Huawei needed to make
the process of assessing essentiality manageable by curtailing how long a
single family was to be considered. Dr Kakaes did not agree and wanted to
explain why but to give a complete answer required him to explain how the
results of the HPA were used. At this point it emerged that he felt unable to
give a full answer because of non-disclosure obligations he felt he owed
Ericsson as a result of the arbitration. Once in private and reassured that he
could speak freely Dr Kakaes explained that the HPA, which he called the
“study” was “just to figure out what the landscape is”. The study had two
steps, the census (i.e. steps (1) to (4) as described in this judgment) and the
essentiality study (step (5)). The information was passed on to Mr Lasinski
but Dr Kakaes said his (Mr Lasinski’s) usage of it was minimal. What Dr Kakaes
also did was analyse a subset of patents
that were deemed essential in the
HPA. They were
patents
held by the parties to the arbitration - Ericsson and
Huawei. He said “I looked in detail, and in the subset of Ericsson essential
patents,
and identified their importance and so on.” and added “a big part of
what happened next is this question of importance of Huawei and Ericsson
patents”.
Finally, there was the following exchange:
60:13 MR SPECK: So that's why you couldn't take an
14 industry average?
15 A. No, no. The -- the usage of the -- of the study
16 that we've been talking about, the study referring to the
17 census and essentiality, was very limited because -- and the
18 reason for doing that, at least one of the reasons, was to
19 flesh out what's Ericsson and what's Huawei, without ever
20 telling the team in India who the players are.
21 MR JUSTICE BIRSS: I see.
22 A. So the players were ignorant. They said: here is
23 the census. Here is the essentiality results for all the
24 companies. And then we looked at the Ericsson universe and
25 the Huawei universe, to do further study and analysis, which
61: 1 is -- as my Lord observed -- irrelevant.
358.
Unwired Planet say this proves their point. Huawei do not agree. In closing
counsel for Huawei placed emphasis on the word “importance” in these passages
and submitted that the further detailed study which Dr Kakaes was talking about
was not a study of essentiality, it was a study of “importance”. That is a
term he had used elsewhere in his report as relating to the value of an
invention, i.e. the importance to the standard of the technology covered by the
patent.
In other words it is accepted (plainly rightly) that Dr Kakaes here
was explaining that there was further detailed study and analysis of
patents
placed into the deemed essential pool by the HPA, but Huawei argues that the
nature of that further study was about importance and so does not support the
idea that the HPA was a coarse filter on essentiality on the footing that
patents
could always be weeded out later on more careful consideration of that
aspect.
359.
I readily accept that although it was not apparent at the time he was
speaking, Dr Kakaes was using the word “importance” there in the same sense as
elsewhere in his report. But I am not persuaded that this takes one as far as
Huawei seek to go. First of all, if it matters, Dr Kakaes did not say in these
passages that “importance” was the only thing considered in the further study.
Secondly, “importance” is concerned with evaluating the importance of the
patent’s
technology to the standard and therefore cannot help but traverse the
same ground as essentiality. The idea of undertaking a further study of
importance without noticing whether a
patent
is essential is unreal.
360.
The HPA was devised for and used in the arbitration and regrettably the
court has not been presented with a full picture of the HPA. I find that what
we call the HPA was devised not simply as a scheme to produce an end result in
itself, but as a form of filter or screen to produce a pool for further study.
That is consistent with all of what I know now. On that basis there is nothing
surprising about the idea that the evaluation would err on the side of
essentiality since there was going to be a further detailed study which
involved considering the patented
technology and the standard. Given that,
there was no harm in including more
patents
in the deemed pool than would turn
out to be essential on detailed study. What one would seek to minimise was
missing
patents
from the deemed pool which might be essential. Unwired
Planet’s characterisation of the nature of the evaluation step in the HPA is
correct.
The HPA – conclusions
361.
The task the HPA performs is an inherently difficult one. The answers
can only ever be approximate. In the HPA the essentiality evaluation step is
and was intended to be a coarse filter to screen out non-essential patents
and
to err on the side of including a
patent
in the deemed essential pool. This
does not mean the method is flawed or unreliable. I am satisfied that the HPA
has applied a consistent yardstick and produces meaningful results. It is a
reasonable attempt to deal with over-declaration and derive information about
how many essential
patents
there really are. When comparing large numbers on a
like with like basis, the tendency built into the evaluation step matters much
less. However as an absolute value, the numbers from the HPA over-estimate the
true number of essential
patents.
In other words, if a number derived from the
HPA is used as the denominator in a fraction in which the numerator is a number
derived by considering the
patents
in more detail, the result will understate
the significance of Unwired Planet’s
patents.
Furthermore for smaller pools
the coarse nature of the filter is likely to matter more and produce a greater
uncertainty in the numbers.
The implications of the decisions on the HPA for the MNPA
363.
I can now return to the Revised MNPA. To recap the point is that Dr
Cooper performed a more detailed study of a sample of patents
belonging to
Huawei and Samsung which were in the deemed essential pool of the HPA. Huawei
submitted I should place no weight on Dr Cooper’s assessment because by
sampling only from the deemed essential pool, the exercise was badly skewed.
Unwired Planet’s answer was that the nature of the evaluation step in the HPA
meant it was reasonable to focus on
patents
which passed the filter and assume
that those
patents
which were discarded as not passing the filter would not
have been found essential by Dr Cooper. I have accepted that this step of the
HPA does increase the pool of essential
patents
and errs on the side of putting
a
patent
in the deemed pool. Accordingly, one would not expect there to be as
many
patents
in the discard pool which would in fact turn out to be essential
after a detailed 5-6 hour analysis, as there would be
patents
in the deemed
essential pool which turn out not to be essential. There will be errors going
both ways, as the evidence established, but the inherent tendency built into
the evaluation exercise means that it is reasonable to expect many fewer
patents
in the discard pool as having been wrongly rejected, than there are
patents
in the deemed essential pool which turn out not to be essential. So
while selecting only from the deemed essential pool will inevitably skew the
result a bit, I am not satisfied that the skewing will be anything other than
small. It is a point to keep in mind when placing weight on the result but it
is not strong enough to justify rejecting the approach.
364.
Obviously more effort would lead to more statistical rigour, but the
effort of evaluating the number of patents
Dr Cooper’s exercise did with 5-6
hours per
patent
family is already considerable. Even within the limits of the
enormous sums spent in costs by the parties in these proceedings, there is
force in Unwired Planet’s point that the approach taken kept the exercise
proportionate.
The MNPA –overall conclusions
366.
Having now been through all the points in detail I will stand back and
consider the MNPA as a whole. Broadly the HPA and MNPA are aimed at the same
difficult task. The MNPA has flaws but, apart from one aspect of the Original
MNPA, overall in my judgment the Original MNPA was and the Revised MNPA is a
reasonable attempt to derive information which allows one to assess the
strength of a portfolio of patents
declared essential to LTE as against the
industry as a whole, from the point of view of what licensees would be
interested in. There are two critical caveats.
367.
First, as with the HPA, one needs to take care with the results because
the error bars are wide. However the results of the MNPA are not meaningless
and do not systematically favour Unwired Planet, as long as one does not think
the results are the true essentiality rates. The MNPA has a tendency to
understate the value of patents
in China because of step (2) but for a global
benchmark the MNPA has utility.
368.
Second, with the MNPA, something like the 80:20 approach is necessary.
Unwired Planet’s description of the final number as the “True LTE handset pool”
is wrong. To use the Revised MNPA fairly demands the incorporation of some
step which gives some value for the patents
which fall outside the so called
“True LTE handset pool”. That is a serious weakness.
369.
Huawei pointed out correctly that when the 80:20 approach was applied in
the Original MNPA it was applied differently, not to calculate a number
representing Unwired Planet’s patent
share but rather to apply to the imputed
royalty stack. That is true but this way of putting Unwired Planet’s case was
advanced at the trial and it is right to consider it.
370.
Whether another ratio apart from 80:20 is a better reflection of the
different value of patents
in the two pools is not something addressed in the
evidence. A majority of the residue
patents
will not be essential at all but a
good number will be essential to options and later developments of significance
to LTE (e.g. carrier aggregation, TDD and later MIMO
patents).
In terms of
individual
patents,
given the different sizes of the two LTE pools using
Unwired Planet’s figures, 80:20 makes an individual
patent
in the Relevant SEPs
pool about 34 times more valuable than residue. I think that is much too
high. That may be because the pool of Relevant SEPs is too small relative to
the residue pool or because the 80:20 ratio is too generous to Unwired Planet
or some combination of the two.
(iv) Findings about the strength of Unwired Planet’s portfolio
373.
A further aspect to keep in mind is that these numbers are supposed to
reflect various ratios of numbers of patents
in different categories to one
another and they are linked in complicated ways. A simple illustration that
the differences between the parties are not simply in the magnitudes of S and R
is that Unwired Planet’s R is about 8 times bigger than its S whereas Huawei’s
R is about 20 times bigger than its S. I do not mean to say that that
relationship means anything in particular, the point is a reflection of
underlying differences.
377.
The significant overstatement in the HPA is the number produced for the
total pool of Relevant SEPs. The number for 4G handsets is 1812 and is much
too high. The corresponding number in the Revised MNPA is 355 but that number
is much too low if it is to represent all Relevant SEPs. I think both values
are out by about a factor of two. Half of 1812 is 906 while twice 355 is 710.
Splitting the difference takes one to 800. Standing back, about 800 is fair
and in my judgment an appropriate figure for the pool of 4G/LTE patents.
Applying that as the denominator in a fraction to determine the share S which
Unwired Planet’s
patents
represent from the pool gives 6/800 = 0.75%. I
appreciate that Unwired Planet’s 2G and 3G denominators derive from the
Fairfield/Goodman and Myers reports but it is reasonable to apply the approach
I am taking consistently and make an adjustment in the same proportion to the
numbers for the total pool of 4G infrastructure and for 2G and 3G
patents.
The
proportion will be 44% (=800/1812). I will include a multimode figure for
handsets but not infrastructure.
378. This all produces the following tables:
Unwired Planet Share S for handsets |
||||
|
UP ![]() |
HPA denominator |
Adjusted denominator |
S |
2G |
2 |
350 |
154 |
1.30% |
3G |
1 |
1089 |
479 |
0.21% |
4G |
6 |
1812 |
800 |
0.75% |
Multimode |
||||
2G/3G |
|
|
|
0.57% |
2G/3G/4G |
|
|
|
0.70% |
Unwired Planet Share S for infrastructure |
||||
|
UP ![]() |
HPA denominator |
Adjusted denominator |
S |
2G |
1 |
305 |
134 |
0.75% |
3G |
2 |
886 |
390 |
0.51% |
4G |
7 |
1554 |
684 |
1.02% |
379.
Turning to the ratio R between Unwired Planet and Ericsson and taking
the numerators as a given, the critical numbers are the numbers of relevant
Ericsson patents.
For this exercise I will not try to distinguish between
handsets and infrastructure but just use Unwired Planet’s handset numerators.
It is simpler and fair. For 4G the Ericsson number given by the HPA is 101.
Here another adjustment has to be made but in my judgment a smaller
proportionate adjustment is needed here than the previous one. Unwired
Planet’s equivalent for the number of Relevant SEPs held by Ericsson is 34.
Unwired Planet’s denominator here (34) produces a figure for R for 4G alone of
17.65% which I find is an odd result even bearing in mind the small sample
sizes. Doing my best I think the right proportion is two thirds. Applying the
same proportionate adjustment to 2G and 3G produces the following table:
Unwired Planet:Ericsson ratio R |
||||
|
UP ![]() |
HPA: Ericsson ![]() |
Adjusted Ericsson ![]() |
R |
2G |
2 |
32 |
21 |
9.52% |
3G |
1 |
63 |
42 |
2.38% |
4G |
6 |
101 |
67 |
8.95% |
Multimode |
||||
2G/3G |
|
|
|
4.76% |
2G/3G/4G |
|
|
|
7.69% |
380.
All of these numbers are close enough to 5% so as not to be out of line
with the number of patents
transferred to Unwired Planet from Ericsson’s
portfolio. The small sample sizes involved mean that reasonable deviations
from 5% are unsurprising.
(v) The comparables in this case
382.
Having considered how the Unwired Planet patents
stand as compared to
the industry and to Ericsson, the next step is to evaluate the various comparable
licences in evidence. The Unwired Planet licences may also allow me to arrive
at a rate directly. The bulk of the licences are Ericsson licences and the
ultimate objective with those is to arrive at a figure for the value E in order
to do the sum E x R.
(a) 2014 Unwired Planet - Lenovo
383.
The 2014 Unwired Planet-Lenovo was introduced in the section on Unwired
Planet’s case on rates above. The major debate about this licence is whether
any weight should be placed on the running royalty rates on the face of the
licence. Mr Lasinski said they were cosmetic. The rates are expressed in
cents per product but making sensible assumptions they compare favourably to a
royalty rate of 0.2%. The point is that the licence contains two lump sums
adding up to $100 million. On the face of the agreement […] is defined
as a prepayment of royalty while the […] balance is attributed to the
sale to Lenovo by Unwired Planet of certain patents.
On its own terms
therefore no further running royalties will be due until the […] is
exhausted. Huawei contend that Lenovo wanted to attribute the whole $100
million to royalty pre-payment but accepted the […] split because they
thought they were safe that […] would not be exhausted during the term
(5 years plus an additional possible 2 years). Other factors which bear on
this are these: […]. Also there is a dispute about the attribution of
the […] licence element.
386.
The allocation of the lump sums between the patent
purchase and the
licence as it appears on the face of the documents is not reliable. Mr Bezant
and Mr Lasinski were agreed about that. As I understand the case presented by
each side, neither party seeks to unpack a lump sum notionally attributable to
the licence in order to generate a comparable royalty rate nor does either
party seek to use a sum attributed to the value of the
patents
sold to generate
useful evidence for the value of Unwired Planet’s
patents.
Therefore it is not
necessary to reach a view about what the proper attribution would be. If I had
to do so I would find the large majority of the value should be attributed to
the
patent
purchase.
387.
Focussing on the licence itself, it is a licence for SEPs and
implementation patents
but as drafted there is no information to allow one to
make an attribution between these two.
(b) Unwired Planet-Samsung 2016
392.
Under the licence Samsung paid Unwired Planet […] in cash and
assigned a portfolio of 20 patent
families in return for a worldwide licence
under Unwired Planet’s SEP and non-SEP portfolio until […] together with
a release of any past damages. Before one decides how much weight to place on
any royalty rate information derived from the licence, Unwired Planet contend
that this licence cannot be seen in isolation and needs to be considered in the
context of a wider arrangement between PanOptis and Samsung and the distressed
financial position Unwired Planet was in when acquired by PanOptis. This depends
on Mr Ware’s evidence. Huawei’s case is that the facts of what went on are now
sufficiently clear to show that the wider factors make no material difference.
Unwired Planet disagree and contend that the two issues of rate and context
interact directly because any royalty rate derived from this licence is truly
much lower than the rates which Huawei put at the forefront of their argument
on this licence and that this is a reflection of context.
393.
So in order to derive a royalty rate from this one needs […],
ascribe a value to the Samsung patents
assigned to Unwired Planet, take into
account the value of the non-SEPs and work out a way of assigning value as
between 2G, 3G and 4G. The way Mr Lasinski assigned value between 2G/3G and 4G
is not in dispute.
394.
Mr Lasinski derived a range of possible rates and presented them in two
tables, one for […] and the other assuming […]. The provisions […]
in the licence are complicated but do not need to be explained. Each table
then shows the implied royalty rate depending on the value attributed to the
assigned patents
– from […] to […], and the percentage of royalty
attributable to SEPs rather than non-SEPs from 25% to 100%. As the value of
the assigned
patents
rises the royalty goes up because in effect Samsung have given
more value for the licence. Also as the percentage rises the rate rises too,
because it is a rate for the SEPs rather than the non-SEPs. The 4G rates range
from […]. The 2G/3G rates vary accordingly from […] to […]
on the same basis.
396.
However, objectively speaking, by including only the highest rates from
Mr Lasinski’s tables for the Unwired Planet-Samsung 2016, Figure 4 is capable
of misleading. The assumptions on which the highest rates are based […].
However, Mr Lasinski accepted that […] was more realistic and accepted
he had used a much lower SEP percentage (about 30%) when performing a similar
calculation on the Lenovo licence. His explanation that this was because he
did not regard Lenovo as a good comparable does not justify this difference.
On the assigned value Mr Lasinski took Mr Ware’s acceptance of a figure of […]
despite having earlier expressed the view that […] and despite generally
not accepting Mr Ware’s evidence. On that Unwired Planet submitted Mr Lasinski
was being inconsistent and selective. There is some force in that but given Mr
Ware’s evidence I will use the […] figure. Mr Ware said they included
some SEPs which PanOptis considered to be essential to LTE, and some
implementation patents
which PanOptis considered related to popular features of
the best-selling handsets.
400.
Unwired Planet’s version of the context relevant to understanding this
licence is the following. PanOptis is a licensing company. It has an existing
relationship with Ericsson. It had considered buying the Unwired Planet
portfolio in 2014 but did not. In March 2015 PanOptis offered $75 million for
the portfolio but Unwired Planet wanted $100 million and no deal was done.
From about July 2014 PanOptis started having commercial discussions with
Samsung. They included the possibility of Samsung taking a licence under other
PanOptis telecoms patent
portfolios and by the summer of 2015 they included the
possibility of a wider strategic partnership. In July 2015 Unwired Planet
approached PanOptis again, this time about purchasing the licensing companies
themselves. In September 2015 PanOptis offered to buy Unwired Planet for $35
million. […].
404.
Mr Ware said that PanOptis was able to purchase Unwired Planet for a
price which did not represent the value of Unwired Planet’s patents.
In his
view that was because Unwired Planet was on the verge of insolvency. It had
told shareholders that it would run out of cash reserves in July 2016 and was
desperate to get out of the licensing business, to a significant degree as a
result of the difficulties Unwired Planet had encountered in trying to license
the portfolio and the cost of litigation. Unwired Planet characterise this as
a fire sale. […]
405.
Once PanOptis had purchased Unwired Planet it approached Samsung and the
licence was concluded in very short order. Under that licence Samsung agreed
to pay […] in cash and transfer the patents
mentioned already for which
I have used a value of […]. Mr Ware emphasised what he called other
considerable benefits that PanOptis gained from concluding the licence with
Samsung in addition to the cash and transferred
patents.
These were: the fact
that it […], the fact that it […] and strengthening the
foundations for a far wider commercial relationship with Samsung in the future.
i) PanOptis had been attempting to buy Unwired Planet well before Samsung even came into the picture and clearly had enough money to do so at all material times.
ii) In March 2015, having done extensive due diligence, and knowing Unwired Planet was embroiled in major litigation in numerous jurisdictions, PanOptis offered $75 million to purchase the portfolio because they had concluded it was a good fit.
iii) When the September 2015 offer was made all Mr Ware had was a strong feeling that Samsung would take a licence at […] but he accepted in cross-examination that PanOptis was “flying a bit blind” and “taking a risk”.
iv) In terms of its wherewithal, PanOptis has 60-70 shareholders including pension funds, hedge funds, and Yale University. In terms of cash available to buy Unwired Planet, on 19 December 2015, Ericsson extended a convertible loan of $100 million to PanOptis and in December 2015, PanOptis received a further $160 million of licensing revenue. PanOptis was certainly not in any state of distress when it committed to buy Unwired Planet in April 2016.
v) There was no commitment of any kind by Samsung, at any stage, to take a licence at […]. It was simply a feeling acquired by Mr Ware in meetings conducted “over a very long dinner and drinks” with no written records at which it was conveyed to him that he would be doing a “great favour to Samsung”.
vi)
When Samsung ultimately did take a licence it paid […], since in
addition to the […] Samsung transferred patents
which Mr Ware accepted
were worth […].
408.
I have set out the parties’ rival cases on this licence at length
because it plays an important role in this case. If it is sound evidence of
the value of the Unwired Planet portfolio then that would reduce the fair,
reasonable and generally non-discriminatory royalty rate. My findings on the
context in which the 2016 Unwired Planet-Samsung licence arose are as follows.
By the time it was purchased Unwired Planet was in serious financial trouble.
The only licence Unwired Planet had been able to agree was with Lenovo and
Unwired Planet was engaged in very expensive multinational patent
litigation in
an effort to establish its rights. By late 2015 – early 2016 Unwired Planet was
close to insolvency. I accept Mr Ware’s evidence about what happened. The
price PanOptis paid for Unwired Planet was lower than the market value of the
patent
portfolio because of the serious financial difficulties Unwired Planet
were in at the time. As regards his discussions with Samsung, the picture Mr
Ware painted of the reality of high level negotiations with that major
multinational organisation was convincing and credible. PanOptis had the
ability and the means to buy Unwired Planet in any event but I find that the
key reason why PanOptis did buy Unwired Planet when they did and for the price
they paid was in order to build trust with Samsung and because Samsung were
prepared to take a licence under the portfolio in a deal in which the cash
component […]. The purchase was being “de-risked”, as Mr Ware put it.
The long term benefits to PanOptis which would derive from this were regarded
by PanOptis as important and are in fact potentially very valuable. The
arrangements did not give PanOptis a contractually enforceable right to the
benefits derived from building trust with Samsung but that does not mean it was
not well worth doing.
409.
These findings about the context of the licence together with the
findings about low rates in the licence itself support one another. I conclude
that the licence does not represent useful evidence of the market value of the
Unwired Planet patent
portfolio.
(c) Ericsson-Huawei 2016
(d) Ericsson-Samsung 2014
414.
This is the current licence between Ericsson and Samsung. It was signed
on 1st February 2014 with effect from 25th January 2014.
[…]. It is a cross-licence and covers 2G, 3G and 4G SEP and
implementation patent
portfolios as well as some other standards. It covers
user equipment and infrastructure.
416. The third complication is that the licence also contains […]
(e) Ericsson-Huawei 2009
429. Turning to the raw rates themselves, the difference between the numbers produced by Mr Lasinski and Mr Bezant is about the same as the range of unpacked rates from the Ericsson-Samsung 2014, so it is not such a big difference in the context of the inherent uncertainties in this case. Nevertheless I think Mr Lasinski’s number is likely to be too high given the assumptions about other standards and Sony-Ericsson. I find that the appropriate raw rate to use to represent the value of Ericsson’s 2G/3G portfolio which was licensed here is […]. It is lower than other rates from a similar period but that is explained by Mr Lasinski’s evidence about Huawei’s unique position in 2009.
(f) Ericsson – Yulong 2013
433. This licence was signed on 1st February 2013 with effect from 1st January 2013. […]
434. The licence contains a […]
(g) Ericsson: […]
i) The […] licence and the […] licence are both dated 2012 and are 2G and 3G only. The rates are […] respectively.
ii) The […] licence is dated 2011 and covers 2G, 3G and 4G. The rates are […] respectively.
(h) Ericsson – ZTE 2011
(i) Ericsson-RIM
(j) Ericsson – Apple 2008
(k) Ericsson-Sony 2012
(l) The Ericsson licences as a whole
i) Ericsson-Samsung 2014: […];
ii) Ericsson-Huawei 2009: a 2G/3G licence with low […] rate which may be regarded as a rate for China;
iii) Ericsson-Yulong 2013: […];
iv) Ericsson-[…]: […];
v) Ericsson-ZTE 2011: […];
vi) Ericsson-RIM 2010: […].
463.
The range of rates and the other uncertainties shows that there is no
point in worrying about the precise state of Ericsson’s patent
portfolio in
considering them. Whether the portfolio is pre- or post-MSA, the divestment
for the Lenovo deal and other changes to the portfolio do not matter. The
uncertainty in these rates swamps those factors.
(m) Other licences
(vi) Other indications relating to rates
470. Rates have been set in some of the decisions of foreign courts cited by the parties.
472.
The IP High Court in Japan in the Samsung v Apple
case [R6/1] used the top down approach by deciding that the aggregate royalty
burden for 3G should be 5% and deciding that from families declared essential
there were 529 patents
that are or are likely to be essential, I think based on
the Fairfield/Goodman & Myers study.
(vii) What is the benchmark FRAND rate for Unwired Planet?
476.
Applying the total royalty burden as a cross-check produces the
following. A benchmark royalty rate for Unwired Planet for a 4G multimode
handset of 0.062% coupled with a figure of 0.70% for Unwired Planet’s share S
of the Relevant SEPs for 4G multimode handsets produces a total royalty burden
T of 8.8%. That is lower than the aggregate implied by either party’s case
(Huawei’s 13% and Unwired Planet’s 10.4%). It is higher than the specific
numbers mentioned by patent
holders in 2008 but not so far as to be out of
line. I conclude that the cross-check supports a benchmark royalty of 0.062%
for 4G multimode handsets. It is the appropriate rate.
478. The 4G figures as well as the corresponding figures for 2G and 3G are in this table:
Unwired Planet benchmark FRAND rates |
|||||
Handsets (3G and 4G are multimode) |
|||||
|
Ericsson rate |
Strength ratio |
Benchmark rate |
Share |
Implied total burden |
|
E |
R |
ExR |
S |
T |
2G |
0.67% |
9.52% |
0.064% |
1.30% |
4.9% |
2G/3G |
0.67% |
4.76% |
0.032% |
0.57% |
5.6% |
2G/3G/4G |
0.80% |
7.69% |
0.062% |
0.70% |
8.8% |
|
|||||
Infrastructure (not multimode) |
|||||
|
Ericsson rate |
Strength ratio |
Benchmark rate |
Share |
Implied total burden |
|
E |
R |
ExR |
S |
T |
2G |
0.67% |
9.52% |
0.064% |
0.75% |
8.5% |
3G |
0.67% |
2.38% |
0.016% |
0.51% |
3.1% |
4G |
0.80% |
8.95% |
0.072% |
1.02% |
7.0% |
(viii) The impact of hard edged non-discrimination on the FRAND rate
485. Obviously FRAND has a non-discrimination limb, as I have already explained. Huawei pointed out that both Mr Bezant and Mr Lasinski agreed that that non-discrimination obligation “means that licensors should treat similarly situated licensees similarly”. Huawei submit that in the jargon of non-discrimination, Samsung are “similarly situated” to Huawei and so Unwired Planet are obliged to offer the same or similar rates to Huawei as they have extended to Samsung in the 2016 Unwired Planet-Samsung licence. Unwired Planet do not accept the hard-edged point put by Huawei. Their case is that Unwired Planet are not obliged to offer Huawei the same rate as the Samsung rate. That is because Huawei are not “similarly situated” to Samsung; the Samsung licence is not an equivalent or comparable licence to the Huawei licence being considered; and, even if those two points are wrong, the non-discrimination limb of FRAND contains the same or an analogous aspect as the requirement in competition law only prohibits conduct which is capable of distorting competition. Unwired Planet point out that Huawei have disavowed any attempt to conduct the economic analysis necessary to establish that in this case. In reply Huawei submit that no such analysis is necessary, citing British Airways v Commission Case C-95/04 [2007] ECR I-2331.
486. Competition law non-discrimination forms part of abuse of dominance. As it relates to prices it can be summarised as follows. First the underlying principle is that comparable situations must not be treated differently and different situations must not be treated alike unless such treatment is objectively justified (relying on Franz Egenberger C-313/04, EU:C:2006:454 at [33]). Second, Article 102(c) TFEU prohibits “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.” Dissimilar conditions will only be unlawful where it is shown that there are (a) equivalent/comparable transactions; (b) resulting in an actual or potential distortion of competition; and (c) absence of objective justification. Third, transactions are comparable if “(a) they are concluded with purchasers who compete with one another, or who produce the same or similar goods, or who carry out similar functions in distribution, (b) they involve the same or similar products, (c) in addition their other relevant commercial features do not essentially differ” (relying on Article 2 of Decision 30-53 of the High Authority of the ECSC, OJ 1953 L6/11, as amended by Decision 72/440/ECSC, OJ 1972 L 293/39). Unwired Planet referred to Article 3 of Decision 72/440 which sets out the three-part test for transactions to be considered comparable which is summarised above.
491.
Mr Ware’s evidence is sufficient to show that the weight to be attached
to the pricing in this licence is low, as a result of the other benefits PanOptis
perceived would flow from it and the circumstances Unwired Planet were in at
the time, however those benefits and circumstances do not derive from any
objective characteristics of the transaction itself. It is in the end nothing
more than a patent
licence (with the associated assignment). Unwired Planet’s
or PanOptis’s motives for selling this licence cheaply on that occasion do not
change the fact that they did sell the licence cheaply. The consequence of the
licence is that PanOptis has been able to enhance its general relationship with
Samsung and therefore to have a relationship with Samsung which it does not
have with Huawei, but I reject the suggestion that this means that the
transaction has features vis a vis Samsung which make it different in any
objective sense relevant in this context from the licence Huawei is entitled
to.
492.
Unwired Planet repeatedly emphasised that one has to take a realistic
common sense view and that non-discrimination cannot mean that businesses have
to charge all customers the same price for their goods or services, citing Purple
Parking v Heathrow Airport [2011] EWHC
987 (Ch) (Mann J), and Attheraces
Ltd v The British Horseracing Board Ltd [2007] ECC 7 (Court of
Appeal), as well as two textbooks: O’Donoghue & Padilla, The Law and
Economics of Article 102 TFEU, 2nd Edition (2013) at 5.3.1 and Bellamy &
Child, European Union Law of Competition, 7th Edition (2013) at 10.087.
Unwired Planet drew particular attention to a passage in O’Donoghue &
Padilla at 15.1 which referred to Art 102(c) explaining that outside the three
principal scenarios (discrimination on the basis of nationality, unlawful
exclusion of rivals resulting in ancillary discrimination between customers and
discrimination in favour of downstream operations), the application of Article
102(c) to condemn different prices or terms has been “relatively rare”. Unwired
Planet also note O’Donoghue & Padilla’s explanation that this makes sense,
because inter alia “different prices and terms are ubiquitous in real-world
markets, which means that the practical scope of a strict non-discrimination
rule would be enormous” and “the impracticality of rules that would insist on
uniform prices and terms is obvious.”
“The “non-discriminatory” principle of FRAND, however, is not
widely agreed upon. The standard economic definition would mean that all users
pay the same royalty – i.e., there is literally no discrimination on price or
any other terms. Some economists have proposed that it means only that all
firms which use the standard be able to obtain a license, with no constraint as
to the terms of the license. That of course allows different firms to pay
different royalties but still have access to use of the patent.
[…]
‘Non-discriminatory’ in the context of an SSO setting standards for competing firms can be interpreted to mean that all implementers of the standard should be offered licenses to the technology and all ‘similarly situated’ firms should pay the same royalty rate.”
Carlton and Shampine, Journal of Competition Law and Economics (2013) 9(3): 531-552
“144 Therefore, in order for the conditions for applying subparagraph (c) of the second paragraph of Article 82 EC [now Art 102] to be met, there must be a finding not only that the behaviour of an undertaking in a dominant market position is discriminatory, but also that it tends to distort that competitive relationship, in other words to hinder the competitive position of some of the business partners of that undertaking in relation to the others (see, to that effect, Suiker Unie, paragraphs 523 and 524).
145 In that respect, there is nothing to prevent discrimination between business partners who are in a relationship of competition from being regarded as being abusive as soon as the behaviour of the undertaking in a dominant position tends, having regard to the whole of the circumstances of the case, to lead to a distortion of competition between those business partners. In such a situation, it cannot be required in addition that proof be adduced of an actual quantifiable deterioration in the competitive position of the business partners taken individually.”
506. Then the CJEU turned to the CFI’s decision on the facts, as follows:
“146 In paragraphs 237 and 238 of the judgment under appeal, the Court of First Instance found that travel agents in the United Kingdom compete intensely with each other, and that that ability to compete depended on two factors, namely 'their ability to provide seats on flights suited to travellers' wishes, at a reasonable cost' and, secondly, their individual financial resources.
147 Moreover, in the part of the judgment under appeal relating to the examination of the fidelity-building effect of the bonus schemes at issue, the Court of First Instance found that the latter could lead to exponential changes in the revenue of travel agents.”
“148 Given that factual situation, the Court of First Instance could, in the context of its examination of the bonus schemes at issue having regard to subparagraph (c) of the second paragraph of Article 82 EC, move directly, without any detailed intermediate stage, to the conclusion that the possibilities for those agents to compete with each other had been affected by the discriminatory conditions for remuneration implemented by BA.
149 The Court of First Instance cannot therefore be accused of an error of law in not verifying, or in verifying only briefly, whether and to what extent those conditions had affected the competitive position of BA's commercial partners. The Court of First Instance was therefore entitled to take the view that the bonus schemes at issue gave rise to a discriminatory effect for the purposes of subparagraph (c) of the second paragraph of Article 82 EC. The second part of the fifth plea is therefore unfounded.”
512.
On the first issue Huawei rely on internal Ericsson emails and other
documents. They relate to “Project Cluster”, which was the project whereby a
subset of Ericsson’s patents
was created and assigned, ultimately, to Unwired
Planet under the MSA. […]:
[…]
513.
Although in the original configuration of the trial both Ericsson and
Samsung would have been there and called witnesses, following the Samsung
settlement and the consequential rearrangements neither of those parties
appeared or called witnesses. So these documents have not been put to a
witness nor, as far as I am aware, were they subject to a Civil Evidence Act
Notice. In their closing Huawei referred to a number of disclosure documents.
Unwired Planet did not submit that the various disclosure documents were
inadmissible (given CPR PD32 paragraph 27.2) but cautioned as to the weight to
be attached to disclosure documents put in this way. I accept the submission
in relation to other documents Huawei referred to, but the two documents
referred to above really just illustrate a point which has never been seriously
disputed, that Ericsson’s purpose in transferring the patent
portfolio was to
make more money. In paragraph 16 of the judgment on the competition law strike
out application [2015]
EWHC
2097 (
Pat)
Ericsson’s case about its motives was
summarised this way:
“16. Ericsson describes its motive in transferring part of
its portfolio to Unwired Planet as being to enable it fairly to earn more
revenue. Its concern is that while the patents
remain within Ericsson’s very
large portfolio, its ability to earn a fair revenue in respect of those
inventions is hindered. Once the
patents
are transferred, Unwired Planet will
be able to obtain fairer and therefore greater remuneration for them than
Ericsson was able to obtain while still ensuring that any royalties collected
in respect of essential
patents
are FRAND.”
514.
Since greater remuneration from the patents
has to come from the rest of
the industry, I accept Huawei’s submission that part of the purpose of all this
was to cause higher costs to Ericsson’s competitors. However while this
supports the inference that the total licence fees to be paid by Huawei or
Samsung will be higher post-MSA than pre-MSA, it does not tell one anything
about the effect of those increases on competition between Huawei and Samsung.
That depends on Huawei’s second point.
(ix) Rates - conclusions
(x) The Other Disputed Terms
(a) What licence scope is FRAND – UK or worldwide?
524.
Aside from the rate, the question of scope is the most significant point
in the case. The parties are diametrically opposed. Huawei are willing to
take a licence under Unwired Planet’s UK patent
portfolio, but only the UK
portfolio. Unwired Planet wish to grant a worldwide licence and contend that
they are entitled to insist on it. A summary of the parties’ positions was set
out in the introduction section above.
“- first, the tying and tied products are two separate products;
- second, the undertaking concerned is dominant in the market for the tying product;
- third, the undertaking concerned does not give customers a choice to obtain the tying product without the tied product; and
- fourth, the practice in question forecloses competition.”
531.
Prof Neven addressed a topic he called “Demanding royalties for acts
which are not within the scope of the patents
in suit”. The example he gave,
which he described as odd and without clear economic justification, was of a
patentee
with a
patent
in two jurisdictions which had been upheld in one but
revoked in the other but insisted on being paid in both. Stated that way the
Professor makes an important point but one has to be careful with the example.
As soon as
patent
portfolios are being licensed it is not straightforward to
say that a demand for payment for a portfolio licence is for payment for a
given
patent
in the portfolio. In the present case it is common ground that
the licence will be for all declared SEPs even though the royalty is set by
reference to a subset – the Relevant SEPs - and this applies to the UK only
portfolio as much as to the worldwide portfolio. In such a case the licensor
is not really demanding payment for each declared SEP. If one of the declared
but non-Relevant SEPs in a portfolio was revoked, leaving Relevant SEPs behind,
it would not change the benchmark royalty rate.
533.
As Prof Neven accepted, portfolio licensing is common industry practice
and has efficiency benefits. It saves transaction costs for both licensors and
licensees and obviates the need to determine a royalty on a patent
by
patent
basis.
534.
As far as I am aware every patent
licence in the trial bundles in this
case is a worldwide portfolio contract. The vast majority are worldwide
licences. There are a few in which a given territory is carved out in such a
way that no licence is granted for sales in that territory whereas the rest of
the world is licensed. The best example is China in the […] licence.
Even with a carve out of some kind the contracts are still worldwide agreements
although it would be inaccurate to call them worldwide licences.
536.
There was a suggestion that a worldwide licence might create a disincentive
to challenge the validity of patents
in other jurisdictions. A similar
disincentive applies to any portfolio licence. It is a factor to take into
account but not enough on its own to make a portfolio licence (worldwide or
national) inherently anti-competitive.
537.
So far the points have not been specific to the circumstances of Unwired
Planet and Huawei. Turning to the specific circumstances, there are three
aspects. The first is that Unwired Planet’s portfolio does not have patents
in
every state of the world. The second is that Unwired Planet is engaged in
litigation in this country. Its stance is that if it is entitled to insist on
a worldwide licence then it will do so and if Huawei refuses, an injunction
should follow. The third is that Unwired Planet is also engaged in litigation
with Huawei in Germany and China on
patents
within the portfolio but in the
licence Unwired Planet is demanding that Huawei should pay royalties for
Germany and China.
538.
The first aspect of the circumstances sounds more significant than it
is. Just like Unwired Planet, neither Ericsson nor Huawei have patents
in
every state. In terms of geographical coverage Unwired Planet’s declared SEP
portfolio covers most of Europe, Russia, Turkey, China, Japan, much but not all
of South East Asia, the USA, Canada, Australia, India, and Mexico. It does not
have much coverage in Africa and limited coverage in South America and Eastern
Europe (but there are some
patents
in some states). Nevertheless in my
judgment Unwired Planet’s geographical coverage is very wide. Although not
directly relevant, the difference in coverage between Unwired Planet and Huawei
is not so different. Unwired Planet’s coverage today is 42 countries whereas
Huawei’s is 51 on the same basis.
539.
In addition to the well-rehearsed issue on China, there are two further
aspects which Huawei draw attention to. First, Unwired Planet’s coverage of 3G/UMTS
and 2G/GSM is much weaker than for 4G/LTE, as Mr Saru accepted. However, South
America and South East Asia include jurisdictions in which Huawei makes a very
considerable volume of sales, especially of 3G/UMTS and 2G/GSM equipment, in
which Unwired Planet have no relevant coverage. Also for countries where
Huawei sells only single mode handsets rather than multimode, there are no
grounds on Unwired Planet’s case for it to be receiving any royalties going
forward at all. Second, Huawei contend they manufacture handsets in Venezuela,
in which Unwired Planet have no patents.
540.
Unwired Planet’s response was to point out that one needs to consider manufacturing
as well as sales. A handset sold in a country in which there is no patent
may
still have been made in a
patented
country in which a licence was required.
The fee for the licence, which includes licence to manufacture, may well be a
royalty calculated by reference to the sale price, with a royalty bearing event
being sale. That this would apply whether the sale happens to be made in a
patented
or non-
patented
country is not necessarily a problem given that
manufacture needed to be licensed.
542.
Where Unwired Planet’s coverage differs from that of Ericsson or Huawei
is in numbers of patents.
Unwired Planet have many fewer
patents
in general
and Mr Zhang and Mr Cheng both referred to the small size of Unwired Planet’s
portfolio. The portfolio is much smaller than that of the biggest players like
Huawei, Samsung and Ericsson, but in my judgment it is not so small as to be a
portfolio which can or would be treated in a different way from some of the
larger portfolios. The portfolio is large enough that it would be impractical
to fight over every
patent
and neither party is doing this. The explanation of
coverage above has been given by reference to declared SEPs since they
represent the property which would be licensed, even though it is the much
smaller number of Relevant SEPs which determines the royalty rate. The small
size of Unwired Planet’s portfolio and the low number of Relevant SEPs is
reflected in the FRAND royalty rates.
544.
A point arose in the arguments on the terms of the UK only licence which
Huawei called a manoeuvre. Unwired Planet insisted that the UK only licence
should have a term in it precluding entry into the UK of unlicensed Huawei
handsets. This seems to have caught Huawei by surprise but it really should
not have done. It was a manifestation of the point that the UK only licence is
only a licence under the UK patents.
It illustrates one reason why country by
country licensing is inefficient for goods like mobile telecommunications
devices which will move across borders but I do not regard this as a major
point in the present context. It would have to be addressed but that could be
done (see below the section on the UK only licence where it is addressed in
context). The real inefficiency of country by country licensing is the effort
required to negotiate and agree so many different licences and then to keep
track of so many different royalty calculations and payments. No rational
business would do this if it could be avoided.
546.
The first part of the four-part test in Microsoft
is that the products are separate. A patent
in one state is clearly separate
from a member of the same
patent
family in another state. They may have an
entirely different scope. However the way in which FRAND royalty rates are
determined in practice treats these two distinct
patents
as a single thing. It
is common ground that the industry assesses
patent
families rather than
individual
patents
within the family. The FRAND obligation actually applies to
patent
families, for good reason. It would be wrong to ignore this fact about
how the licences are negotiated and agreed in practice. Assessing portfolios
on a family basis inevitably involves tying in a
patent
in one state with a
patent
in another.
547. The second part (dominance) is assumed at this stage.
548.
The third part is the choice. Here Unwired Planet wish to give the licensee
no choice but accept the worldwide licence. This insistence is clearly a form
of tying in. However again there is more to be said about this. Take a SEP
with family members in two countries. If a multinational implementer sells in
those two countries and needs a licence in one of them, the implementer
probably needs a licence in both, hence the efficiency of this sort of
licensing. Of course portfolio licensing is more complicated still because
patents
in some states may not have counterparts in others, but for this
purpose they are all SEPs.
550.
Given the prevalence of worldwide licences and the prevalence of
assessment based on patent
families, I am not prepared to assume that the tying
of a SEP licence in one country to a SEP licence in another country has by its
nature a competitive foreclosure effect. A close analysis of the actual
effects would be required and that has not been done.
551.
Huawei submit that the Motorola decision of the
European Commission is in their favour. In that case Motorola sued Apple in
Germany for infringement of a SEP for GPRS called “Cudak”. Apple made various
“Orange Book” offers (the case was decided before Huawei
v ZTE – see the analysis of that case below). The Commission
decided that Apple’s second Orange Book offer indicated a
willingness to take a licence on FRAND terms and so after that Motorola’s
actions in pursuing its claims for a patent
injunction were abuses of dominance
(see paragraphs 125, 127, 301-303, 419, 423, 433, 434-436 and 440). Huawei
point out that one of the issues was that the second Orange Book
offer was to take a portfolio licence for Germany (para 125(a)) and that one of
Motorola’s complaints was that they (Motorola) wanted a worldwide licence
(127(f)). At paragraph 434 the Commission held as follows:
“434. First, Motorola has not advanced credible arguments as to why, in view of Apple's Second Orange Book Offer, Motorola’s seeking and enforcement of an injunction against Apple in Germany on the basis of the Cudak GPRS SEP was objectively necessary to protect its commercial interests, in particular its right to obtain appropriate remuneration for Apple’s use of its telecommunication SEPs in Germany. With its Second Orange Book Offer, Apple proposed to enter into a licensing agreement with full judicial review and determination of the proposed FRAND royalties with retroactive effect by a court. As regards the scope of the Second Orange Book Offer, as outlined in recitals (125)-(126), it covered all Apple products infringing the licensed SEPs in Germany. Hence, this offer was a clear indication of Apple's willingness to enter into a licensing agreement on FRAND terms and conditions.”
(my emphasis)
553.
Huawei took a series of eight further points in support of the submission
that Unwired Planet’s insistence on a multijurisdictional bundled licence in
the present case was not FRAND. I will address the first four points and the
sixth point. I have already addressed the fifth and eighth points, about the
true geographical scope of Unwired Planet’s portfolio and the number of
patents.
The seventh point is about SEP and non-SEP bundling. That is
addressed below. I do not accept it plays a significant part of the
multijurisdictional argument.
554.
First Huawei submitted that any consideration must start with the
proposition that at least in English law, there is no such thing as a portfolio
right. Citing Lucasfilm Ltd v Ainsworth [2012] 1 AC 208 Huawei submitted that the English Courts have no jurisdiction to entertain an
action in respect of the validity of a foreign patent,
and are reluctant to entertain
an action for infringement of a foreign
patent
even where validity is not in
issue. Therefore, insofar as Unwired Planet wishes to complain that Huawei is
infringing SEPs in other jurisdictions, Huawei contend that such complaints are
in principle for the Courts of those other jurisdictions.
556.
Huawei’s second and third points are best addressed together. In the
second point Huawei submitted that it follows that there is a fundamental
difference of principle between the bundling of all rights enjoyed within a
given jurisdiction and the bundling of rights across different jurisdictions.
In the latter case, there is an obvious risk that the threat of a territorial
injunction may function, unfairly and unreasonably, in effect to reverse or at
least negate the impact of foreign proceedings in respect of foreign patent
rights. In the third point, Huawei submit that the facts of the present case
are a practical manifestation of the concerns expressed by me in Vringo,
referring to both [2013]
EWHC
1591 (
Pat)
and [2015]
EWHC
214 (
Pat).
Huawei
reminded me that I said that proper scope of the issues to be adjudicated by
the Court is “…not simply a matter of case management and consideration of
the court’s resources” (para 58), but rather arises from the very “character
of …underlying rights” on which a
patent
infringement action is based.
Huawei referred to the following passages from the earlier judgment about the position
of ZTE in that case:
“44 … ZTE has said it is willing to
take a FRAND licence on any patent
found valid and infringed. In my
judgment, a defendant accused of
patent
infringement by a
patentee
who claims
to have a standards essential
patent
is and must be entitled to say, “I wish to
know if this
patent
is valid or infringed or not before I take a licence”.
Such a stance cannot fairly be described as unwillingness.
45 So here the defendant is entitled, in my judgment, to adopt a contingent position. In a contingent case like this, there is no basis on which the court could compel the defendants to accept a licence arrived at by approaching the matter as if the licensee was willing to take a licence without having a judicial determination of validity and/or infringement.
46 Looking at it the other way, if,
once the patent
trials are heard, for example, say Vringo's alleged SEPs were
found invalid, it would be absurd for Vringo to say it still wanted to have a
trial to determine a FRAND royalty rate applicable in the United Kingdom. The
rate would be zero. Equally, say Vringo won all the
patent
trials hands down
and then conducted a FRAND trial, it would equally be absurd for ZTE at that
trial to say, “Oh but these are weak
patents
likely to be invalid or not
infringed and the royalty should correspondingly be less”.”
[Huawei’s emphasis]
557. Huawei then referred to the further decision in which I observed as follows (at 107-109):
“…I can see that the aggregate of
individual FRAND rates for patents
taken alone and on a territorial basis may
well be far more than global portfolio rates and so a rational defendant may
well prefer to take a global portfolio licence rather than a series of
individual ones. Moreover I accept, as Vringo urges on me, that global
portfolio licences are the kinds of licences industry normally enters into.
However this is very different from
saying that somehow the fact that a global licence on a portfolio of patents
is
FRAND necessarily means that a defendant in one jurisdiction faced with one
patent
is forced to take a global portfolio licence in order to stave off a
national injunction on that one
patent.
I could see a very different
circumstance if Vringo had made a FRAND offer for the patent
EP 1,212,919 (UK)
itself and that offer had not been accepted. Then an injunction might well
follow. In that sort of case, unlike the one based on the global portfolio
licence, the threat of the injunction, which is after all a territorial remedy,
would not be being used to create some sort of international coercion or
coercion about other
patent
rights.”
[Huawei’s emphasis]
558.
As Huawei also pointed out, I repeated the same views about “international
coercion or coercion about other patent
rights” in my judgment from the
March 2015 CMC in these proceedings (para 23-27). Huawei submit this is
exactly this type of “coercion” which Unwired Planet is seeking to
practise in the present case. It is the same concern which is expressed by the
European Commission in Motorola at paragraph 434.
560.
The earlier Vringo judgment is not dealing with the
same problem which confronts the court now. Today the CJEU’s judgment in Huawei
v ZTE, makes clear that an implementer can challenge a patent
even
after a licence has been concluded. What is more I can only say that having
heard this trial, what seemed clear to me then does not seem to me now to be as
clear cut. I remain of the view however that UK court’s power to grant an
injunction against an implementer will only arise once at least two conditions
are satisfied - there must be a FRAND licence available for the licensee to
accept (or subject to case management some proper means of settling one) and
there must be a SEP held by the court to be valid and essential. Only an
implementer who refuses to take a FRAND licence will be at risk of an
injunction.
561.
The second Vringo judgment raises the Vringo
problem which has been addressed already. The essential difficulty is that if it
is possible that both kinds of licence – UK only and worldwide – are FRAND in
the circumstances of this case then FRAND cannot be enforced at all. Unwired
Planet submitted that a counterpart to the international coercion identified in
Vringo was a similar kind of international coercion which
was taking place in this case because the act of granting an injunction is no
more an act of ‘coercion’ than the act of not granting an injunction. The FRAND
commitment is a restriction on a patentee’s
exercise of its
patent
rights and
if, properly construed, it is a restriction that only requires a worldwide
offer, and Huawei refuses or frustrates that, then not granting an injunction
has the effect of compelling the
patentee
to either give up payment in other
jurisdictions or accept a much lower rate because it cannot practically sue
separately around the world.
562.
I do not entirely accept Unwired Planet’s submission, since in the end
the only rights a patentee
has are national
patent
rights and the only places
in which they can be enforced are the relevant countries. However Unwired
Planet’s argument is useful in that it draws attention to the fact that it is
necessary to identify the premise correctly. If a worldwide licence is not
FRAND then a putative licensee should not be coerced into accepting it by the
threat of an injunction in one state. However, if a worldwide licence is FRAND
then the situation changes. The logic of the FRAND undertaking applied in the
context of
patent
rights is that the remedy of an injunction to restrain
infringement, granted in respect of a
patent
found valid and
infringed/essential, should present the licensee with a simple choice either to
take a FRAND licence or stop dealing in the products. Whatever the FRAND terms
are, the remedy operates in the same way. That is why the remedy is coercive.
563.
Any licence involves elements of risk. A licence for a period of years
with an unchanging rate involves a risk to one side or the other as the market
changes over time. Similar kinds of potential risk exist in a licence for a
whole national portfolio as opposed to a single patent
and the same applies
again for a worldwide portfolio. There is necessarily a difference in scope
and therefore risk between a national injunction on a single
patent,
possibly
directed to a single release of a standard, on the one hand and a licence under
a portfolio whether it is national or international on the other hand. There
may be differences in risk and scope for other reasons too. However all these
distinctions are differences in degree, not differences in kind.
564.
Huawei referred to evidence of Mr Zhang on this but his evidence was
directed at a global blended royalty rate, which is a different point. Also
since his evidence was given I am told Huawei’s challenge to one Unwired Planet
patent
in China has been rejected although Huawei have appealed.
565.
The fourth point taken by Huawei is this approach is contrary to the
Brussels I Regulation (Art 22(4)) as would amount to the grant of a UK
injunction because a defendant had not taken a licence under a different
national instance of an EP patent
in a different Member State of the EU,
contrary to the CJEU in Case C-4/03 GAT v LUK [2006] ECR I-6509, Case C-539/03 Roche v Primus [2006] ECR I-6535 and
Case C-616/10 Solvay v Honeywell (12 July 2012, Grand
Chamber). There are existing infringement and validity actions in, for
example, Germany and Huawei submit that the English court should not make a
final determination that they are required to take and pay for a licence in
Germany and issue injunctive relief if Huawei do not do so, when that issue is
currently before the German courts. To do so, Huawei say, would amount to
circumventing the jurisdictional rules laid down by Art 22(4).
566.
Art 22(4) provides that in proceedings concerning the registration or
validity of patents,
the courts of the Member State in which the registration
has been applied for shall have exclusive jurisdiction. In GAT v LUK,
the CJEU held that Art 22(4)’s predecessor, Art 16(4) Brussels Convention,
applied whatever the form of proceedings in which the issue of a
patent’s
validity is raised, including, for example, if it were challenged as a defence
or counterclaim to a claim for infringement. The CJEU’s reasoning had three
parts: (a) first, it held that to decide otherwise would undermine the binding
nature of Art 16(4) by allowing a party to circumvent the rules and have
questions of validity determined in the wrong jurisdiction (b) second, this would
undermine the predictability and certainty of the rules of jurisdiction laid
down by the Convention and (c) third, it considered that to allow courts other
than those of a State in which a particular
patent
is issued to rule indirectly
on the validity of a
patent
would multiply the risk of conflicting decisions across
jurisdictions. This reasoning was followed in the two other cases that Huawei rely
on: Roche v Primus and Solvay v
Honeywell.
567.
In my judgment, the Brussels I Regulation and the CJEU case law cited
has nothing to do with what the terms of a FRAND licence should be. If a
worldwide licence is FRAND then requiring Huawei to take and pay for one would
not amount to determining questions of validity in relation to which courts of
other Member States have exclusive jurisdiction under Art 22(4). Taking
Huawei’s example of the on-going German proceedings, the German courts would
remain free to determine the relevant patents’
validity. A FRAND licence
should not prevent a licensee from challenging validity or essentiality of
licensed
patents
and should have provisions dealing with sales in non-
patent
countries. So if the German courts decide all the relevant
patents
are invalid
(or not essential), that would simply result in whatever consequences the
worldwide licence provided for. Since the licence is a FRAND licence those
consequences are FRAND too. The binding nature and clarity of Art 22(4) are
not thereby undermined and, most importantly, there is no risk of the decisions
in England and Germany conflicting. I reject Huawei’s fourth point.
569.
Does the litigation in this jurisdiction make any difference to that
conclusion? In my judgment it does not. A different question is whether,
following Huawei v ZTE, Unwired Planet’s approach to the
litigation and injunctive relief is premature and an abuse of dominance. At
this stage I am only concerned with the mere fact that Unwired Planet and
Huawei are engaged in patent
litigation and insisting on a worldwide licence.
Given that a worldwide licence is FRAND, the fact that litigation is in existence
does not seem to me to make an insistence on it abusive or not FRAND.
570.
The final point is to assess the impact of the outcomes of the
litigation in Germany and China. In Germany the proceedings are bifurcated.
Unwired Planet have sued Huawei for infringement in the local courts while
Huawei have brought invalidity proceedings in the Federal Patent
Court. In
China Huawei have brought invalidity proceedings. So far there have been wins,
losses and appeals on both sides and no final outcome, in the sense of final
without appeals.
571.
In my judgment this other litigation does not make any difference to the
analysis. As I have already said in the context of Huawei’s Brussels I and GAT
v LUK argument a worldwide FRAND licence should include an
appropriate mechanism to deal with countries which become effectively
non-patent
countries.
(b) Should the court settle the FRAND terms of a worldwide licence?
575.
In summary Huawei’s procedural point is this. During these proceedings
Unwired Planet have offered licences with three different scopes – individual
patents,
UK portfolio and worldwide. In the summer of 2016 Huawei informed
Unwired Planet that they would accept a UK portfolio licence and would accept
whatever rate the court decides is FRAND for such a licence. Subject to the
manoeuvre, Huawei would also accept whatever terms the court thinks fit for a
UK only licence. Since a UK portfolio licence is one of Unwired Planet’s
offers and since Huawei have accepted any rate the court thinks fit for that
licence, the only licence which the court can settle is a UK portfolio licence.
576. I am not impressed with the procedural submission, for the following reasons.
578.
Unwired Planet applied to amend to seek certain declaratory relief.
This came before me at the case management conference on 19th-20th
March 2015 (judgment on 24th April 2015 [2015] EWHC
1029 (
Pat)).
Unwired Planet sought leave to amend its Statement of Case to include as relief
declarations about the FRAND status of their offers to date. I allowed one
declaration but refused the other. The declaration which was refused was a
device to simply ask the question – what would be FRAND? It was not anchored
to anything. In refusing this wide declaration I referred to the court not
having the sort of open ended jurisdiction available in the Copyright
Tribunal. I allowed Unwired Planet to claim a declaration in narrower form
which referred expressly to specific offers already made. In allowing this
amended claim I held that the court could declare that a given set of terms
were or were not FRAND and also that the court could, within the framework of a
concrete proposal, find that a set of terms which differed in some respect from
the concrete proposal was also FRAND even if the terms as proposed were not. I
also rejected the objection to allowing this amendment that it would require
the court to value Unwired Planet’s global
patent
portfolio. That was because
that issue was going to be in the case anyway.
(c) FRAND rates in a worldwide licence
586. All these points together produce the following table:
Unwired Planet FRAND rates for China |
|||||
Handsets (3G and 4G are multimode) |
|||||
|
Benchmark rate |
China benchmark (50%) |
SEP families used to derive benchmark |
Relevant SEP families in China |
Rate for China |
2G |
0.064% |
0.032% |
2 |
1 |
0.016% |
2G/3G |
0.032% |
0.016% |
1 |
1 |
0.016% |
2G/3G/4G |
0.062% |
0.031% |
6 |
5 |
0.026% |
|
|||||
Infrastructure (not multimode) |
|||||
2G |
0.064% |
0.032% |
1 |
1 |
0.032% |
3G |
0.016% |
0.008% |
2 |
1 |
0.004% |
4G |
0.072% |
0.036% |
7 |
5 |
0.026% |
MM all standards |
MM 4G and 3G |
MM 4G only |
MM 3G only |
France |
Canada |
Ireland |
Argentina |
Germany |
Italy |
Netherlands |
Australia |
India |
Spain |
New Zealand |
South Korea |
Japan |
Taiwan |
Switzerland |
|
UK |
|
|
|
US |
|
|
|
Unwired Planet FRAND rates for Major Markets (MM) |
||||
Handsets (3G and 4G are multimode) |
||||
|
Benchmark rate |
SEP families used to derive benchmark |
Relevant MM SEP families |
Rate for MM |
2G |
0.064% |
2 |
2 |
0.064% |
2G/3G |
0.032% |
1 |
1 |
0.032% |
2G/3G/4G |
0.062% |
6 |
5 |
0.052% |
|
||||
Infrastructure (not multimode) |
||||
2G |
0.064% |
1 |
1 |
0.064% |
3G |
0.016% |
2 |
2 |
0.016% |
4G |
0.072% |
7 |
5 |
0.051% |
(d) Other terms in a worldwide licence
593.
The parties narrowed the issues very considerably in relation to a draft
UK licence. The points they were able to agree upon as FRAND are just as
applicable to a worldwide licence. So a FRAND worldwide licence would license
all acts which would otherwise infringe any of the relevant patents.
It would
be for a seven year term from the effective date of 1st January 2013
(when the 2009 Huawei-Ericsson licence ended) and therefore would expire on 31st
December 2020. It would contain a release for back damages on the basis that
royalties were paid at the contract rate for the past period. The royalty
would be calculated as a share of a defined net selling price of defined end
user equipment or infrastructure equipment. The royalty would be payable on
sale. In the worldwide licence the rate will be determined by the territory in
which the goods are sold, i.e. China, an OM country or an MM country for the
relevant standard. The licence would contain conventional reporting
provisions, record keeping and audit. The reporting would be quarterly with
payment due a specified period after the report (there is a typo in clause 4.5
which should refer to report clause 4.7 not 4.6). As a contract settled by the
court its terms would not be confidential.
(e) The terms of a UK only portfolio licence
UK only - rate
597.
Both sides agree that if the licence is a UK only SEP licence then the
rate should be higher. The degree of uplift is in dispute. It is clear that
if the licence was to be only for one territory, such as the UK, then the rate
should be higher than the benchmark rate. That is because there are plainly
significant efficiencies in global licensing. Huawei refer to Mr Lasinski’s
evidence in favour of an uplift of 50% (48.51%) which he derived from the
differential between the US/EU and the rest of the world in a […]
licence. Unwired Planet contend the uplift should be much bigger but one needs
to be careful to compare like with like. Unwired Planet referred to two
uplifts based on two different assumptions. The first is the UK only uplift.
Unwired Planet contend this uplift should be 150% for handsets and 100% for
infrastructure. The second is on the assumption that all the SEPs in suit are
valid and infringed. It arises in this context because the SEPs in suit are UK
patents.
598.
The second assumption about validity and infringement/essentiality can
be somewhat confusing but, to be fair, it harks back to the way some open
offers had been expressed for most of the proceedings, which in turn arose from
one aspect of Huawei’s stance, that they were only prepared to take a licence
under a patent
found by the court to be valid and infringed and were not
prepared to take a licence under any other
patent.
They were entitled to do
that but it is a different basis from the basis under consideration.
UK only – other terms
i) Royalty base issues:
a) Infrastructure revenues;
b) End user device revenues;
c) Packing, insurance and transport discount;
ii) Unlicensed products in the UK;
iii) Records and audit;
iv) Licensor indemnities.
Royalty base
Unlicensed products in the UK
615.
The real problem was roaming. Unwired Planet argued that Huawei was not
facing up to the problems inherent in Huawei’s insistence on a UK only patent
licence in a world in which their handsets are designed to and do cross borders
on a large scale. A Huawei handset made and sold outside the UK would have no
licence under this entirely territorial licence. Using such an unlicensed
product in the UK would be an act of
patent
infringement.
617.
Unwired Planet are right that Huawei’s stance illuminates an
unattractive aspect of Huawei’s stance in this dispute. As Unwired Planet
submitted, when it comes to the products Huawei wants to make and sell, they
want to take full advantage of the international nature of the market that is
developed by the international standard setting so as to sell products without
restriction on wherever they can be sold and used. But when it comes to taking
a FRAND licence offered by the patentee
they say they are entitled to take a
licence just for the UK despite knowing that some products not sold in the UK
will find their way here, by parallel trade and by the international movement
of the consumers using their products. As Unwired Planet submit not only is international
movement foreseeable, it is intended because as it is the point of an LTE
phone. Of course a worldwide licence solves this problem at a stroke.
619.
A FRAND licence in these circumstances has to license every act of
patent
infringement which the licensee would otherwise be liable for, absent
the licence. So the licence must render lawful the roaming use of a Huawei
product bought overseas and brought into the UK. Parties taking a FRAND
approach to this problem would not embark on trying to decide the legal issue
posed by roaming if they could avoid it. Both parties would see that the other
had a point. Something has to be done about it in order to ensure the licensee
is fully licensed but a clause like Unwired Planet’s is not sensible. Absent
any other way of dealing with it the parties would agree a modest uplift on the
royalty base to take roaming into account. There is no evidence of how many
international handsets enter the UK every day, whether for business purposes or
carried by consumers, nor how long they stay here. Absent any other figures,
the parties would agree a simple percentage uplift on the total handset royalty
to take it into account. I think a fair, reasonable uplift is 4%.
Records and audit
Licensor indemnities
623.
This is a debate about what indemnity Unwired Planet should provide
Huawei upon the divesture of any licensed patent.
Huawei have requested that
in the event the Licensed
Patents
are transferred to a third party (either by
assignment or transfer of the business) then Unwired Planet should indemnify
Huawei against claims made by that third party in respect of acts covered by
the licence.
624.
Huawei contend this has been a real problem in the past. The fact the
2009 Ericsson-Huawei licence covered patents
which were then assigned to
Unwired Planet did not stop Unwired Planet making claims in this litigation which
included licensed acts. The pleadings were amended but only after considerable
correspondence and costs were awarded against Unwired Planet on this at the
first CMC in July 2014. An example clause can be found in the […]
Licence at clause 7.3.
625.
Unwired Planet’s position is that they should be responsible for
notifying any purchaser of the patents
that Huawei are licensed, imposing upon
an assignee an obligation to respect that licence, and taking appropriate
measures to ensure that the transferred encumbrance is observed. Unwired
Planet submit this is a typical and proportionate approach to running
encumbrances upon the assignment of
patents
and argue that Huawei’s approach is
much more onerous. They say it imposes on Unwired Planet “a burden that
engenders uncontrollable, unpredictable and potentially ruinous costs hanging
over them” and that Huawei “have provided no compelling reason to do it”. They
ask whether this is something Huawei would be willing to accept as a licensor.
In the […] licence Huawei is a licensee.
Competition law
628. Art 102 TFEU is in these terms:
“Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”
(i) Dominant position
630. The concept of a dominant position was defined by the European Court of Justice in Case 27/76 United Brands v Commission [1978] ECR 207 as being:
“…a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.”
631.
The starting point therefore is to define the relevant market. It was
common ground that the relevant market for the purpose of assessing dominance
in the present case is a distinct market for licensing each SEP individually.
Defining the relevant market in this way is in line with the European
Commission’s decision in Motorola. With the market
defined in that way a patentee
obviously has a 100% market share and Huawei
submitted that therefore there was a presumption that such a party was
dominant, since even a 50% market share will be regarded as proof of dominance
save in exceptional circumstances – citing AstraZeneca AB v Commission
(6 December 2012) Case C-457/10 at para 176 and AKZO Chemie BV v
Commission Case C-62/86 [1991] ECR I-3359 at para 60.
“57. However, it should be noted that the referring court did not state in the order for reference that it had arrived at its finding that the SEP-holder in the present case unquestionably holds a dominant position after it had examined all the circumstances and the specific context of the case. I share the view expressed by the Netherlands Government that the fact that an undertaking owns an SEP does not necessarily mean that it holds a dominant position within the meaning of Article 102 TFEU, and that it is for the national court to determine, on a case-by-case basis, whether that is indeed the situation.
58. Given that a finding that an undertaking has a dominant
position imposes on the undertaking concerned a special responsibility not to
allow its conduct to impair genuine competition, that finding cannot be based
on hypotheses. If the fact that anyone who uses a standard set by a
standardisation body must necessarily make use of the teaching of an SEP, thus
requiring a licence from the owner of that patent,
could give rise to a rebuttable
presumption that the owner of that
patent
holds a dominant position, it must,
in my view, be possible to rebut that presumption with specific, detailed
evidence.”
639.
The third point is that both constraints were present in Motorola
and were considered and rejected. Motorola had given a FRAND commitment and
alleged Apple had held out for seven years. Nevertheless the Commission found
Motorola to be in a dominant position in relation to the Cudak patent
which was
essential to the GPRS standard. That is true but it also does not help. The
facts are not the same, notably the case was concerned mostly with conduct in
2011 and 2012, before the time when Mr Lasinski’s evidence indicates a change
in market behaviour vis a vis FRAND.
642. Paragraphs 239 and 240 of Motorola decision are as follows:
“239 As noted, the dominant position referred to in Article 102 TFEU relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.
240 Moreover, the General Court has previously held that in a situation where a supplier controls over 90% of a market, the presence of one or more large customers is not capable of affecting the dominant position of the supplier where the demand side is composed of a number of customers that are not equally strong and which cannot be aggregated.”
644. The point in the Commission Guidelines is similar. The end of paragraph 18 provides:
“Buyer power may not, however, be considered a sufficiently effective constraint if it only ensures that a particular or limited segment of customers is shielded from the market power of the dominant undertaking.”
The FRAND undertaking
651. Prof Neven agreed that the FRAND commitment does in practice constrain the conduct of SEP holders but his view was that it could not be assumed that the existence of a FRAND obligation would in fact preclude a SEP holder from acting contrary to FRAND. That was due to weaknesses in enforcement and a lack of clarity as to the meaning of FRAND. Unwired Planet submitted this view was wrong in law because it was based on a point about circularity which arises from the Commission’s Decision DE/2005/0144 RegTP at para 22, cited by the Court of Appeal in Hutchison 3G UK Ltd v Ofcom [2009] EWCA Civ 683.
652. In opening Huawei had submitted that taking the FRAND undertaking into account when assessing market power was circular and contrary to something called the “modified Greenfield” approach based on RegTP, Hutchison and BT v Ofcom [2016] CAT 3. Prof Neven summarised the point neatly as being that when assessing market power constraints which have been imposed precisely because the firm would otherwise enjoy such power, such as a FRAND undertaking, have to be ignored in order to avoid circularity. However, putting the matter that way is too broad. The problem some of these cases were concerned with was whether to lift the constraint in question based on an argument that, with the constraint in place, an undertaking was not dominant. So if it is not dominant, why have the constraint? But that is not a reason to lift the constraint if the undertaking would be dominant without it, and that kind of reasoning is indeed circular.
“From a methodological viewpoint obligations flowing from existing regulation, other than the specific regulation imposed on the basis of SMP status in the analysed market, must be taken into consideration when assessing the ability of an undertaking to behave independently of its competitors and customers on that market. In the Commission’s view, this could only be otherwise where it is uncertain whether the regulation concerned will continue to exist throughout the period of the forward-looking assessment.”
Hold-out
“…in view of the large number of SEPs composing a standard such as that at issue in the main proceedings, it is not certain that the infringer of one of those SEPs will necessarily be aware that it is using the teaching of an SEP that is both valid and essential to a standard”
662.
That is a slightly different point based on the large number of SEPs but
in any event it is also not a statement that implementers have some kind of
legal right to infringe SEPs. A notable factor on the facts of this case is
that the patents
in Unwired Planet’s portfolio were
patents
Huawei had
previously licensed (from Ericsson). I will address that in the section on
premature litigation.
663.
The second case said to support the proposition that implementing
patented
technology before a licence is obtained is lawful is Case T-472/13 Lundbeck
v Commission (8 September 2016). Huawei contend that at paragraph 121-122
the CJEU had held that an “at risk” entry to a market is “not unlawful in
itself”, and it is therefore for a
patentee
to “prove before the national
courts” that there is actually an infringement. Those paragraphs were
concerned with a very different context from the present case. Lundbeck
was about generic entry at risk into a
patented
market and agreements between
the innovator and the generic supplier. Paragraph 121 is about the effect of a
presumption of validity. Leaving aside the question of whether the
Patents
Court recognises any such presumption at all, the point in the paragraph is
that just because there may be a presumption of validity that cannot be turned
into a presumption of illegality of the generic products launched at risk.
That is unsurprising and not relevant. The relevant part of paragraph 122 is
concerned with the point that launching at risk as a type of conduct is not
unlawful. It is not suggesting that an implementer would not have been
committing the tort of
patent
infringement from the outset if they did so, albeit
that might only be established after the event. It is a very long way from the
question of holding out by the implementer of
patents
declared as essential to
telecommunications standards.
665. Overall I find that there is clear potential on theoretical grounds for hold-out to occur.
“It was obvious to me that we were being kept in limbo, by design or by inefficient process, by all of the potential licensees we were attempting to negotiate with. They did not want us to litigate, and so they did not refuse to negotiate altogether, but they also did not want to take a license and were deploying every tool available to ensure that no license would be concluded. …
Many potential licensees (some more than others) were seemingly engaging in delay tactics and we realized that it would be very difficult if not impossible to progress beyond technical discussions and to start negotiating the terms of a license without litigation. Where conversations did move beyond technology and into pricing, we were expected to bid against ourselves, receiving very few counter-offers. Those we did receive were derisory and the parties remained poles apart with respect to the rates each thought were FRAND. …”
Conclusion – dominant position
(ii) Abuse of dominance
672. The particular abuses alleged by Huawei are:
i) Premature litigation: Huawei v ZTE;
ii) Unfair excessive pricing (Art 102(a));
iii) Bundling / tying in SEPs and non-SEPS;
iv) Multi-jurisdictional bundling.
673. Taking the four topics in turn:
(a) Premature litigation: Huawei v ZTE
i)
alert Huawei to “the infringement complained about by designating that patent
and specifying the way in which it has been infringed”;
ii) present to Huawei a “specific, written offer” for “a licensing agreement on FRAND terms”; and
iii) afford Huawei sufficient time diligently to respond to that offer, “in accordance with recognised commercial practices in the field and in good faith”.
“…the proprietor of an SEP which considers that that SEP is the subject of an infringement cannot, without infringing article 102 TFEU, bring an action for a prohibitory injunction or for the recall of products against the alleged infringer without notice or prior consultation with the alleged infringer, even if the SEP has already been used by the alleged infringer.”
(Huawei’s emphasis)
678. Before going further, a recap of the relevant factual background is worthwhile. In summary:
i) Huawei had a licence from Ericsson from 2009 which expired at the end of 2012. That licence included the SEPs which were assigned to Unwired Planet in 2013.
ii) In June-August 2013 there was a brief two-way dialogue between Huawei and Unwired Planet (or its proxy Evercore) about Huawei buying some of the SEPs. Huawei said no thank you.
iii) After 2013 Huawei knew all they needed to know to appreciate that certain SEPs which they had formerly licensed were now held by a different company and, if and to the extent a licence was required, it would have to come from Unwired Planet or its successors.
iv) Unwired Planet wrote to Huawei in September 2013. The letter was to the Board rather than the IP or Licensing Dept. and nothing came of it. Huawei do not deny the letter was received but conversely Unwired Planet made no effort to follow it up.
v) In November 2013 contact was established and some correspondence began. By the end of January 2014 Huawei could reasonably expect the next step in the correspondence to be a letter from Unwired Planet dealing with NDA terms to be followed, after an NDA was agreed, by claim charts.
vi)
On 10th March 2014 Unwired Planet sued Huawei for patent
infringement on five SEPs in the UK and Germany.
vii) In April 2014 Unwired Planet made it first offer of terms.
“AND THE CLAIMANT CLAIMS:
(1) [a declaration that infringement has taken place]
…
(5) Save insofar as the Defendants and each of them are
entitled to and take a licence to the Declared Essential Patents
on FRAND terms
(in accordance with the Claimant’s undertakings and the ETSI IPR Policy) and
insofar as the Claimant is and remains required to grant such a licence:
a. an injunction to restrain the
Defendants and each of them (whether acting by their directors, officers,
servants, agents or any of them otherwise howsoever) from infringing the
Declared Essential Patents;
b. an order that the Defendants
take all steps as are in their power to retrieve from the channels of
distribution all products the sale, disposal or keeping of which would infringe
the Declared Essential Patents
or any of them; and
c. an order for delivery up or
destruction upon oath of all articles and materials in the possession, custody
or control of the Defendants (or each of them) which infringe the Declared
Essential Patents
or any of them.
(6) [dissemination of the judgment]
(7) [a damages enquiry]
(10) [costs]
“Regarding the litigation suits I welcome you in my playgrounds, certainly hoping it will not be necessary to waste too much effort but also looking forward to have clearly defined valued of some of your assets, when required”.
688.
Huawei (and Samsung) made comments on the April 2014 licensing proposals
and then Unwired Planet addressed them in their July 2014 proposals. One point
was to remove non-SEPs (although Unwired Planet say that was always available
in the April offer anyway). In the same period Huawei’s Defence and
Counterclaim was served. In this document and amongst other things Huawei
denied infringement and counterclaimed for revocation of all the SEPs,
contended that Unwired Planet had acted in breach of Art 102 by commencing the
litigation prematurely, stated (paragraph 54) that if contrary to its case any
of the SEPs are valid and infringed then the patentee
was not entitled to an injunction
and its only remedy is damages equivalent to a FRAND licence fee, and stated
(paragraph 56) that in relation to any SEP which is found to be valid and
infringed Huawei will undertake to enter into a licence on terms found by the
court or agreed between the parties to be FRAND.
689.
So Huawei’s willingness to take a FRAND licence at that stage was
qualified by the requirement that for any given SEP Unwired Planet had to
establish infringement and the SEP had to be found valid. The licence Huawei
was therefore prepared to accept was a UK patent
by
patent
licence. Although
in Vringo I expressed the view that a defendant was
entitled to do this, the approach presupposed that a territorial
patent
by
patent
licence would be FRAND.
690. I now need to turn to the without prejudice negotiations. This has created a tangle. Starting with the principles, the concept of without prejudice negotiation is a well-established and useful aspect of civil litigation in the common law (one leading case is Rush & Tomplins v GLC [1989] AC 1280; the basis for it is examined in Muller v Linsley & Mortimer [1996] PNLR 74 CA and Cutts v Head [1984] Ch 290 (CA); exceptions are considered in Oceanbulk v TMT [2011] 1 AC 662 and Unilever v P&G [200] 1 WLR 2436).
695.
The parties exchanged open offers in June/July 2015. Huawei’s open offer
at that stage (made on 2nd July 2015) advanced a royalty rate that
it would accept but was limited to being an offer to accept a licence only on a
patent
by
patent
basis for any SEP found valid and infringed. There is no
basis to criticise Huawei that it made an offer in those terms since that is
what I directed all the parties to do, because they said they were willing to
do so. There is however a point to be made that that was the only open offer
Huawei was willing to make at that stage. In cross-examination Mr Zhang sought
to justify the position on the basis that that is what the court order provided
for. That will not do. Huawei were always free to make open offers on a wider
basis and always knew or ought to have known that. The court order did not
impose a restriction at all.
698.
I am quite sure Huawei’s instinct was correct and one of Unwired
Planet’s motives was exactly that. Huawei was also right that arbitration at
that stage would have to have taken Samsung into account somehow and Unwired
Planet’s submissions at trial seeking to downplay that problem were not
convincing. Nevertheless, the fact remains that as at February 2016 the only
offer Huawei had been prepared to articulate in terms which Huawei was prepared
to put before this court (i.e. on an open basis) was the one made pursuant to
the court’s direction the previous year. The proposed arbitration would have
resolved the worldwide dispute whereas part of Huawei’s stance was that it was
only prepared to finish the UK proceedings with a UK patent
by
patent
licence.
699.
Following the Samsung settlement in August 2016 the parties exchanged
further offers. The rates moved somewhat closer together but Huawei’s open
stance remained that it insisted on a UK only patent
by
patent
licence.
706.
In the only forum which is admissible before this court Huawei have
never made an unqualified commitment to enter into a FRAND licence. Having
reviewed the conduct of the proceedings in detail, Huawei’s stance has always
been that they are willing to enter into what Huawei contend is a FRAND
licence. Until a few days before trial that was and was only a patent
by
patent
licence for any
patent
found valid and infringed. After the 11th
October it was a UK portfolio licence. Huawei have always reserved to
themselves the right to determine what was FRAND at least in respect of the
scope of the licence.
707.
That kind of stance always has been a risk. Leaving to one side the Art
102 defence itself, in other words Huawei’s case that Unwired Planet have
abused their dominant position such that the appropriate remedy would be
refusal of an injunction in any event even if no licence is in place, the
insistence on a particular scope of licence depends on the court finding or the
claimant agreeing that such a licence was indeed FRAND. Insistence on a patent
by
patent
licence derived some support from my Vringo
judgments which refer to that sort of licence but on any view once Huawei
v ZTE had been decided, it was clear that Vringo
was not the whole story. In any event Huawei’s stance shifted beyond that
before trial.
712.
So this is an action for a prohibitory injunction, but it is not one in
which the patentee
has persisted in seeking such an injunction when the
defendant has given an unqualified commitment to take whatever licence is
FRAND.
Huawei v ZTE
714.
The CJEU’s judgment arises from a reference from the Landgericht
Düsseldorf. This is relevant because, as Floyd J explained in HTC v
Apple [2012] EWHC
2037 under German civil procedure:
“…Validity and infringement are tried separately in Germany
but an injunction can be granted at the end of the infringement trial. The
injunction will not normally be stayed unless the Court considers that there is
a high probability that the patent
will be held invalid, although it is
possible for other measures such as appeal to be taken to avoid an immediate
injunction.”
716.
The CJEU’s judgment reviews the legal context (paragraphs 3-20)
including patent
law derived from the EPC (noting it is national law (i.e. not
EU law)), EU law including the Enforcement Directive 2004/48/EC, German
procedural law and the ETSI rules including the ETSI IPR policy. Next the
court summarised the dispute (paragraphs 21-38). In this section it refers to
tension between the German “Orange Book Standard” (KZR
39/06) decision and a Press Release from the European Commission.
717.
Orange Book Standard was a well known 2009 decision
in which the Bundesgerichtshof (BGH) had laid down guidelines for dealing with
injunction claims under standards essential patents
in Germany. From an
English point of view the guidelines in the Orange Book Standard
case were in part driven by the effect of the bifurcated litigation system in
Germany and used Art 102 as a tool to achieve that end. In any case, as the
CJEU and AG Wathelet explain in paragraphs 30-33 and 31 respectively, under the
principles laid down, a
patentee
would be able to obtain an injunction for a
standards essential
patent
in the infringement court in effect as long as the
defendant had not made the right sort of unqualified offer to conclude a
licence and had not given security for payment of the royalty.
721.
In answering the main questions, about an action including a claim for
an injunction, the court deals with general competition law issues and the
relationship with IP (para 45-48), noting that the facts of the present case
are different from what had gone before. The distinctions are the essential
nature of the SEP (para 50) and the irrevocable nature of the FRAND undertaking
(para 51). The court holds at paragraphs 52-53 that these two features mean
that despite the exclusionary nature of the patentee’s
right, implementers have
a legitimate expectation that the SEP owner will grant licences on FRAND terms
so that refusal to grant such a licence may in principle constitute abuse.
724.
Returning to the CJEU’s judgment, at paragraph 54 the court holds that
it follows from the legitimate expectations that the abusive nature of the
refusal to grant a licence is a defence to the claim for an injunction which
may be raised by the implementer. The conclusion follows if an abuse has
occurred, but if the FRAND undertaking is enforceable anyway and is a defence
to future infringements then one does not need Art 102 to achieve this result.
Paragraph 54 also includes the statement that under Art 102 the patentee
is
obliged to grant a licence on FRAND terms. As I have explained, in my judgment
such a
patentee
is obliged to do that anyway irrespective of Art 102.
725.
In paragraph 55 the court holds that in “such a situation” (i.e. the
parties cannot agree on what is required by FRAND) in order to prevent an
action for an injunction from being abusive the patentee
must comply with
conditions to ensure a fair balance and turns to consider the conditions. At
this stage the reference to conditions is general.
727.
Then in paragraphs 56-58 the court notes that IP rights are accorded a
high level of protection in EU law and so the patentee
may not be deprived of a
right to bring legal proceedings and the user of the IP must obtain a licence
“prior to any use”. All the same (para 59) the irrevocable FRAND undertaking
does justify imposing conditions on bringing injunction claims without negating
the substance of the right.
730.
The second condition (paragraphs 63-64) is that after the implementer
has said they will take a FRAND licence, the patentee
must provide a specific
written offer. It must at least include a royalty rate and show how it is
calculated. This second condition is also expressed accurately in Huawei’s
distillation of three conditions. The CJEU notes the general secrecy about
licences in this industry and points out that the
patentee
will be best placed
to make an offer which is non-discriminatory, since the
patentee
will know what
other licences it has concluded. The CJEU’s point is just as apposite to the
general non-discrimination obligation as the hard-edged version I have rejected.
738.
The relevant referred questions are answered in paragraph 71, which in
effect summarises the conditions discussed above. In this paragraph and
elsewhere the judgment does state that the implementer must express a
willingness to conclude a licence “on FRAND terms” and the patentee
must make
an offer on such (i.e. FRAND) terms. However the judgment does not suggest
anywhere that the national court needs to examine whether the terms offered
actually were FRAND or not. What I believe the CJEU is getting at is that each
side must make clear they are willing to conclude a licence on FRAND terms,
since that is what matters. The commitment to FRAND licensing is what counts.
And then the relevant party should put forward concrete proposals. Whether a
particular concrete proposal is actually FRAND is not what the CJEU is
focussing on. No doubt a prejudicial demand or a sham proposal may itself be
abusive (that issue arises below) but that is another matter.
743.
Having considered the judgment as a whole, it is notable that the court
is focussed on the question of whether bringing the injunction claim is itself
abusive and does not focus on the considerations which may apply at the end of
an infringement action once validity and infringement are established. In the
case before me it is now nearly three years since the claim was issued and over
a year since one of Unwired Planet’s patents
has been found to be valid and
infringed/essential, yet the parties are still arguing and no licence has been
agreed.
744. The principles I derive from Huawei v ZTE are these:
i)
In the judgment the CJEU has set out a scheme which both the patentee
and implementer can be expected to follow in the context of a dispute about a
patent
declared essential to a standard and subject to a FRAND undertaking.
ii)
In stating that the implementer and patentee
must express a willingness
to conclude a licence on FRAND terms, the CJEU is referring to a willingness in
general terms. The fact that concrete proposals are also required does not
mean it is relevant to ask if those proposals are actually FRAND or not.
iii)
If the patentee
complies with the scheme prior to starting a claim for
infringement of that
patent
which includes a claim for an injunction, then
bringing such a claim will not be abusive under Art 102. That is the ratio
of the CJEU’s decision.
iv) In the circumstances contemplated by the CJEU, bringing a claim for infringement of a SEP which includes a claim for an injunction without prior notice of any kind will necessarily be an abuse of dominant position. Insofar as the decision identifies what is abusive rather than what is not, the decision does not go further than that.
v)
Bringing a claim for infringement which includes a claim for an
injunction even with sufficient notice is capable of being an abuse of dominant
position. However the judgment does not hold that if the circumstances diverge
from the scheme set out in any way then a patentee
will necessarily abuse their
dominant position by starting such a claim. In those circumstances the
patentee’s
conduct may or may not be abusive. The scheme sets out standard of
behaviour against which both parties behaviour can be measured to decide in all
the circumstances if an abuse has taken place.
vi)
Nor does it follow that if the patentee
complies with the scheme such
that bringing the action is not per se abusive, the
patentee
can behave
with impunity after issue. Again, the scheme sets out standards of behaviour
against which both parties’ behaviour can be measured to decide if an abuse has
taken place.
vii)
If the patentee
does abuse its dominant position in bringing the claim
or in its conduct after issue, that affords a defence to the claim for an
injunction. In other words the proper remedy is likely to be refusal of an
injunction even though a
patent
has been found to be valid and infringed and
the implementer has no licence.
viii) The legal circumstances of this case differ from the circumstances assumed by the CJEU in a crucial respect. FRAND is justiciable and the undertaking can be effectively enforced at the suit of the defendant irrespective of Art 102. The defendant does not need Art 102 to have a defence to the injunction claim.
745.
Before leaving the analysis of Huawei v ZTE, I
should refer to the German decisions in infringement cases which follow on from
it. There are 12 in the authorities bundles dating from March 2015 (after the
AG’s opinion but before the CJEU) until May 2016. They include decisions of
the first instance courts and on appeal to the Oberlandesgericht in Mannheim
(and Karlsruhe on appeal) and in Düsseldorf. These are well known and well
respected courts dealing with patent
infringement but it is impossible to
summarise the effect of all these decisions and I will not attempt to do so.
What can be acknowledged is that the German courts are grappling with similar
issues to the ones arising in this case, including:
i) How to satisfy the CJEU’s first condition of notice to the alleged infringer and at what time. (Judgment 7 O 66/15 (NTT DoCoMo v HTC) Mannheim Landesgericht, and Judgment 4a O 73/14 (St Lawrence v Deutsche Telecom, HTC and Huawei) in the Düsseldorf Landesgericht).
ii)
Whether the court has to rule on whether the patentee’s
offer has to
actually be FRAND. (Judgment 7 O 66/15 (NTT DoCoMo v HTC)
Mannheim Landesgericht).
iii)
What happens when the defendant makes a national portfolio offer but the
patentee
wants a worldwide licence. (Judgment 7 O 96/14
(Pioneer v Acer) Mannheim Landesgericht; injunction suspended pending appeal by
the Karlsruhe Oberlandesgericht 6 U 55/16 and see also Judgment
4a O 73/14).
iv) The use of comparable licence terms (Judgment 4a O 73/14).
v) Whether taking 5 months to respond is reasonable (Judgment 4a O 73/14.
Has Unwired Planet abused its dominant position by bringing this claim?
748.
Considering the first condition: prior notice to the implementer. The
relevant circumstances start in 2009 with the fact that Huawei was then a
licensee under what are now Unwired Planet’s SEPs. The expiry of that 2009
Ericsson-Huawei licence is relevant too. Also relevant was the offer by
Unwired Planet of some of those SEPs for sale to Huawei in 2013. I reject
Huawei’s attempt to dismiss these contacts as immaterial. Also relevant are
the discussions with the Huawei IP department which started in November 2013.
Although the discussions had not reached the stage of claim charts being
provided, because the NDA had not been agreed, Huawei knew that claim charts
would be coming. The evidence was that negotiating parties wished to discuss
the merits of the licensor’s claims before getting down to discussing money.
That is relevant because it shows that not discussing financial terms at that
early stage was normal. Also relevant is that throughout the period from the
end of 2012 Huawei were making and selling 2G, 3G and 4G phones and
infrastructure and they were not paying any royalty for patents
they had
previously licensed.
749.
Unwired Planet’s motive in starting these proceedings was to support their
FRAND licensing programme. The proceedings were intended to apply pressure to
the defendant companies who were using the technology covered by their SEPs.
Unwired Planet’s primary focus at the time was Samsung and the evidence shows
that Unwired Planet had already been engaged in lengthy and fruitless
negotiations with that company. Dealings with Samsung were what drove Unwired
Planet’s timing. Nevertheless it made sense to include Huawei and Google in
the UK in one set of proceedings. If an action against Samsung had started in
the Patents
Court and some months later Unwired Planet had issued another
action in the
Patents
Court on the same
patents
against another company such as
Huawei, the proceedings would in all probability have been dealt with together
at a single trial anyway.
750.
Huawei were and are a sophisticated organisation well versed in
technology and patenting.
They knew that FRAND ought to limit the
patentee’s
rights and they knew that post 2013, as Mr Lasinski explained, the legal landscape
relating to FRAND had shifted in favour of licensees. They did not need to be
treated by Unwired Planet as naïve. From Huawei’s point of view, at the moment
just before Unwired Planet issued proceedings against them in April 2014,
Huawei had sufficient notice that Unwired Planet held particular SEPs and they
knew or ought to have known that if the declared SEPs held by Unwired Planet
were indeed valid and essential, then a licence was required. They did not yet
have claim charts. All the same, for Huawei, the only realistic and
foreseeable ways in which the existing contact with Unwired Planet was going to
conclude would be by Huawei persuading Unwired Planet that they had no good
SEPs or proving it in court or by Huawei taking a licence. Huawei also knew
that Unwired Planet wanted to license Huawei. In these circumstances the
information Huawei had by March 2014 was quite sufficient for Huawei to
understand that issuing proceedings including an injunction claim did not
represent a refusal to license. Quite the reverse.
(b) Unfair excessive pricing (Art 102(a))
“…a fair price is one which represents or reflects the economic value of the product supplied. A price which significantly exceeds that will be prima facie excessive and unfair..”
(paragraph 204)
“These are plainly abusive levels, which would pose a genuine threat to Huawei’s profitability and competitiveness [referring to evidence from Mr Zhang and Mr Lasinski], advantaging Ericsson not merely (a) from its share of the inflated royalties but also (b) from the adverse impact on Huawei as a competitor in the downstream infrastructure markets; and advantaging Samsung for the reasons explained above. A significantly supra-FRAND rate, if charged by UWP, would stand to distort competition to the benefit of Ericsson. Given the low rate which Samsung is now known to be paying, competition would also be distorted in favour of Samsung”
764.
The negotiation of a SEP licence also has special characteristics of its
own. If the SEPs are good then to act lawfully the buyer must buy a licence if
they want to work the standard. The buyer cannot walk away. But the FRAND
framework means the seller cannot walk away either. And all this applies
before one starts to consider the uncertainties concerning the quality of the
SEPs, the enforceability of FRAND, and the cost and simplicity of patent
enforcement in multiple jurisdictions.
765.
In the context of SEPs and FRAND, as long as the recipient of the offer
can see it is made in that context, then it seems to me that only an offer
which is so far above FRAND as to act to disrupt or prejudice the negotiations
themselves in the manner described by Prof Neven above will fall foul of Art
102(a). That is a high standard to reach but otherwise it would be too easy
for the recipient of an offer to throw up their hands and refuse to negotiate
at all. This does not contradict Huawei v ZTE because the
abuse in that case is not the demand of a non-FRAND rate, the abuse is to bring
injunctive patent
infringement proceedings prematurely.
766.
If injunctive patent
infringement proceedings are issued at or around
the same time as a rate is demanded, then that will be relevant since it will
increase the pressure on a licensee but the licensee can retaliate by denying
essentiality and challenging validity. However the offeror should be willing
to negotiate even though proceedings have been issued (and the offeree
likewise). Moreover as I have addressed at length above, in a FRAND case the
patentee
will only get an injunction in this jurisdiction if the defendant
refuses to take a FRAND licence.
769.
In order to compare these proposals with the FRAND rates determined
above it is convenient to summarise the FRAND rates into appropriate spans
comprising all the relevant rates for the relevant standards and equipment. It
is also convenient to include some of the other offers made during the
proceedings. The tables below include Huawei’s UK SEP patent
by
patent
offer
from 2015 and its October 2016 UK portfolio offer. The table includes Unwired
Planet’s 2014/5 and 2016 UK
patent
by
patent
offers.
2G – 3G rates |
|
Basis |
|
FRAND Benchmark |
0.016% - 0.064% |
FRAND Major Markets in a ww licence |
0.016% - 0.064% |
FRAND China and OM rate in a ww licence |
0.004% - 0.032% |
FRAND UK portfolio only (100% uplift) |
0.032% - 0.13% |
|
|
Unwired Planet 2014-2015 ww |
0.1% |
Unwired Planet 2016 ww |
0.065% |
|
|
Unwired Planet 2014-2015 UK portfolio |
0.325% - 0.425% |
Unwired Planet 2016 UK portfolio |
0.21% - 0.28% |
|
|
Huawei 2015 UK SEP |
Zero – 0.015% |
Huawei Oct 2016 UK SEP portfolio |
0.045% - 0.046% |
|
|
4G rates |
|
Basis |
|
FRAND Benchmark |
0.062% - 0.072% |
FRAND Major Markets in a ww licence |
0.051% - 0.052% |
FRAND China and OM rate in a ww licence |
0.026% |
FRAND UK portfolio only (100% uplift) |
0.12% - 0.14% |
|
|
Unwired Planet 2014-2015 ww |
0.2% |
Unwired Planet 2016 ww |
0.13% |
|
|
Unwired Planet 2014-2015 UK portfolio |
0.65% - 0.85% |
Unwired Planet 2016 UK portfolio |
0.42% - 0.55% |
|
|
Huawei 2015 UK SEP |
0.034% |
Huawei Oct 2016 UK SEP portfolio |
0.059% - 0.061% |
774.
These 2014 offers were made as the starting offers in what both sides
knew would be a process of negotiation and that position is not altered by the
fact that legal proceedings had commenced. This is not a case in which the
offers were being made to a small company unable to look after itself. Huawei
are a large and sophisticated organisation, used to negotiating
telecommunications licences and not unfamiliar with patent
litigation. To make
an opening offer to Huawei which is between about 1½ and 3 times the upper
level of the FRAND benchmark rate is not an abuse contrary to Art 102(a). In
no sense could an offer like that prejudice the inevitable negotiations.
i)
As at April and July 2014 the
information available to Unwired Planet consisted of: the public statements by
various companies in the industry such as the ones summarised elsewhere in this
judgment, the terms of the MSA, Lenovo, and their own assessments of the value
of their patents.
The rates a reasonable person would derive based on that
information are much higher than the rates to be derived from the close
analysis of the comparable licences which has been done in these proceedings.
It was reasonable for Unwired Planet to set its offered rates by reference to
that information. From their subjective point of view, as opening offers in a
negotiation in a FRAND framework 0.1% for 2G/3G and 0.2% for 4G were close to what
they might reasonably take the view a FRAND rate might be for their SEPs.
ii) By June 2015 more information was available to Unwired Planet. That information allowed one to estimate what the rates in the […] licence were and I am sure a company in Unwired Planet’s position would perform that analysis. That information does indicate that rates in the industry were lower than one would have thought in April 2014 based on the public statements etc.. So by June 2015 the information available to Unwired Planet showed the 0.1% for 2G/3G and 0.2% for 4G were likely to be well above the FRAND rate by factors similar to the differences I have determined above.
782.
Considering the UK offers, it is possible to compare Huawei’s UK offers
to the benchmarks in a similar manner. This includes comparing the offer in
2015 which was for the five SEPs in suit with a benchmark for the larger UK
portfolio but that is a minor issue. For 4G the UK FRAND benchmark rate was
about four times Huawei’s 2015 UK patent
by
patent
offer and double Huawei’s
2016 UK portfolio offer. For 2G and 3G the FRAND benchmark span is 0.032% -
0.13% and Huawei’s offers in 2015 ranged from zero to a rate 9 times less than
the benchmark. Huawei’s 2016 portfolio offer overlaps the benchmark at the
lower end and is about three times less at the upper rate.
(c) Bundling / tying in SEPs and non-SEPS
787.
Having heard the evidence in this case I am in no doubt that a patentee
subject to a FRAND undertaking cannot insist on a licence which bundles SEPs
and non-SEPs together. But it does not follow from this that it is contrary to
competition law to make a first offer which puts SEPs and non-SEPs together.
There is clear evidence that in some cases the parties agree to a licence which
includes both SEPs and non-SEPs together. The mere fact a licence includes
both does not take it out of FRAND nor does it indicate that a
patentee
has
used the market power given by the SEPs to secure a licence under the non-SEPs.
Everything will depend on the circumstances.
“This is an indivisible worldwide arrangement. The royalty rates sought reflect a blend of the strength, technical diversity and size of the portfolio across the world. It is not an offer for individual country or technology licenses. However, Unwired Planet is willing to discuss any such arrangement upon request.”
790.
Huawei immediately asked Unwired Planet to separate out the SEPs from
the non-SEPs and Unwired Planet did so by July 2015. Those are not the actions
of a party trying to use its market power given by patents
essential to a
standard to tie in a further licence under its non-SEP portfolio. If Unwired
Planet had insisted on putting the two together after that then the conclusion
might well have been different.
791. I reject the SEP/non-SEP bundling argument.
REMEDIES
792. The three remedies sought are an injunction, damages and declarations.
(i) Should an injunction be granted?
793.
The relevant patents
have been found valid and infringed. Unwired
Planet wish to enter into a worldwide licence. Huawei is willing to enter into
a UK portfolio licence but refuses to enter into a worldwide licence. However
a worldwide licence is FRAND and Unwired Planet are entitled to insist on it.
In this case a UK only licence would not be FRAND. An injunction ought to be
granted because Huawei stand before the court without a licence but have the
means to become licensed open to them.
795.
In case this matter goes further I will address the question of what if
I had found that Unwired Planet’s commencement of these proceedings had
amounted to an abuse of dominant position. I am far from being convinced that
a refusal of an injunction in 2017
would have been a proportionate remedy for
Unwired Planet’s abuse on that assumption. A single
patent
normally takes
about one year to come to trial on validity and infringement in the
Patents
Court. The abusive commencement of this action in April 2014 would have
justified refusal of an injunction in April 2015 and no doubt for a good time
after that but we are now two years on from that time, a year on from the
finding of infringement and three years overall from the start of the
proceedings. Any prejudice to Huawei from the commencement of the proceedings
has been outweighed by time and by Huawei’s stance in relation to a FRAND
licence. An appropriate alternative remedy might have been to refuse to award
any damages to Unwired Planet for the proven infringements in the intervening
period (and remove a corresponding term from the licence). However I do not
have to resolve those issues.
(ii) Damages
797.
The principles are clear. Damages for patent
infringement are
compensatory. I do not propose to get into the interesting questions which may
arise under the Enforcement Directive 2004/48/EC about whether
patent
damages
might have other aspects. Unwired Planet floated this point in opening by
reference to the infringer’s state of mind but this is not the case to decide
those questions.
798.
Huawei relied on General Tire & Rubber Co v Firestone Tyre
& Rubber Co Ltd [1975] 1 WLR 819 and submitted that since the
patentee
was a licensor, “the measure of damages [the defendant] must pay will
be the sums which he would have paid by way of royalty if, instead of acting
illegally, he had acted legally” (at 824–825 per Lord Wilberforce). So for a
SEP owner, this means a FRAND royalty for the
patents
in suit.
799.
Unwired Planet submitted that the correct royalty rate to use to assess
damages was a per patent
rate because the damages for infringement of a
particular
patent
should not be affected by the discounts available in FRAND licences
from taking a licence on several
patents
at once. In my judgment that
submission is wrong in principle as a matter of ordinary
patent
law regardless
of whether, as Huawei contended, it leads to non-FRAND damages.
800.
The relevant legal question is to ask what, in fact, has the patentee
lost? For a
patentee
who licences their rights the answer is the amount of
money the
patentee
would have earned in licensing, and the way to work that out
is to decide what a willing licensor and willing licensee would have agreed
upon as a matter of fact in all the circumstances. A willing licensor and
willing licensee would have agreed on the very same licence I have found to be
FRAND. So the
patentee’s
loss is the sum they would have earned under that
licence from the infringing acts. In this case that is the MM royalty rate on
UK sales.
(iv) Declarations
803.
Unwired Planet seeks declarations that its offers were FRAND. They
included worldwide, UK portfolio, and patent
by
patent
offers, with various
rates. I have held that none of them were FRAND in the terms advanced, but the
worldwide offer with the rates and licence terms I have settled in this
judgment is FRAND. I will make a formal declaration to that effect and if
Huawei wish me to I will make a declaration that each of the original offers
were not FRAND.
Summary of conclusions
806. In summary, my conclusions on the law are:
(1)
As a matter of French law the FRAND undertaking to ETSI is a legally
enforceable obligation which any implementer can rely on against the patentee.
FRAND is justiciable in an English court and enforceable in that court.
(2) It is not necessary to rely on competition law to enforce the FRAND undertaking.
(3) The boundaries of FRAND and competition law are not the same. A rate may be above the FRAND rate but not contrary to competition law.
(4) There is only one set of licence terms which are FRAND in a given set of circumstances. The problem identified in Vringo v ZTE does not exist because there cannot be two sets of terms which are both FRAND in a given set of circumstances. That way the FRAND undertaking can be enforced.
(5)
The legal effect of the FRAND undertaking relating to a SEP is not that
the implementer is already licensed. Its effect is that an implementer who
makes an unqualified commitment to take a licence on FRAND terms (settled in an
appropriate way) cannot be the subject of a final injunction to restrain patent
infringement. Whereas an implementer who refuses to take a licence on terms
found by the court to be FRAND has chosen to have no licence, and so if they
have been found to infringe a valid
patent
an injunction can be granted against
them.
(6)
FRAND characterises the terms of a licence but also refers to the
process by which a licence is negotiated. Although an implementer does not owe
a FRAND obligation to ETSI, an implementer who wishes to take advantage of the
patentee’s
FRAND obligation, must themselves negotiate in a FRAND manner.
(7) Offers in negotiation which involves rates higher or lower than the FRAND rate but do not disrupt or prejudice the negotiation are legitimate.
(8)
An appropriate way to determine a FRAND royalty is to determine a
benchmark rate which is governed by the value of the patentee’s
portfolio.
That will be fair, reasonable and generally non-discriminatory. The rate does
not vary depending on the size of the licensee. It will eliminate hold-up and
hold-out. Small new entrants are entitled to pay a royalty based on the same
benchmark as established large entities.
(9) The non-discrimination limb of FRAND does not consist of a further “hard edged” component which would justify a licensee demanding a lower rate than the benchmark rate because that lower rate had in fact been given to a different but similarly situated licensee. If FRAND does include such a component, then that obligation would only apply if the difference would distort competition between the two licensees.
(10)
A FRAND rate can be determined by using comparable licences if they are
available. Freely negotiated licences are relevant evidence of what may be
FRAND. A top down approach can also be used in which the rate is set by
determining the patentee’s
share of Relevant SEPs and applying that to the
total aggregate royalty for a standard but this may be more useful as a
cross-check.
(11)
In assessing a FRAND rate counting patents
is inevitable.
(12) In assessing the dominant position of a SEP holder, the practical effect of the FRAND undertaking and the potential for hold out by an implementer are relevant factors and may lead to the conclusion that a SEP holder is not in a dominant position.
(13) The principles to be derived from the decision of the CJEU in Huawei v ZTE are summarised at paragraph 744 above.
807. In summary, my conclusions on the facts are:
(1) None of Unwired Planet’s offers (April 2014, June 2014, June 2015 or August 2016) were FRAND.
(2) None of Huawei’s offers (June 2015, August or October 2016) were FRAND.
(3) The Revised MNPA overstates the value of Unwired Planet’s SEP portfolio. The HPA understates the value of that portfolio.
(4) The value R for the relative strength of Unwired Planet’s portfolio as compared to Ericsson’s for 4G is 7.69%. The values of R for 2G, 3G, and 4G range from 2.38% to 9.52%.
(5) The value S for Unwired Planet’s share of all SEPs relevant to 4G handsets is 0.70%. The values of S for 2G, 3G, and 4G for infrastructure and handsets range from 0.21% to 1.30%. Here and below handsets refers to multimode.
(6) None of: the 2014 Unwired Planet-Lenovo licence, the 2016 Unwired Planet-Samsung licence, or the 2016 Ericsson-Huawei licence, are good comparables. The Ericsson-Samsung 2014 licence is the best place to start but other Ericsson licences are relevant.
(7) The right number E to use as a royalty rate which measures the value of Ericsson’s 4G SEPs in order to scale against Unwired Planet is 0.80% for 4G. The value E for Ericsson’s 2G and 3G SEPs is 0.67%.
(8) The benchmark FRAND rates for Unwired Planet’s portfolio are:
a) 4G/LTE: 0.062% for handsets, and 0.072% for infrastructure;
b) 3G/UMTS: 0.032% for handsets, and 0.016% for infrastructure;
c) 2G/GSM: 0.064% for handsets, and 0.064% for infrastructure;
(9) As a cross-check, the value T for the total aggregate royalty burden implied by these rates for 4G handsets is 8.8%. The values of T for 2G, 3G, and 4G for infrastructure and handsets range from 3.1% to 8.8%.
(10) The fact the 2016 Unwired Planet-Samsung licence is not a good comparable does not mean it is irrelevant for hard-edged non-discrimination if that concept is applicable to FRAND. However applying the non-discrimination aspect of FRAND to that licence does not justify setting a lower rate for Huawei than the benchmark rates because a distortion of competition between Huawei and Samsung was not established.
(11) A UK portfolio licence is not FRAND. The FRAND licence between Unwired Planet and Huawei is a worldwide licence.
(12) In a FRAND worldwide licence the rates for China would be substantially lower than the benchmark rates. The rest of the world outside China would be divided into Major Markets (MM) and Other Markets (OM). The OM rates would be the same as the China rates because that is where the goods are made.
(13) The rates in a worldwide licence would be:
|
Major Markets |
China and Other Markets |
||
|
Handsets |
Infrastructure |
Handsets |
Infrastructure |
2G/GSM |
0.064% |
0.064% |
0.016% |
0.032% |
3G/UMTS |
0.032% |
0.016% |
0.016% |
0.004% |
4G/LTE |
0.052% |
0.051% |
0.026% |
0.026% |
(14) The detailed terms of a worldwide licence have been settled. They are FRAND.
(15) In a UK portfolio licence the uplift on the rates relative to the benchmark would be 100%.
(16) If a proper economic analysis had been done the answer might be different but in this case, as the holder of SEPs, Unwired Planet is in a dominant position.
(17) Unwired Planet did not abuse their dominant position by issuing these proceedings for an injunction prematurely, by maintaining a claim for an injunction in these proceedings, by seeking to insist on a worldwide licence, by attempting to impose unfair prices or by bundling SEPs and non-SEPs.
(18)
Since Unwired Planet have established that Huawei have infringed valid
patents
EP (UK) 2 229 744 and EP (UK) 1 230 818, and since Huawei have not been
prepared to take a licence on the terms I have found to be FRAND, and since
Unwired Planet are not in breach of competition law, a final injunction to
restrain infringement of these two
patents by Huawei should be granted.
(19) If Unwired Planet had issued these proceedings prematurely, in the circumstances as they now are, refusal of an injunction would have been disproportionate.
(20) The final injunction will be considered at a hearing in a few weeks’ time once Unwired Planet have drawn up a full set of the terms of the worldwide licence incorporating the decisions made in this judgment.
(21) To the extent damages should be awarded, they would be at the same rate as the appropriate FRAND rate.
Annex 1 - Unwired Planet’s declared SEPs today
Country |
2G |
3G |
4G |
TOTAL |
Argentina |
1 |
3 |
1 |
3 |
Australia |
1 |
2 |
0 |
3 |
Austria |
0 |
0 |
1 |
1 |
Belgium |
0 |
0 |
2 |
2 |
Brazil |
0 |
1 |
1 |
2 |
Canada |
1 |
4 |
6 |
10 |
Chile |
0 |
0 |
1 |
1 |
China |
2 |
6 |
9 |
15 |
Colombia |
0 |
0 |
2 |
2 |
Czech Republic |
0 |
1 |
2 |
3 |
Egypt |
0 |
0 |
1 |
1 |
Finland |
0 |
0 |
2 |
2 |
France |
2 |
3 |
9 |
12 |
Germany |
2 |
5 |
12 |
17 |
Hong Kong |
0 |
0 |
2 |
2 |
Hungary |
0 |
1 |
0 |
1 |
India |
2 |
2 |
8 |
9 |
Indonesia |
0 |
0 |
1 |
1 |
Ireland |
0 |
0 |
5 |
5 |
Israel |
0 |
0 |
1 |
1 |
Italy |
1 |
2 |
4 |
7 |
Japan |
2 |
6 |
10 |
16 |
Malaysia |
0 |
1 |
0 |
1 |
Mexico |
0 |
1 |
1 |
2 |
Netherlands |
1 |
1 |
6 |
8 |
New Zealand |
0 |
0 |
3 |
3 |
Philippines |
0 |
0 |
1 |
1 |
Poland |
0 |
1 |
2 |
3 |
Portugal |
1 |
1 |
1 |
3 |
Russia |
0 |
1 |
2 |
3 |
Singapore |
0 |
1 |
1 |
2 |
South Africa |
0 |
1 |
1 |
2 |
South Korea |
1 |
3 |
2 |
5 |
Spain |
1 |
2 |
7 |
10 |
Sweden |
0 |
0 |
2 |
2 |
Switzerland |
0 |
0 |
3 |
3 |
Taiwan |
1 |
4 |
3 |
7 |
Thailand |
0 |
0 |
1 |
1 |
Turkey |
0 |
0 |
2 |
2 |
UAE |
0 |
0 |
1 |
1 |
UK |
2 |
6 |
13 |
19 |
US |
2 |
10 |
22 |
31 |