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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Unwired Planet International Ltd & Anor v Huawei Technologies (UK) Co Ltd & Anor [2020] UKSC 37 (26 August 2020) URL: https://www.bailii.org/uk/cases/UKSC/2020/37.html Cite as: [2021] 1 All ER (Comm) 885, [2021] 1 All ER 1141, [2020] UKSC 37, [2021] 4 CMLR 3, [2021] ECC 17, [2020] RPC 21, [2020] Bus LR 2422 |
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[2020] UKSC 37
On appeals from: [2018] EWCA Civ 2344
JUDGMENT
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before
Lord Reed Lord Hodge Lady Black Lord Briggs Lord Sales
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JUDGMENT GIVEN ON |
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26 August 2020 |
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Heard on 21, 22, 23 and 24 October 2019 |
Appellants (Huawei) |
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Respondents ( ![]() |
Mark Howard QC |
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Adrian Speck QC |
Daniel Alexander QC |
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Sarah Ford QC |
Andrew Lykiardopoulos QC |
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Isabel Jamal |
Henry Forbes Smith |
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Thomas Jones |
James Segan |
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(Instructed by Allen & Overy LLP (London) & Powell Gilbert LLP) |
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(Instructed by EIP Legal & Osborne Clarke) |
Appellants (ZTE) |
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Respondent (Conversant) |
Michael Bloch QC |
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Adrian Speck QC |
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Sarah Ford QC |
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Colin West |
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Isabel Jamal |
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Thomas Jones |
(Instructed by Bristows LLP) |
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(Instructed by EIP Legal) |
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1st Intervener (Apple Inc) (written submissions only) |
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Hugh Mercer QC |
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(Instructed by Wilmer Cutler Pickering Hale and Dorr LLP) |
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2nd Intervener (Ericsson) (written submissions only) |
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James Marshall (Solicitor) |
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Xuyang Zhu (Solicitor) |
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(Instructed by Taylor Wessing LLP (London)) |
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3rd Intervener (Qualcomm Inc) (written submissions only) |
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Nicholas Saunders QC |
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(Instructed by Quinn Emanuel Urquhart & Sullivan UK LLP (London)) |
Appellants:-
(1) Huawei Technologies Co Ltd and another
(2) ZTE Corporation and another
Respondents:-
(1) Unwired
Planet
International Ltd and another
(2) Conversant Wireless Licensing SARL
JUDGMENT OF THE COURT:
1. These appeals raise several matters which are important to the international market in telecommunications. The first (in all three appeals) is whether a court in the United Kingdom (“UK”) has jurisdiction and may properly exercise a power, without the agreement of both parties, to (a) grant an injunction to restrain the infringement of a UK patent where the patented invention is an essential component in an international standard of telecommunications equipment, which is marketed, sold and used worldwide, unless the implementer of the patented invention enters into a global licence of a multinational patent portfolio, and (b) determine royalty rates and other disputed terms of such a global licence. Secondly, there is a dispute (in the Conversant appeals: para 17 below) whether England is the appropriate forum to determine those matters. Thirdly, (in the Unwired
appeal: para 16 below) there is a question as to the nature of the requirement that the licence, which the owner of a Standard Essential Patent (“SEP”) must offer to an implementer, be non-discriminatory. Fourthly, (again in the
Unwired
appeal) there is a question whether the court should refuse to grant the owner of such a SEP an injunction on the ground that it has breached EU competition law because it has not complied with the guidance given in the judgment of the Court of Justice of the European Union (“CJEU”) in Huawei v ZTE (Case C-170/13) EU:C:2015:477; [2015] 5 CMLR 14; [2016] RPC 4. Fifthly, the appeals raise a more general question as to the circumstances in which it is appropriate for an English court to grant a prohibitory injunction or to award damages instead. Each member of the panel has contributed to this judgment which addresses those matters.
Patents: the legal background
2. The starting point is the “patent bargain” which promotes innovation and justifies the monopoly which a patent gives an inventor. The patent bargain is this: an inventor receives the reward of a time-limited monopoly of the industrial use of its invention in return for disclosing the invention and dedicating it to the public for use after the monopoly has expired. See for example Actavis Group PTC EHF v ICOS Corpn [2019] UKSC 15; [2019] Bus LR 1318, para 53. The patents conferring such monopoly rights are national in scope and are usually conferred by national governments. Legal questions as to their validity and their infringement are determined by the national courts of the state which has conferred the patent right or, in the case of a European patent, in a designated state. An inventor has to protect its invention by applying for patents to the national authorities of each of those states in which it seeks to obtain a monopoly (unless it obtains a patent from the European Patent Office under the European Patent Convention which creates a nationally enforceable patent within each designated state). It is not unusual for a national patent for an invention to be upheld by the courts of one state and another national patent for what in substance is the same invention to be invalidated by the courts of another state. Within Europe, the same European patent can on occasion be upheld by the courts in one signatory state but be invalidated in another. Much may depend on the differing evidence led and arguments advanced in national legal proceedings.
4. To promote the development of global markets for telecommunications products, including mobile phones, the infrastructure equipment and devices produced by competing manufacturers need to communicate and inter-operate with one another and the phones need to be available for use internationally by consumers who travel with their phones from one jurisdiction to another. Two attributes of patent law have militated against this development. First, the prima facie entitlement of the owner of a patent to prohibit by injunction the use of its invention within a national jurisdiction has the potential to disrupt a global market for equipment using that invention. Secondly, the national nature of patent monopolies, which forces the patent owner seeking to protect its monopoly to raise proceedings in individual national courts, makes it very difficult, if not wholly impracticable, for a patent owner to protect an invention which is used in equipment manufactured in another country, sold in many countries and used by consumers globally. The first attribute may give owners of patents included in an agreed standard excessive power to disrupt an otherwise global market to the prejudice of manufacturers of equipment using such inventions (“implementers”) and to exact excessive royalties for the use of their inventions. The second attribute may enable implementers to avoid paying an inventor a proper price for the use of its invention internationally. There was therefore potential for the alternative evils of the abuse by a patent owner of its monopoly rights and of the denial by implementers of the patent owner’s legitimate rights. Organisations involved in the telecommunications industry have sought to address those evils by establishing Standard Setting Organisations (“SSOs”) to which they bring their most advanced technologies, promoting standards using those technologies, and putting in place contractual arrangements to which we now turn. SSOs aim to promote both technological innovation, which is made available to the public, and competition between manufacturers, and thereby to benefit consumers through more convenient products and services, interoperability, lower product costs and increased price competition.
Standard Setting Organisations
The ETSI IPR Policy
“seeks to reduce the risk to ETSI, MEMBERS, and others applying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in the preparation, adoption and application of STANDARDS could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable.”
That statement clearly reveals a policy of preventing the owner of an Essential IPR from “holding up” the implementation of the standard. But that policy is to be balanced by the next sentence of clause 3.1 which speaks of seeking a balance, when achieving that objective, “between the needs of standardization for public use in the field of telecommunications and the rights of the owners of IPRs.” The importance of protecting the rights of the owners of IPRs is declared in the second policy objective (clause 3.2) in these terms:
“IPR holders whether members of ETSI and their AFFILIATES or third parties, should be adequately and fairly rewarded for the use of their IPRs in the implementation of STANDARDS and TECHNICAL SPECIFICATIONS.”
This objective seeks to address the mischief of “holding out” by which implementers, in the period during which the IPR Policy requires SEP owners not to enforce their patent rights by seeking injunctive relief, in the expectation that licence terms will be negotiated and agreed, might knowingly infringe the owner’s Essential IPRs by using the inventions in products which meet the standard while failing to agree a licence for their use on FRAND terms, including fair, reasonable and non-discriminatory royalties for their use. In circumstances where it may well be difficult for the SEP owner to enforce its rights after the event, implementers might use their economic strength to avoid paying anything to the owner. They may unduly drag out the process of licence negotiation and thereby put the owner to additional cost and effectively force the owner to accept a lower royalty rate than is fair.
“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 …”
It provides that the licences must at least cover the manufacture of equipment, the sale, lease or other disposal of equipment so manufactured, and the repair, use or operation of such equipment. FRAND licensing undertakings made pursuant to clause 6 are intended to bind all successors-in-interest in respect of a SEP, and upon transfer of a SEP the SEP owner is required to take steps to ensure that this is achieved (clause 6.1bis). The undertaking made in respect of a specified member of a patent family is applied to all existing and future Essential IPRs of that patent family unless specified IPRs are excluded in writing when the undertaking is made (clause 6.2). It is envisaged in the IPR Policy that this process will usually take place while ETSI is working to create a standard because clause 6.3 provides that, if the IPR owner does not grant the requested undertaking, relevant office-bearers in ETSI will decide whether to suspend work on the relevant parts of the standard or technical specification until the matter is resolved, or to submit any relevant standard or technical specification for adoption. Similarly, if, before a standard or technical specification is published, an IPR owner is not prepared to license an IPR, clause 8.1 provides for the adoption of a viable alternative technology for the standard or technical specification if such a technology exists. If such technology does not exist, clause 8.1 provides an option for work on the standard or technical specification to cease. If the refusal to grant a licence occurs after ETSI has published a standard or a technical specification, clause 8.2 provides the option of modifying the standard so that the relevant IPR is no longer essential.
Industry practice in negotiating licensing agreements
15. The parties do not dispute that SEP owners, which have a large portfolio of patents covering many countries, and implementers, which market their products in many countries, would as a matter of practice voluntarily negotiate worldwide licences, or at least licences from which a given territory is carved out while the rest of the world is licensed. Implementers in the telecommunications industry are often also owners of many SEPs and negotiate cross-licences with other implementers. As Birss J explained in his judgment at first instance ([2017] EWHC 2988 (Pat); [2017] RPC 19, para 544), no rational business would seek to license products country by country if it could be avoided. This is, as Birss J said, in part because of the effort required to negotiate and agree so many different licences and thereafter to keep track of so many different royalty calculations and payments. It is also, as he recognised, because businesses and consumers will move mobile handsets across borders and an implementer would want to be able to bind the SEP owner into allowing the entry of otherwise unlicensed handsets into the jurisdictions in which the SEP owner had a valid SEP or valid SEPs. The Court of Appeal in its judgment in the Unwired
appeal ([2018] EWCA Civ 2344; [2018] RPC 20, paras 55-56) also referred to the prohibitive cost of litigating the validity and essentiality of patents territory by territory. These obvious considerations must have been part of the factual background of which the expert framers of the IPR Policy were aware when they devised that Policy.
The parties to the appeals
16. In this judgment the court addresses three appeals. In the first, the appellants are Huawei Technologies Co Ltd (“Huawei (China)”), a Chinese company which develops telecommunications technology and also implements the technology of others, and Huawei Technologies (UK) Co Ltd (“Huawei (UK)”), a UK subsidiary of Huawei (China) (collectively “Huawei”). The respondents are Unwired
Planet
International Ltd and
Unwired
Planet
LLC (collectively “
Unwired”)
which are registered in Ireland and the United States of America respectively. They are both intellectual property licensing companies (sometimes called “Patent Assertion Entities”) which obtain income from the licensing of patents to companies which make and sell telecommunications equipment. In 2013
Unwired
acquired a portfolio of patents and patent applications from Ericsson, which was a major developer of telecommunications technology and a participant in standard setting. At the time of trial, the portfolio covered 42 countries and comprised 276 patents and applications declared as essential, of which 29 were UK patents or applications. Each of Ericsson and
Unwired
made an ETSI IPR Licensing Declaration and a Specific IPR Licensing Declaration in respect of patent families which encompass five of the UK patents on which
Unwired
sued Huawei in England. Ericsson had licensed patents to Huawei, including the UK patents which are the subject of these proceedings, but the licence expired in 2012. Huawei’s continued use of the technology covered by the patents in suit forms the backdrop to its appeal.
The legal proceedings
(i) Unwired
v Huawei
19. Unwired
commenced proceedings in England on 10 March 2014 against Huawei, Samsung and Google, alleging infringement of the UK designation of six European patents (“EP”), and requesting, among other remedies, an injunction to prevent further infringement.
Unwired
began parallel proceedings in Germany at the same time. Before the proceedings commenced,
Unwired
and Huawei had discussed the possibility of Huawei buying some of
Unwired’s
patents but Huawei did not do so. We discuss the further exchanges between
Unwired
and Huawei, both before the proceedings commenced and during the course of those proceedings, when we address the fourth issue (whether the court should refuse an injunction because of any failure to comply with the guidance of the CJEU in Huawei v ZTE) in paras 128-158 below.
21. At the same time Unwired
brought proceedings in Germany, in which it had mixed success and from which appeals are pending. In particular, the German designation of EP ‘744 has been held to be valid but not infringed and an appeal on infringement is pending. The German designations of EP ‘287 and EP ‘514 have been held to be infringed but the Opposition Division of the European Patent Office has held those patents to be invalid and appeals from those decisions to the EPO Technical Board of Appeal are pending. The German designation of EP ‘818 has been held to be valid and infringed and those judgments have been upheld on appeal. The claims of EP ‘991 which were alleged to be infringed were revoked for the German designation and an appeal against that judgment is pending, as is a proceeding relating to the infringement of that patent.
22. Huawei (China) challenged several of Unwired’s
patents in China. The Patent Re-examination Board (“PRB”) has held that two Chinese family members of
Unwired’s
European patents (EP ‘287 and ‘514) are invalid but those findings are under appeal. The PRB has held the Chinese family member of EP ‘744 to be valid and Huawei (China) has appealed. Huawei (China) has also challenged five other patents, which
Unwired
declared to be SEPs; three have been upheld, one upheld in part and one invalidated. Appeals from those decisions are pending.
23. As matters currently stand, and subject to continuing appeal proceedings in Germany and China, Huawei has been held to be infringing one or more of Unwired’s
SEPs through its use of patented technology in both the UK and Germany and in China challenges to two patents have failed.
24. Unwired
settled with Google in 2015 and with Samsung in July 2016, after the technical trials of the UK patents but before Birss J held the trial to determine remedies for infringement of its UK patents, in an arrangement in which it granted Samsung a global licence for its portfolio.
Unwired
was sold to the PanOptis group of companies in July 2016. It was in serious financial trouble and was close to insolvency. We address in more detail the Samsung settlement when we discuss the third issue, namely what is required to make the licence offered by a SEP owner non-discriminatory, in paras 105-127 below.
25. Between October and December 2016 Birss J held a trial to determine the remedies for the infringement of Unwired’s
valid SEPs. In his judgment of 5 April 2017 ([2017] EWHC 711 (Pat)), later reissued with revised redactions on 30 November 2017, [2017] EWHC 2988 (Pat)) he concluded, among other things, that the FRAND undertaking was justiciable and enforceable in the English courts and that an implementer who refused to take a licence on terms which the court held to be FRAND exposed itself to an injunction for infringing a UK patent which the court held to be valid and infringed. He held that a willing licensor, with
Unwired’s
portfolio of patents, and a willing licensee, with almost global sales, acting reasonably and on a willing basis would agree a worldwide licence. He concluded that such parties would regard the negotiation of licences country by country as “madness”. Having been presented with detailed expert evidence, Birss J determined the rates of royalty and other terms of the licence, so far as they were in dispute, that he considered to be FRAND. He held that in the circumstances a UK portfolio licence, for which Huawei had argued, would not be FRAND but that a FRAND licence between
Unwired
and Huawei had to be a worldwide licence.
26. In case he was wrong in his conclusion that only a worldwide licence was FRAND, he also determined the rates and terms of a UK-only licence covering Unwired’s
UK portfolio.
27. The judge also made findings which are relevant to the third and fourth issues which we discuss below. He held that the royalty rates which he settled for the global licence were FRAND notwithstanding that they were higher than those in the licence which Unwired
gave to Samsung. He also held that
Unwired
had not breached article 102 of the Treaty on the Functioning of the European Union (“TFEU”) and that the Huawei v ZTE case did not give Huawei a defence if it decided not to enter into the global licence which he had settled.
28. In a hearing on 7 June 2017 Birss J granted an injunction to restrain infringement of the relevant UK patents with a proviso that the injunction would cease to have effect if the defendant entered into the FRAND global licence which he had settled. He stayed the injunction pending appeals: [2017] EWHC 1304 (Pat); [2017] RPC 20. Huawei has given certain undertakings to the court and has sought to conduct itself according to those undertakings pending the determination of all appeals in the English proceedings.
29. Huawei appealed against Birss J’s orders. On 23 October 2018 the Court of Appeal (Lord Kitchin, and Floyd and Asplin LJJ) handed down a judgment dismissing the appeal: [2018] EWCA Civ 2344; [2018] RPC 20. The court disagreed with the judge’s conclusion that in any particular case there could only be one set of FRAND terms. Ifa circumstance were to arise in which either a local or a global licence would be FRAND, it would be for the SEP owner to choose which it preferred because the SEP owner performed its obligation by offering a licence on FRAND terms. But this aspect of the judge’s reasoning had no material effect on the conclusion which he had reached because he had not erred in deciding that, in the circumstances of this case, only a global licence would be FRAND.
(ii) Conversant v Huawei and ZTE
30. Conversant commenced proceedings against Huawei and ZTE in England in July 2017. It seeks among other things a declaration that the global licence which it offered the defendants is FRAND, alternatively, if that is not granted, a determination of FRAND terms. It also seeks, after amending its pleadings, injunctions in respect of UK patents found to be valid and infringed which will last until the defendants enter into a licence which the court determines is FRAND. Huawei and ZTE challenged the jurisdiction of the English courts on the grounds of (a) a lack of jurisdiction to determine the validity of foreign patents and (b) forum non conveniens. Conversant sought permission to serve the Chinese defendants out of the jurisdiction. In a judgment handed down on 16 April 2018, Henry Carr J dismissed the jurisdiction challenges and granted Conversant’s application to serve out of jurisdiction: [2018] EWHC 808 (Pat); [2018] RPC 16. Commenting on Birss J’s judgment, he held that the English courts had jurisdiction to enforce the contract contained in the IPR Policy and to determine such terms of a licence as were in dispute. Enforcing the contract and determining the terms of a FRAND licence did not involve the English courts intruding on the jurisdiction of foreign courts in relation to the validity or infringement of foreign patents. The licences determined by the English courts could be adjusted to reflect the rulings of foreign courts on such matters. The effect of this jurisdiction was to put the onus on an implementer to challenge foreign patents once the court had found a UK SEP to be valid and infringed. The royalty rates which the court could adopt would be based on evidence of comparable real-life licences which could be expected to take into account the competition policies of foreign states. He concluded on the basis of expert legal evidence led before him that the Chinese courts did not have jurisdiction to determine FRAND royalty rates in respect of non-Chinese patents without the agreement of the parties. He regarded it as no more than speculative whether the Chinese courts would have such jurisdiction, even if the parties consented, and he rejected the plea of forum non conveniens.
33. Huawei and ZTE appealed the judgment of Henry Carr J on jurisdiction. On 30 January 2019, the Court of Appeal (Patten, Floyd and Flaux LJJ) handed down judgment, dismissing the appeal: [2019] EWCA Civ 38; [2019] RPC 6. In the Conversant appeals to this court therefore, Huawei’s and ZTE’s cases relate to the preliminary questions of jurisdiction and forum non conveniens.
(iii) Overview of the markets and the proceedings
37. At the same time, Huawei and ZTE point out that only a very small proportion of their worldwide sales are made in the UK. Huawei manufactures in China and its principal market is in China. It asserts that 64% of its relevant sales occur in China or in countries in which Unwired
has no patent protection and is dependent on the validity and infringement of Chinese patents for its claim for royalties. In relation to the Conversant claim, Huawei asserts that the Chinese market accounts for 56% of its group’s worldwide sales on which Conversant makes claims, and a further 19% of such sales occur in countries in which Conversant has no patents, so that Conversant’s claims in those countries depend on the Chinese patents. The UK market comprises only 1% of Huawei’s sales of those products. Similarly, ZTE manufactures in China and in the first six months of 2017 60% of the group’s operating revenue was from China. At that time only 0.07% of its turnover was generated in the UK. Thus, Huawei and ZTE submit that questions as to the validity and infringement of Chinese patents, which are within the jurisdiction of the Chinese courts, are of central importance to the value of a global licence of declared SEPs.
41. Before turning to the challenges raised in these appeals we set out briefly the methodology which Birss J adopted in determining what was a FRAND licence between Unwired
and Huawei. An understanding of the nature of the exercise which he undertook is important to an analysis of the relationship between the determination of the terms of a FRAND licence on the one hand and, on the other, the exclusive right of foreign courts to adjudicate on the validity and infringement of their national patents.
(iv) Birss J’s methodology in the Unwired
case
43. The second method was to use comparable licences. These are licences which parties engaged in the telecommunications industry had already agreed and operated. As the experts who gave evidence recognised and Birss J accepted, many patent licences including cross-licences may have different terms, including different ways of calculating royalties, which make comparison difficult. The experts had to adopt methods of unpacking the licences in order to make them comparable and this introduced uncertainty into the exercise of comparison. Unwired
had obtained most of the patents in its portfolio from Ericsson. Thus, Ericsson’s licences in the past had included all the SEPs in issue. That made Ericsson’s licences particularly relevant as comparables. As Birss J explained (para 180), if the rate for Ericsson’s portfolio was E and the relative value of
Unwired’s
portfolio to Ericsson’s portfolio was R, the
Unwired
rate is E x R.
44. Birss J accepted evidence that parties when agreeing licences of a substantial portfolio of declared SEPs did not evaluate the importance of individual patents but adopted methods involving patent counting. While it may be possible sometimes to identify a patent which is a keystone invention underpinning the technical approach on which a standard is based, none of Unwired’s
patents were in that category. Patent counting therefore involved identifying from among the declared SEPs those which were to be treated as essential, which he described as “Relevant SEPs”. There is a problem that more patents are declared to be essential than in fact are essential. This problem of over-declaration is in part the result of the IPR Policy process which requires patent owners to declare SEPs in a timely manner when a standard is being prepared, as it encourages patent owners to err on the safe side by making a declaration. In part, there are difficulties in interpreting both the patents and the standards. In part also, patent claims are amended over time; different national patents within a patent family will vary in scope around the world; and standards themselves will vary over time. Further, the process of negotiating rates by counting patents within a portfolio creates a perverse incentive to over-declare. This phenomenon must be recognised and be taken into account when identifying Relevant SEPs and calculating shares and ratios - S and R above. Significantly, Birss J held, on the evidence led before him, that no-one in counting Relevant SEPs takes account of the validity of the patents.
45. Much of Birss J’s impressive judgment involved an analysis of the competing methods by which the parties sought to carry out this exercise. He also analysed a number of licences which Unwired
and Ericsson had agreed and identified those licences to which Ericsson was a party on which he was prepared to place any weight (para 462) in determining a rate for E in relation to each of the standards for handsets and infrastructure.
48. In deciding that a worldwide licence was FRAND Birss J had regard to practice in the telecommunications industry to agree portfolio licences and observed that every patent licence which the parties had produced in the trial bundles was a worldwide portfolio contract, although some licences carved out a particular territory while licensing the rest of the world (paras 524-534). Unwired’s
portfolio covered 42 countries and was large enough that it would not be practicable to fight over every patent. A willing licensor of such a portfolio and a willing licensee such as Huawei with global sales would agree on a worldwide licence (paras 538-543). He recorded that it was common ground that the industry assessed patent families rather than individual patents within a family (para 546). He thus drew on industry practice in deciding that a FRAND licence would be a worldwide licence.
49. Against that background we turn to address the first issue.
Issue 1: Whether the English courts have jurisdiction and may properly exercise a power without the agreement of both parties (a) to grant an injunction restraining the infringement of a UK SEP unless the defendant enters into a global licence on FRAND terms of a multinational patent portfolio and (b) to determine royalty rates and other disputed items for a settled global licence and to declare that such terms are FRAND.
65. In the Unwired
case, Huawei appears not to have sought any provision in the draft global licence to alter the royalties payable if
Unwired’s
Chinese patents or a relevant sample of them were successfully challenged. As we have said (para 47 above) the only adjustment mechanism which the draft licence provided was to the royalties payable in relation to major markets. Huawei has not appealed the detailed terms of that draft licence but has focussed its attack on the principle of a national court determining that a global licence was FRAND without the consent of the parties to such an exercise. That notwithstanding, it would be open to Huawei in another case to seek to make such a reservation when negotiating or debating in court the terms of a licence and to seek to persuade the court at first instance that the reservation was appropriate in a FRAND process.
67. We are not persuaded by this submission. The Court of Appeal in the Unwired
case (paras 59-74) analysed the cases which the parties had presented to the court and concluded that they did not support the contention that Birss J’s approach lost sight of the territorial nature of patents and did not accord with the approach taken in other jurisdictions. We agree. We recognise that Birss J has gone further than other courts have done thus far in his willingness to determine the terms of a FRAND licence which the parties could not agree, but that does not involve any difference in principle from the approach of courts in other jurisdictions. Otherwise his approach is consistent with several judgments in other jurisdictions, which, as this is a developing area of jurisprudence, we now examine briefly. The principles stated in those judgments contemplate that, in an appropriate case, the courts in the relevant jurisdictions would determine the terms of a global FRAND licence.
“Thus, at the conclusion of this matter, the court will have determined (1) whether Microsoft is entitled to a worldwide RAND license for Motorola’s standard essential patents, including the European Patents, (2) whether Microsoft has repudiated its rights to such a license, (3) whether Motorola may seek injunctive relief against Microsoft with respect to its standard essential patents, and (4) in the event Microsoft is entitled to such a license, what the RAND terms are for such a license.”
He found that the US action was dispositive of whether a German court might issue an injunction against Microsoft. He also observed that his injunction did not prohibit the pursuit of the German proceedings in so far as Motorola sought rulings on the validity or infringement of the German patents and non-injunctive relief.
“When that contract is enforced by a US court, the US court is not enforcing German patent law but, rather, the private law of the contract between the parties. Although patents themselves are not extraterritorial, there is no reason a party may not freely agree to reservations or limitations on rights that it would have under foreign patent law (or any other rights that it may have under foreign law) in a contract enforceable in US courts.”
She went on to observe (p 12) that an anti-suit injunction was less likely to threaten comity in the context of a private contractual dispute than in a dispute involving public international law or government litigants.
72. The dispute then returned to Judge Robart. The Court of Appeal discussed this decision (Microsoft Corpn v Motorola Inc. Case C10-1823JLR, 2013 US Dist LEXIS 60233) in para 69 of its judgment in the Unwired
case. As the parties remained in disagreement as to the meaning of RAND, and that dispute needed to be resolved in order to ascertain whether Motorola was in breach of its obligation to license its patents on RAND terms, Judge Robart held a trial to determine a RAND licensing rate and a RAND royalty range for Motorola’s worldwide portfolio of patents. In his judgment he used evidence of real-world negotiations in simulating the hypothetical negotiation to determine the rate and range. Mr Howard seeks to distinguish this case on the basis that Microsoft had consented to the court’s determination of the RAND terms. We do not consider that to be a material distinction as Huawei has sought the determination of a FRAND licence and because, in any event, the operation of the ETSI regime requires the SEP owner to offer a FRAND licence and the implementer to decline it as preconditions of the grant of an injunction.
“It does not matter that the offer calls for a worldwide portfolio license and was addressed to the parent company as contract partner and not to the Defendant itself. The [CJEU] relies essentially on the customary practices current in the particular industry. In the view of the chamber, it is the aim of the behavior program set forth by the [CJEU] to lead the parties to license agreements which are otherwise also customary in the particular business area. Evidently it was not the intent of the [CJEU] to artificially bring about licence contracts stipulated for individual countries or even separate licence contracts for each individual SEP used when this does not comport with the business practices of the particular business area. Such a market intervention ignoring the market realities was not the purpose of the [CJEU]. In the experience of the chamber, it corresponds to the usual practices in the area of worldwide applicable standards to make license contracts for SEPs in the case of a patent user active in many affected countries with patent protection not individually for each country with the group company of the patent user there for each individual patent, but instead to stipulate worldwide portfolio licences with the group parent, which the individual national group companies can then also utilize.”
This judgment is clearly consistent with and supports Birss J’s approach both of looking to industry practice when determining the geographical scope of a FRAND licence and of granting an injunction against infringement of a national patent if the implementer is not prepared to accept or delays in accepting the offer of a FRAND licence.
79. Before leaving Germany, we record that we were referred to the recent case of Huawei Technologies Co Ltd v Unwired
Planet
International Ltd 4b 0 49/14 G, a judgment of the Higher Regional Court of Düsseldorf concerning the disclosure of information relevant to financial remedies. We are satisfied that the judgment has no bearing on the issue of jurisdiction which we are considering.
89. Fourthly, Huawei points to the increasing involvement of Patent Assertion Entities (“PAEs”) in the SEP licensing market and in litigation. Such entities accumulate portfolios of patents from patent owners which were or are globally active mobile phone companies, as Unwired
has done from Ericsson and Conversant from Nokia, and derive income from licensing them to implementers, if necessary after pursuing expensive legal actions. Huawei expresses concern that PAEs may abuse the power which ownership of SEPs gives. The EC in its Communication which we mentioned in para 83 above noted the increased involvement of PAEs in European litigation and the potential for harmful effects from the behaviour of certain PAEs. In the US Supreme Court, Justice Kennedy in a concurring judgment in eBay Inc v Mercexchange 547 US 388 (2006) has also expressed concerns about the risk that PAEs which do not produce and sell goods may use injunctions as a bargaining tool to charge exorbitant royalties. We are alive to that risk. In our view, however, the rights which PAEs acquire through the transfer by assignment of patents are the same as those which the assignor patent owners had held: assignatus utitur iure auctoris - that which is assigned possesses for its use the rights of the assignor or cedent. In some cases, the assignment of rights to a PAE and the reservation of a share of the royalties which it negotiates or obtains through litigation may be the most straightforward means by which a SEP owner can obtain value from its intellectual property which is the fruit of its research and innovation, and if the rights are treated as qualified in the hands of the PAE the consequence will be that the SEP owner will not receive the reward which its investment merits. In the exercise of those rights in pursuit of a FRAND licence the assignee PAE, like the assignor patent owner, must act fairly and reasonably as FRAND is an obligation which governs the process of negotiation as well as the outcome of the determination of a FRAND licence. There is no legal basis under the general law for treating PAE owners of SEPs differently from other SEP owners unless they have different interests which merit different remedies. In so far as the risk of the grant of injunctions may be necessary to achieve the balance which the IPR Policy promotes, it is not evident that a PAE should necessarily be treated differently from a SEP owner which manufactures and sells telecommunications equipment. SEP owners have an interest in making sure that the ETSI regime is enforced. In any event the point does not go to the question of jurisdiction.
Issue 2: Forum non conveniens
94. Leaving aside questions as to the burden of proof, at common law the forum conveniens doctrine requires the English court to decide whether its jurisdiction or that of the suggested foreign court is the more suitable as a forum for the determination of the dispute between the parties. The traditional way in which this question has been framed speaks of the “forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice” (per Lord Collins JSC in Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7; [2012] 1 WLR 1804, para 88, adopting the language of Lord Goff in Spiliada Maritime Corpn v Cansulex Ltd (“The Spiliada”) [1987] AC 460). The requirement in complex litigation to define, at the outset, what is “the case” to be tried runs the risk that the court will by choosing a particular definition prejudge the outcome of the forum conveniens analysis, as the Court of Appeal decided had occurred at first instance in In re Harrods (Buenos Aires) Ltd [1992] Ch 72. Harman J had characterised “the case” as a petition under the English Companies Act for relief for unfair prejudice in the conduct of the affairs of an English registered company, which made it “blindingly obvious” to him that England was the appropriate forum. But the company carried on business entirely in Argentina. The matters complained of all occurred there, where there was a parallel jurisdiction to provide relief under Argentinian legislation. So the Court of Appeal preferred Argentina as the appropriate forum. Like the Court of Appeal in the present case, we therefore prefer for present purposes to identify the dispute between the parties as the matter to be tried, lest reference to “the case” should introduce undue formalism into the analysis of a question of substance.
97. After hearing extensive expert evidence, the judge found that the Chinese courts do not, at present, have jurisdiction to determine the terms of a global FRAND licence, at least in the absence of agreement by all parties that they should do so. Even in the event of such an agreement, he described the prospect that the Chinese courts would embark on the exercise as no more than speculative. Notwithstanding the admission of fresh evidence on this issue, the Court of Appeal reached the same conclusion. In sharp contrast, we have decided, for the reasons set out above, that the English court does have such a jurisdiction, even in the absence of consent by the parties, and it has of course exercised that jurisdiction in the Unwired
case. Directions have been given in the Conversant case (subject to the outcome of this appeal) for it to be done again. Furthermore, against the speculative possibility that the Chinese courts might accept jurisdiction to settle a global FRAND licence by consent, there is the judge’s finding that Conversant had acted reasonably in refusing to give its consent, for reasons connected with the conditions which the appellants sought to impose, a conclusion which was not met with any persuasive challenge in this court.
98. We therefore agree with the judge that the forum conveniens challenge falls at this first hurdle, notwithstanding the fresh evidence introduced in the Court of Appeal. Had it not done, a number of further issues would have arisen, in particular arising from the application of the Owusu principle (Owusu v Jackson and Others ((Case C-281/02) EU:C:2005:120; [2005] QB 801 (ECJ)) to the English defendants, set against the possibility that there might be a reflective application of article 24 of the Brussels I Regulation (Regulation (EU) 1215/2012 of 12 December 2012), and the recent decision of this court in Lungowe v Vedanta Resources plc [2019] UKSC 20; [2019] 2 WLR 1051. But we consider that those issues, which may well arise in future if and when other countries decide to exercise jurisdiction to settle global licences, would best be determined in a context when they might be decisive.
99. We therefore turn to case management. The English courts have wide case management powers, and they include the power to impose a temporary stay on proceedings where to do so would serve the Overriding Objective: see CPR 1.2(a) and 3.1(2)(f). For example a temporary stay is frequently imposed (and even more frequently ordered by consent) in order to give the parties breathing space to attempt to settle the proceedings or narrow the issues by mediation or some other form of alternative dispute resolution. A temporary stay may be ordered where there are parallel proceedings in another jurisdiction, raising similar or related issues between the same or related parties, where the earlier resolution of those issues in the foreign proceedings would better serve the interests of justice than by allowing the English proceedings to continue without a temporary stay: see Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173. But this would be justified only in rare or compelling circumstances: see per Lord Bingham MR at pp 185-186, and Klöckner Holdings GmbH v Klöckner Beteiligungs GmbH [2005] EWHC 1453 (Comm).
Issue 3: FRAND and non-discrimination
105. Huawei submits that a further error in the judgment of Birss J at first instance and in the judgment of the Court of Appeal in the Unwired
case relates to the non-discrimination limb of
Unwired’s
FRAND undertaking. This was dealt with under Ground 2 in the judgment of the Court of Appeal (paras 130-210). Huawei relies on the Samsung licence entered into by
Unwired
on 28 July 2016 (“the Samsung licence”) as a relevant comparator for the purpose of working out the FRAND licence terms which should have been offered to Huawei by
Unwired.
The worldwide royalty rate under the Samsung licence was much lower, and hence much more favourable to the licensee, than the worldwide royalty rate which the judge found was required to be on offer to Huawei pursuant to
Unwired’s
FRAND undertaking. Huawei submits that the judge should have held that
Unwired’s
FRAND undertaking meant that
Unwired
should have offered Huawei a worldwide royalty rate which was as favourable as that agreed with Samsung.
106. Huawei’s case is that the non-discrimination limb of the undertaking must be given its ordinary and unadorned meaning, which is that like situations must be treated alike and different situations differently. The non-discrimination limb of the undertaking means that the SEP owner must grant the same or similar terms to all similarly situated licensees, unless it can be shown that there are objective grounds for treating them differently. Huawei says that this corresponds with the usual meaning given to obligations not to discriminate in other contexts. Birss J used the term “hard-edged” in relation to the non-discrimination obligation to describe the interpretation contended for by Huawei. The practical effect of Huawei’s submission is that the non-discrimination obligation means that a SEP owner is required to grant licence terms equivalent to the most favourable licence terms to all similarly situated licensees.
107. Before the judge, Unwired
deployed three lines of defence to this part of Huawei’s case. First, it argued that the Samsung licence was not an equivalent or comparable transaction such as could engage the non-discrimination obligation. Secondly, if that was wrong, it said that the non-discrimination element in the FRAND undertaking did not involve a distinct “hard-edged” discrimination obligation as submitted by Huawei. Instead,
Unwired
said that the non-discrimination element is to be read as part of a single, unitary obligation to license on terms which are “fair, reasonable and non-discriminatory”. To comply with that obligation, a licensor has to offer a royalty rate set by reference to the true value of the SEPs being licensed; that is, a standard fair market royalty rate available to market participants for use of the SEPs. A rate set in this way, which is available to all licensees without discriminating between them by reference to their individual characteristics, does not cease to be FRAND because the SEP owner has previously granted a licence on more favourable terms. The judge referred to the obligation interpreted in this way as a “general” non-discrimination obligation. Thirdly, if the non-discrimination obligation was engaged and if the “general” non-discrimination interpretation were rejected,
Unwired
argued that the mere existence of differential royalty rates is not sufficient to amount to a breach of the obligation. There is an additional element: Huawei had to demonstrate that the difference is such as to cause a distortion of competition, which it had failed to do. For this submission,
Unwired
said that the non-discrimination part of the FRAND undertaking was to be construed by analogy with the obligation of non-discrimination as found in EU competition law in article 102(c) of the TFEU.
108. Birss J rejected the first argument. On the facts, he found that there were specific economic circumstances applicable in relation to the negotiation of the Samsung licence which meant that the royalty rates in it were not a good comparator or basis for assessment of the uniform market royalty rate required under the FRAND obligation. The Samsung licence was granted by Unwired
after it had been acquired by PanOptis. At that time,
Unwired
was in a distressed financial position and Samsung was able to take advantage of this in driving down the royalty rates under the licence. Also, PanOptis had a wider commercial interest in building trust with Samsung to develop a strategic relationship with it so as to encourage it to enter into other transactions, and again this gave special bargaining power to Samsung in the circumstances in which the Samsung licence royalty rates were negotiated. This aspect of the judge’s findings was not challenged in the Court of Appeal (paras 137-146) and is not in issue on this appeal.
109. However, Birss J held that these features of the circumstances in which the Samsung licence was negotiated did not support Unwired’s
argument that the non-discrimination obligation owed to Huawei was not engaged in relation to the Samsung licence. He held that Huawei and Samsung were similarly situated and that the licences available to each of them were equivalent or comparable for the purposes of engagement of the non-discrimination element in the FRAND undertaking. Huawei and Samsung were in a similar position as market participants wishing to be able to make use of
Unwired’s
SEPs and the licences were directed to allowing similar forms of use of the relevant SEPs for the provision of products and services with operability around the world. That ruling was upheld by the Court of Appeal (paras 160-176). There is no appeal in relation to this aspect of the judgments below.
110. Birss J accepted Unwired’s
second argument. He held that the non-discrimination element in the FRAND undertaking was “general” in nature rather than “hard-edged”. The undertaking did not require that royalty rates in the licence on offer to Huawei should be fixed by reference to the royalty rates in the Samsung licence. On this basis, the judge found that the worldwide licence on offer to Huawei was on non-discriminatory terms. The Court of Appeal agreed (paras 177-207). This part of the judgments below is under challenge on the appeal to this court.
111. Birss J also ruled in favour of Unwired
on the basis of its third argument, should it transpire that he was wrong to hold that the non-discrimination obligation was “general” rather than “hard-edged”. Since the Court of Appeal upheld his judgment on
Unwired’s
second argument, it found it unnecessary to deal with this alternative part of his reasoning (paras 208-209). Huawei submits in this court that Birss J erred in this part of his reasoning as well.
112. This court upholds the judgment of Birss J and the Court of Appeal on the second of Unwired’s
arguments. They were right to find that the non-discrimination element in the FRAND undertaking is “general” and not “hard-edged” and that there had been no breach of it. Accordingly, the third argument does not arise.
113. The choice between regarding the non-discrimination obligation as “general” or “hard-edged” is a matter of interpretation of the FRAND undertaking in clause 6.1 of the IPR Policy. The obligation set out in that provision is that licences should be available “on fair, reasonable and non-discriminatory … terms and conditions”. In our view, the undertaking imports a single unitary obligation. Licence terms should be made available which are “fair, reasonable and non-discriminatory”, reading that phrase as a composite whole. There are not two distinct obligations, that the licence terms should be fair and reasonable and also, separately, that they should be non-discriminatory. Still less are there three distinct obligations, that the licence terms should be fair and, separately, reasonable and, separately, non-discriminatory.
114. The text of clause 6.1 lends itself naturally to being read in this unitary way. The “non-discriminatory” part of the relevant phrase gives colour to the whole and provides significant guidance as to its meaning. It provides focus and narrows down the scope for argument about what might count as “fair” or “reasonable” for these purposes in a given context. It indicates that the terms and conditions on offer should be such as are generally available as a fair market price for any market participant, to reflect the true value of the SEPs to which the licence relates and without adjustment depending on the individual characteristics of a particular market participant. Put another way, there is to be a single royalty price list available to all.
115. This interpretation of the FRAND obligation promotes the purposes of the ETSI regime in general and the IPR Policy in particular, which we have discussed in paras 4 - 14 above.
116. A powerful indication that the non-discrimination obligation is “general” rather than “hard-edged” is that ETSI had previously considered and rejected the imposition of a “most-favourable licence” clause in the undertaking. This was done in documents which were published and accessible to all market participants. To interpret the FRAND undertaking as incorporating the “hard-edged” non-discrimination obligation for which Huawei contends would have the effect of re-introducing a “most-favourable licence” term by the back door. The fact that ETSI made a public choice not to incorporate a “most-favourable licence” term into the FRAND undertaking which it eventually decided to introduce means that any reasonable person participating in the relevant market, whether as a SEP owner or as an implementer seeking to enforce the FRAND undertaking, would understand that the FRAND undertaking as eventually promulgated by ETSI did not incorporate a “hard-edged” non-discrimination obligation.
117. The background is as follows. In 1993, ETSI published its original proposed licensing regime, Appendix A of which set out the draft of the then proposed “ETSI IPR Undertaking”. The proposed undertaking to be given by a SEP owner was to grant a licence which should “be non-exclusive, on fair, reasonable and non-discriminatory terms and conditions” (the third indented subparagraph of clause 3.1 in Appendix A) and which, under the fourth indented subparagraph in clause 3.1, should:
“include a clause requiring the licensor to promptly notify a licensee of any licence granted by it to a third party for the same IPRs under comparable circumstances giving rise to terms and conditions that are clearly more favourable, in their entirety, than those granted to the licensee and allowing the licensee to require replacement of the terms and conditions of its licence, in their entirety, either with those of the third party licence, or with such other terms and conditions as the parties may agree.”
118. The 1994 and subsequent versions of the IPR Policy did not include this term. The inclusion of such a “most-favourable licence” term in the 1993 draft IPR Policy as an obligation distinct from the FRAND obligation in the previous subparagraph shows that the FRAND obligation (which was expressed in the same terms as in the later versions of the IPR Policy) was not intended to include a “most-favourable licence” term itself. Further, the deletion of the relevant “most-favourable licence” term from the undertaking in 1994 and in the later versions of the IPR Policy shows that a deliberate choice was made not to subject a SEP owner to an obligation of this kind.
119. In TCL Communication Technology Holdings Ltd v Telefonaktiebolaget LM Ericsson Case No 8:14-cv-00341-JVS-DFM (CD Cal, Nov 8, 2017), the US District Court for the Central District of California noted the deletion and regarded it as providing guidance regarding the interpretation of the FRAND obligation (pp 13-14 and 91). The Court of Appeal, in the judgment below, took the same view: para 199. We agree.
120. Ms Ford QC for Unwired
made further submissions to the Court of Appeal in support of
Unwired’s
proposed “general” non-discrimination interpretation which were repeated to us (see the Court of Appeal judgment, para 192). They have considerable force.
121. First, Unwired
submits that to interpret the non-discrimination obligation in the “general” sense for which it contends gives full effect to the non-discrimination limb of the FRAND undertaking. Non-discrimination between licensees is achieved, because the FRAND rate is objectively determined based on the value of the portfolio and it does not take into account the characteristics of individual licensees. It satisfies the obligation to treat like cases alike, because the same rate is made available to all licensees who are similarly situated in the sense that they seek the same kind of licence. We agree. This reflects our reasoning above.
122. Secondly, Unwired
submits that the non-discrimination limb of the FRAND undertaking should not be read in isolation so as to trump all other considerations; that is to say, as a separate free-standing obligation. Birss J and the Court of Appeal correctly read it as working together with the fair and reasonable limb of FRAND as part of a unitary concept. The role of the non-discrimination limb is to ensure that the fair and reasonable royalty is one which does not depend on any idiosyncratic characteristics of the licensee. Huawei's approach, by contrast, would mean that the existence of a prior licence which the judge had expressly and legitimately held did not represent useful evidence of the value of the portfolio compelled
Unwired
to license its SEPs at the same rate, and therefore receive remuneration which was less than a fair and reasonable return for its portfolio. This would be to give the non-discrimination limb an unnecessarily extreme effect. Again, we agree. The conclusion for which Huawei contends cannot be justified with reference to the intended purposes of the ETSI licensing regime and would conflict with those purposes.
“Most important of the lessons that the economics literature has clearly established is that price discrimination is not always or necessarily harmful. On the contrary, in some cases, it can increase efficiency, raise incentives to innovate by easing the recoupment of necessary upfront investments, broaden the markets served, and improve consumer welfare. This is a welcome finding, because price ‘discrimination’ is the norm within IP licensing. That is, a typical comparison of contracts for two or more firms with licenses to the same IP will generally reveal different royalty rates, terms, and conditions. As long as the patent holder negotiating these differential rates and terms has no market power, there is no need for any concern, because different prices are a natural consequence of the IP licensing process” (Anne Layne-Farrar, “Nondiscriminatory Pricing: Is Standard Setting Different?” (2010) Journal of Competition Law and Economics 1, at p 3)
126. Similar points can be made in relation to the elimination of another important set of commercial options for the owner of a SEP portfolio. If in commercial difficulties, the owner might seek to engage in a “fire sale” licensing deal at low royalty rates for a particular licensee in order to secure its (the owner’s) commercial survival. On the judge’s findings, there was an element of this in Unwired’s
grant of the Samsung licence. But if the “fire sale” royalty rate were to be taken to dictate the FRAND royalty rate for the portfolio for the rest of the participants in the market, there would be no incentive for implementers to take advantage of such an opportunity (as they would gain nothing by comparison with their competitors) and portfolio owners would be unable to utilise such means of raising funds without, in effect, permanently devaluing the portfolio. There is nothing in the ETSI scheme or the language of the FRAND undertaking to indicate that it was intended that the undertaking should have these effects.
127. For these reasons, we dismiss Huawei’s non-discrimination ground of appeal.
Issue 4: Competition law and the CJEU’s judgment in Huawei v ZTE
128. The fourth issue arises only in the Unwired
appeal. It requires consideration of the CJEU’s decision in Huawei v ZTE.
129. Huawei argues that the CJEU there laid down a series of mandatory conditions which must be complied with if a SEP owner is to obtain injunctive relief. If the SEP owner fails to comply, its claim for an injunction will be regarded as an abuse of its dominant position, contrary to article 102 TFEU. In the Court of Appeal, Huawei’s argument was that the SEP owner had to have complied before even issuing proceedings for injunctive relief (see para 231 of the Court of Appeal judgment). It is not entirely clear whether Huawei continues to pursue its argument in quite such absolute terms. Although our attention is invited to other respects in which Unwired
failed to comply with the CJEU’s conditions, Huawei’s central focus now is upon
Unwired
not having made a FRAND offer at any stage, its offers being too high to be FRAND. It is not enough, Huawei says, for a SEP owner to be willing to enter into a licence agreement on terms determined by the court; it has to make a FRAND licence offer itself. In Huawei’s submission, Birss J therefore erred in granting
Unwired
an injunction when it had not complied with the CJEU’s conditions. It should have been limited to damages.
130. Unwired
responds that Birss J and the Court of Appeal interpreted Huawei v ZTE correctly, and it presented no obstacle to the grant of an injunction.
Unwired
accepts the conclusion of the lower courts that the CJEU did lay down one mandatory condition, namely the notice/consultation requirement in para 60, which must be observed by the SEP owner, who will otherwise fall foul of article 102. But, in its submission, that is the sole mandatory condition that the CJEU laid down; the other steps set out by the court were intended only as a “safe harbour”. If they are followed, the SEP owner can commence proceedings for injunctive relief without that amounting to an abuse of its dominant position, but failure to follow them does not necessarily mean that article 102 is infringed, because it all depends on the circumstances of the particular case.
Article 102 TFEU
131. So far as material, article 102 provides:
“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.”
The decision in Huawei v ZTE
133. The CJEU commenced its consideration of the referred questions with the following observation:
“42. For the purpose of providing an answer to the referring court and in assessing the lawfulness of such an action for infringement brought by the proprietor of an SEP against an infringer with which no licensing agreement has been concluded, the Court must strike a balance between maintaining free competition - in respect of which primary law and, in particular, article 102 TFEU prohibit abuses of a dominant position - and the requirement to safeguard that proprietor’s intellectual property rights and its right to effective judicial protection, guaranteed by article 17(2) and article 47 of the Charter respectively.”
“55. In such a situation, in order to prevent an action for a prohibitory injunction or for the recall of products from being regarded as abusive, the proprietor of an SEP must comply with conditions which seek to ensure a fair balance between the interests concerned.”
“56. In this connection, due account must be taken of the specific legal and factual circumstances in the case (see, to that effect, judgment in Post Danmark A/S v Konkurrenceradet [(C-209/10)] EU:C:2012:172; [2012] 4 CMLR 23 at para 26 and the case law cited).”
The passage from Post Danmark A/S to which reference is made is as follows:
“26. In order to determine whether a dominant undertaking has abused its dominant position by its pricing practices, it is necessary to consider all the circumstances and to examine whether those practices tend to remove or restrict the buyer’s freedom as regards choice of sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or to strengthen the dominant position by distorting competition (see, to that effect, Deutsche Telekom v Commission, para 175 and case-law cited).”
“59. …it does, none the less, justify the imposition on that proprietor of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction or for the recall of products.”
“60. Accordingly, 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.
61. Prior to such proceedings, it is thus for the proprietor of the SEP in question, first, to alert the alleged infringer of the infringement complained about by designating that SEP and specifying the way in which it has been infringed.”
“it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.”
142. In paras 68 and 69, the court clarified that:
i) in default of agreement on terms, the parties may, by common agreement, request that the amount of the royalty be determined by an independent third party without delay (para 68);
and
ii) the alleged infringer cannot be criticised for challenging, in parallel to the negotiations relating to the grant of licences, the validity and/or the essential nature of the patents, and/or their actual use, or for reserving the right to do so in the future (para 69).
“70. It is for the referring court to determine whether the above-mentioned criteria are satisfied in the present case, in so far as they are relevant, in the circumstances, for the purpose of resolving the dispute in the main proceedings.
71. It follows from all the foregoing considerations that the answer to [the questions referred] is that article 102 TFEU must be interpreted as meaning that the proprietor of an SEP, which has given an irrevocable undertaking to a standardisation body to grant a licence to third parties on FRAND terms, does not abuse its dominant position, within the meaning of article 102 TFEU, by bringing an action for infringement seeking an injunction prohibiting the infringement of its patent or seeking the recall of products for the manufacture of which that patent has been used, as long as:
- prior to bringing that action, the proprietor has, first, alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed, and, secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, presented to that infringer a specific, written offer for a licence on such terms, specifying, in particular, the royalty and the way in which it is to be calculated, and
- where the alleged infringer continues to use the patent in question, the alleged infringer has not diligently responded to that offer, in accordance with recognised commercial practices in the field and in good faith, this being a matter which must be established on the basis of objective factors and which implies, in particular, that there are no delaying tactics.”
The facts of the present case
144. Turning to the facts of the present case, between 2009 and 2012, Huawei had a licence from Ericsson which included the SEPs which were assigned to Unwired
in 2013. In 2013, there was brief discussion between
Unwired
and Huawei about the possibility of Huawei buying some of the SEPs, but Huawei did not do so. In September 2013,
Unwired
wrote to Huawei proposing discussion with a view to concluding a licence, but received no reply.
Unwired
then wrote, in November 2013, to Huawei’s IP department which replied very promptly, and there was communication between the companies. Before proceedings were begun against Huawei in March 2014, on Birss J’s findings (see particularly para 750 of his judgment), the position was as follows:
“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.”
145. In April 2014, Unwired
made the first of a number of offers of licensing terms. Huawei responded, saying that no licence was needed, but also denying that the offered terms were FRAND. Birss J found (para 706) that Huawei never made an unqualified commitment to enter into a FRAND licence, its stance having always been that it was willing to enter into what it contended was a FRAND licence. Until shortly before the trial in front of Birss J, its contention was that only a patent by patent licence for any patent found valid and infringed would be FRAND, and from 11 October 2016, this was replaced by the contention that a FRAND licence meant a UK portfolio licence. Birss J contrasted this with
Unwired’s
stance (para 709). Whereas Huawei had only been prepared to take a licence with a particular scope,
Unwired’s
case in the High Court involved trying to insist on a worldwide licence, but its approach took account of the possibility that it might not be entitled to demand that. The position it took was that if the court decided that it was not entitled to insist on a global licence, it would accept that there be a UK portfolio licence at a rate and on terms set by the court (Birss J, para 23(i)).
The decisions of Birss J and the Court of Appeal
146. Birss J did not accept Huawei’s argument that it had a defence to the injunction claim because the proceedings were commenced before FRAND terms were offered to it by Unwired.
He interpreted the CJEU as saying that it would necessarily be abusive for the SEP owner to bring an action without some kind of prior notice to the alleged infringer, but otherwise he saw the CJEU’s scheme as setting out a “standard of behaviour against which both parties’ behaviour can be measured to decide in all the circumstances if an abuse has taken place”, rather than imposing mandatory requirements which had to be complied with in all cases (para 744 (iv) and (v)).
147. Measuring the parties’ behaviour against the standard, Birss J was satisfied that the commencement of the action, including the claim for an injunction, was not an abuse of Unwired’s
dominant position (para 755). It can be seen from the extract from para 750 which is quoted above that he considered that Huawei had sufficient notice prior to the commencement of proceedings, that it was clear that issuing the proceedings did not represent a refusal to license, and that Huawei knew that
Unwired
wanted to license it. The issue of the proceedings did not prevent the parties from negotiating (para 752).
Unwired
provided key terms of its offer to Huawei a few weeks after commencing proceedings (para 753), but Huawei never made an unqualified offer to accept whatever were FRAND terms (para 754).
148. The Court of Appeal agreed with Birss J’s interpretation of the CJEU’s judgment, which it considered “entirely correct”, and it saw no reason to interfere with his conclusion that Unwired
had not behaved abusively.
Discussion
153. Unwired
submits that the language used by the CJEU is language intended to signpost a safe harbour for the SEP owner. We agree that this does lend a degree of support to
Unwired’s
argument. In particular, in contrast to the absolute language of para 60, in para 71, the court speaks of the SEP owner not abusing its dominant position “as long as” it follows the steps laid out. This does not tell us that if the SEP owner does not follow the steps, it will be abusing its dominant position. To answer that, due account has to be taken of the particular circumstances of the case, although, of course, it is likely to be valuable to compare what occurred with the pattern set out by the CJEU.
154. By way of further reinforcement for its contention that the CJEU was providing guidance only, Unwired
points to the unfairness that would arise, in a case (such as the present one) which began before the CJEU gave judgment in Huawei v ZTE, if the application for injunctive relief were to be condemned as abusive by virtue of a failure to comply with conditions which had not yet been spelled out when the proceedings were commenced, but which, once spelled out, operated ex tunc. The fact that any rigid and prescriptive rules laid down by the CJEU would necessarily operate in this way makes it unlikely, says
Unwired,
that the CJEU was actually seeking to lay down a mandatory protocol. Had the CJEU’s judgment been in terms clearly intended to lay down universal, immutable, conditions, this point would not have been sufficient to displace that interpretation of it, but, in our view, given that the judgment is not in such terms, the point does perhaps provide a degree of further confirmation that all the circumstances of the case must be taken into account before concluding that article 102 has been infringed.
“[s]uch relief aims to protect SEP holders against infringers unwilling to conclude a licence on FRAND terms. At the same time, safeguards are needed against the risk that good- faith technology users threatened with an injunction accept licensing terms that are not FRAND, or in the worst case, are unable to market their products (hold-ups).”
“In its Huawei judgment, the CJEU established obligations applying to both sides of a SEP-licensing agreement, when assessing whether the holder of a SEP can seek an injunction against a potential licensee without being in breach of Article 102 TFEU. SEP holders may not seek injunctions against users willing to enter into a licence on FRAND terms, and the CJEU established behavioural criteria to assess when a potential licensee can be considered willing to enter into such a licence.”
158. Given that we share Birss J’s interpretation of the CJEU’s judgment, we see no reason to interfere with his assessment that Unwired
had not behaved abusively. He found that sufficient notice was given to Huawei before the injunction application was made. He properly evaluated the course of the negotiations between the parties in light of what the CJEU had said. There was no mandatory requirement that
Unwired
itself make an offer of terms which coincided with those that were ultimately determined by the court to be FRAND. Apart from the more general points that we have made earlier, in rejecting the argument that the CJEU’s scheme was mandatory, such an absolute requirement to hit the target precisely with an offer could not sit easily alongside para 68 of the CJEU’s judgment, which contemplates determination of the amount of the royalty by an independent third party. What mattered on the facts of this case was that
Unwired
had shown itself willing to license Huawei on whatever terms the court determined were FRAND, whereas Huawei, in contrast, had only been prepared to take a licence with a scope determined by it.
Issue 5: The equitable jurisdiction to award a prohibitory injunction
160. In support of that argument, Huawei refers to the discussion of awards of damages in lieu of an injunction under section 50 of the Senior Courts Act 1981 (formerly under Lord Cairns’s Act) in One Step (Support) Ltd v Morris-Garner [2018] UKSC 20; [2019] AC 649, where Lord Reed explained at paras 43-44 and 95(3) that such damages can be awarded in respect of an injury which has not yet occurred, and that they are a monetary substitute for what is lost by the withholding of injunctive relief. Reference is also made to Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, where the House of Lords decided that damages were normally a more appropriate remedy than a mandatory injunction requiring the carrying on of a business, and Lawrence v Fen Tigers Ltd [2014] UKSC 13; [2014] AC 822, where damages were considered to be a more appropriate remedy, in the circumstances of that case, than an injunction to prevent the continuation of a nuisance.
“From at least the early 19th century, courts have granted injunctive relief upon a finding of infringement in the vast majority of patent cases. This ‘long tradition of equity practice’ [Weinberger v Romero-Barcelo, 456 US 305, 320 (1982)] is not surprising, given the difficulty of protecting a right to exclude through monetary remedies that allow an infringer to use an invention against the patentee’s wishes”. (Emphasis in original)
165. This point was clearly in the mind of Birss J. He stated at para 562:
“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.”
He returned to this point at the end of his judgment, when explaining at para 793 why an injunction was appropriate:
“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.”
166. Secondly, in a case of the present kind, an award of damages is unlikely to be an adequate substitute for what would be lost by the withholding of an injunction. The critical feature of a case of this kind is that the patent is a standard technology for products which are designed to operate on a global basis. That is why standard technology is essential, and why the patent-holders whose patents are accepted as SEPs are required to give an undertaking that licences will be made available on FRAND terms. Once the patents have been accepted as SEPs, it may well be impractical for the patent-holder to bring proceedings to enforce its rights against an infringing implementer in every country where the patents have been infringed. That is because, as Huawei’s witness Mr Cheng accepted in evidence, the cost of bringing enforcement proceedings around the world, patent by patent, and country by country, would be “impossibly high”.
“It may be wholly impractical for a SEP owner to seek to negotiate a licence of its patent rights country by country, just as it may be prohibitively expensive for it to seek to enforce those rights by litigating in each country in which they subsist. This latter point was accepted by Mr Cheng in the course of his evidence: he agreed that the costs of such litigation for [Unwired] would be impossibly high … [I]t seems to us, at least as a matter of principle, that there may be circumstances in which it would not be fair and reasonable to expect a SEP owner to negotiate a licence or bring proceedings territory by territory and that in those circumstances only a global licence or at least a multi-territorial licence would be FRAND.”.
Lord Kitchin also noted at para 111 the implications of accepting Huawei’s contention that country-by-country licensing was appropriate:
“The patentee must then bring proceedings country by country to secure the payment of the royalties to which it is entitled. But unlike a normal patent action, where an unsuccessful defendant faces the prospect of an injunction, the reluctant licensee would know that, on the assumption it could only be required to take licences country by country, there would be no prospect of any effective injunctive relief being granted against it provided it agreed to pay the royalties in respect of its activities in any particular country once those activities had been found to infringe. So it would have an incentive to hold out country by country until it was compelled to pay.”
Conclusion