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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: http://www.bailii.org/ew/cases/EWHC/Patents/2017/2988.html Cite as: [2017] RPC 19, [2018] 4 CMLR 17, [2017] EWHC 2988 (Pat) |
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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
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Between :
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Claimant |
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- and - |
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(1) Huawei Technologies Co. Ltd (2) Huawei Technologies (UK) Co. Ltd - and- |
Defendants |
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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 |
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FRAND |
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The applicable principles |
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(i) What is FRAND and what principles apply to it |
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(ii) The history and purpose of FRAND |
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(iii) Enforceability of the ETSI FRAND undertaking and French law |
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(iv) Can there be more than one set of FRAND terms? |
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(v) Can the court set a FRAND rate or other FRAND terms? |
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(vi) How to assess what is FRAND |
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(vii) A hard-edged non-discrimination aspect of FRAND |
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(viii) Concepts used to derive a FRAND rate with telecoms standards |
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FRAND on the facts of this case |
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(i) Relevant SEPs – shares and ratios |
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(ii) The parties’ rival submissions on royalty rates |
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(iii) The MNPA and HPA techniques |
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(iv)
Findings about the strength of |
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(v) The comparables in this case |
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c. Ericsson - Huawei 2016 |
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d. Ericsson - Samsung 2014 |
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e. Ericsson - Huawei 2009 |
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f-m. other licences |
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(vi) Other indications relating to rates |
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(vii)
What is the benchmark FRAND rate for ![]() |
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(viii) Impact of hard-edged non-discrimination on the FRAND rate |
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(ix) Rates - conclusions |
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(x) The other disputed terms |
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a. What licence scope is FRAND – UK or worldwide? |
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b. Should the court settle the FRAND rates in a worldwide licence |
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c. FRAND rates in a worldwide licence |
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d. Other terms in a worldwide licence |
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e. The terms of a UK only portfolio licence |
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COMPETITION LAW |
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(i) Dominant position |
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(ii) Abuse of dominance |
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a. Premature litigation: Huawei v ZTE |
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b. Unfair excessive pricing |
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c. Bundling/ tying-in SEPs and non-SEPs |
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REMEDIES |
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(i) Should an injunction be granted |
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(ii) Damages |
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(iii) Declarations |
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Summary of conclusions |
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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.
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.
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..
10.
In the summer of 2016 Samsung settled with Unwired
Planet
and Ericsson.
As a result of the settlement, proceedings against Samsung ended and, with the
court’s leave, Samsung’s competition law counterclaim was discontinued. This included
discontinuance against the ninth party. Huawei, also with leave, then
discontinued significant parts of their counterclaim, including all their
counterclaims against Ericsson and the ninth and tenth parties. Pursuant to
the settlement, certain terms in the MSA, which Samsung and Huawei had
contended were anti-competitive, were removed. An important term which was
removed from the MSA was a provision which at least arguably put a floor on the
royalty rate which
Unwired
Planet
could offer. This rate is called the
Applicable Royalty Rate or ARR. As a result, the scope of the non-technical
trial narrowed considerably and the case was rescheduled to be dealt with in
seven weeks of elapsed time.
11.
On 1st August 2016 each side made new offers. Unwired
Planet’s
offers were on the same terms as before but with lower rates.
Unwired
Planet
obviously felt able to offer lower rates at that stage at least in part because
the royalty floor provisions in the MSA had been removed. The global SEP
portfolio rate for 4G/LTE in this offer was 0.13%. The corresponding rates for
GSM /UMTS were 0.065%.
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%.
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%.
15.
The August 2016 Unwired
Planet
proposals and October 2016 Huawei
proposals represent the parties’ positions going into the trial, subject to a
point referred to in this judgment as “hard-edged non-discrimination” arising
from the settlement with Samsung.
16.
By the opening neither side had actually set out complete terms of a
licence they were prepared to enter into. Up to trial each side’s licensing
proposals had been made in outline terms rather than based on a fully worked
out licence. That was sensible up to a point since the parties took the view that
they were so far apart on the main terms that spending time on the details was
not worthwhile. Nevertheless in order to try to ensure that all matters are
resolved in one go, I directed the parties to engage and exchange full terms so
as to identify areas of dispute before closing. The parties did engage on the
terms of a UK portfolio licence but Huawei did not engage on Unwired
Planet’s
proposed terms of a global licence.
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.
21.
Huawei contended that the procedural position which had been reached
meant that as a matter of principle a UK SEP portfolio licence was the
inevitable and mandatory outcome. This necessarily also meant that an
injunction would never be granted even if, contrary to Huawei’s case, Unwired
Planet
were entitled to seek an injunction and Huawei had no defence to an
injunction under competition law. That was because the court was going to
settle a UK portfolio licence.
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.
24.
It is convenient to divide the issues I have to decide into three broad
topics. The first is FRAND. This involves working out what FRAND is and the
principles which apply to it. Then I need to resolve what royalty rates are
FRAND in order to determine whether any of Unwired
Planet’s
offers were FRAND
and if not, what would be FRAND? After that I need to resolve arguments about
any other disputed terms in a FRAND licence. This first broad task represents
the bulk of the work. The second broad topic is competition law, resolving
Huawei’s case that
Unwired
Planet
have abused their dominant position. Finally
there are remedies – injunction, damages and declarations.
Confidentiality
25.
One of the challenges in trying this case was confidentiality. The
arguments, evidence and disclosure documents included a large amount of
material in which confidentiality was claimed. Some of the claims were from
parties or companies who had been parties (Ericsson and Samsung) but some of
the confidential material was confidential to third parties such as licensees.
The legal representatives of all parties were privy to all the material but
some aspects, e.g. material relating to Samsung or Ericsson, was maintained as
confidential from Huawei or Unwired
Planet
staff. Attempting to determine the
confidential status of material during the hearing would have been impossible,
so the trial was conducted accepting many of the claims to confidence for the time
being. While wide claims to confidentiality had been made before trial, they
were reduced considerably at and during the hearing. Thus much of the trial
took place in public. Once judgment has been handed down there will be a final
determination concerning confidential status.
26.
I made it clear that I wished to hold as much of case in public as
possible. During the hearing there were occasional slips and parties who
claimed their confidentiality had been breached wrote to the representatives.
From my perspective the solicitors and counsel for all parties before me did an
excellent job in tricky circumstances to conduct an open trial and pay due
respect to claims to confidentiality. This judgment includes material about
which some claims to confidence are maintained. I indicated that when the
confidential draft judgment was distributed to the parties (Unwired
Planet
and
Huawei) I was prepared to include the lawyers for Samsung and Ericsson. The
lawyers for Samsung and Ericsson would not be entitled to discuss the draft
with their clients but they would be able to make submissions about
confidentiality. A public judgment, or public version of the judgment, could
then be produced.
[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.
28.
Mr Saru has been Unwired
Planet's
Vice President of Standards of
Licensing since early 2013, and has been the Managing Director since February 2014.
He joined
Unwired
Planet
shortly before the MSA with Ericsson closed, and he
was responsible for making the necessary declarations to ETSI. His evidence
related to the licence negotiations between
Unwired
Planet
and Huawei,
including
Unwired
Planet's
approach to determining what was FRAND, and
specifically the MNPA (see below).
29.
Mr Robbins was, until 1 July 2015, Executive Vice President and General
Manager of the Intellectual Property Division of Unwired
Planet.
His evidence
related to the relationship between
Unwired
Planet
and Ericsson, including the
MSA, and
Unwired
Planet's
approach to FRAND and the offers it made in 2014, and
the Lenovo licence.
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.
31.
Unwired
Planet
also served Civil Evidence Act Notices in respect of: (i)
a recording of the “
Unwired
Planet
Management Webcast and Conference Call” on 6
April 2016 and a copy of an accompanying presentation entitled “
Unwired
Planet
Corporate Transformation”; (ii) a Schedule 14A Form filed by
Unwired
Planet
with the United States Securities and Exchange Commission on 20 April 2016;
(iii) witness statements from Boris Teksler,
Unwired
Planet’s
former Chief
Executive Officer; (iv) witness statements from Gustav Brismark, Head of Region
IPR and Licensing at Ericsson; and (v) three ETSI FAQs dated 22 December 2008,
10 July 2014 and 26 March 2015.
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.
34.
Mr Zhang is the deputy director of Huawei's IP litigation department and
has day-to-day conduct of this action. He gave his evidence in English with
the interpreter standing by to help if need be. His evidence related to Huawei's
conduct in the dispute, including the pre-action correspondence between Huawei
and Unwired
Planet
and Huawei's level of sophistication in conducting
litigation, and the geographical extent of Huawei's activities.
36.
All six of Mr Saru, Mr Robbins and Mr Ware for Unwired
Planet
and Mr
Cheng, Mr Zhang and Mr Yang for Huawei were good witnesses.
Unwired
Planet
suggested that Mr Zhang did his best to defend Huawei’s conduct but at times
was somewhat argumentative when answering the questions. That is not a useful
observation because in my judgment the equivalent point could be said of all
fact witnesses, including Mr Saru, Mr Robbins and Mr Ware. None of the fact
witnesses called by either party was neutral but in my judgment all of them
tried to explain their position as fairly as they could. If it is necessary I
will deal with any detailed point or criticism about something a witness said
in context.
38.
There were further witness statements in the trial bundles from a number
of witnesses. The statements were from Jay Shim and Tae Hyung Kim for Samsung;
Christina Petersson, Andreas Iwerback, Jon Lawrence and John Han for Ericsson.
Unwired
Planet
also had statements from Annabel Thomas, Timothy Ellis, Andrew
Wynn, and Andrew Sharples.
39.
The expert witnesses called by Unwired
Planet
were Dr David Cooper, Mr
Mark Bezant and Dr Gunnar Niels.
41.
From 1994 to 1998, Dr Cooper was employed by NEC, during which time he
represented the company within ETSI in the development of the GSM and UMTS
Standards. In 1998 he was appointed the Vice-Chairman of the 3GPP standards
committee SA1, which was responsible for the definition of UMTS services. From
1999 to 2008, Dr Cooper worked for Panasonic, representing them in the context
of standardisation at 3GPP. In 2001 he earned his PhD in electronics and engineering
at Surrey University. Since 2008, Dr Cooper has been a consultant at
Hillebrand Consulting Engineers GmbH and has been retained as an expert witness
on multiple occasions. He appeared for Unwired
Planet
before me in Trial A.
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.
45.
All three experts called by Unwired
Planet
were good witnesses, trying
to help the court. Huawei did not criticise these witnesses but they did point
out a very odd aspect of Mr Bezant’s evidence. In cross-examination Mr Bezant
repeatedly stated that he was not attempting to value the
Unwired
Planet
portfolio but only seeking to express a view on whether
Unwired
Planet’s
various offers were or were not FRAND. One aspect of this made sense in that
Mr Bezant was presenting a range of licence rates with a view to explaining
simply that a given rate fell within the range. Huawei sought to suggest that
this had something to do with the procedural argument about global rate setting
and suggested that in that sense Mr Bezant was the same as Mr Lasinski
(Huawei’s expert) in that he too was only concerned with what Huawei called
“the binary question of whether
Unwired
Planet’s
offers were or were not
FRAND?”. However, I do not accept these suggestions. The point is just as odd
in the context of setting a UK only rate as setting a global rate and Huawei
positively asked the court to set a UK only rate. In the end whatever Mr
Bezant’s purpose, or for that matter Mr Lasinski’s, they both gave evidence
which is relevant to the question of the value of the
Unwired
Planet
portfolio. I suspect that what was really going on was that Mr Bezant was
purporting to avoid answering the question of what in his opinion would be the
correct FRAND rate for
Unwired
Planet.
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.
49.
Mr Lasinski is a Managing Director and the Chief Executive Officer of
284 Partners LLC, a professional services firm focussed on IP valuation,
litigation consulting, IP strategy and IP transactional services. He holds a
BSc in Electrical Engineering and an MBA from the University of Michigan, is a
Certified Public accountant licensed in the state of Illinois, is certified in
Financial Forensics by the American Institute of Certified Public Accountants
and is a Certified Licensing Professional originated by the Licensing
Executives Society (United States and Canada) (LES), one of North America's
largest IP licensing trade organisations. His consulting practice has focussed
on the financial aspects of IP since 1995. He is a past president of LES. He
has acted as an expert witness in tax proceedings in the US and in
international arbitrations, and provided IP valuations for taxpayers and the
IRS. His evidence related to whether certain of Unwired
Planet's
licence offers
were fair and reasonable, in particular by reference to various comparable
licences.
51.
Unwired
Planet
rightly made no criticism of Prof Neven, who was a good
witness. They suggested his evidence was rather theoretical. There is
something in that but it applies to Dr Niels too, albeit with less force.
Unwired
Planet
did criticise Dr Kakaes and Mr Lasinski. The criticisms of Dr
Kakaes and some of the criticism of Mr Lasinski relate to the Ericsson-Huawei
arbitration and are best addressed in that context.
52.
Unwired
Planet
also submitted that Mr Lasinski seriously lacked
objectivity, stepped outside the ambit of his expertise and was prepared to
speculate and did not approach the joint experts’ statement appropriately.
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.
54.
Five points were relied on to illustrate the submission that Mr Lasinski
exceeded the ambit of his expertise and speculated. They are: that he passed
judgment on whether terms in the Lenovo agreement were purely cosmetic; that he
ignored Mr Ware’s evidence about the Unwired
Planet-Samsung
licence; that he
decided for himself to accept or reject certain evidence about a commitment
(thin modem) in the Ericsson-Samsung 2014 licence; that he was not an expert on
the technical issues underpinning the two rival portfolio comparison
methodologies but decided for himself to use the HPA but not the MNPA; and that
he was prepared to express the view that there had been hold-up leading to a
licence but never addressed hold-out.
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.
57.
The parties exchanged evidence of French law from Prof Fauvarque-Cosson
for Unwired
Planet
and Prof Libchaber for Huawei. Prof Fauvarque-Cosson has
been a Professor of Law at the Université Panthéon-Assas (Paris II) since 2002,
while Prof Libchaber has been a Professor of Law at the Paris I University
(Panthéon-Sorbonne) since 2001. Neither witness was cross-examined and neither
side challenged the qualifications of these witnesses to cover the matters they
addressed in their reports.
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.
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
68.
Unwired
Planet’s
contacts with Samsung started in October 2012. Under
the cover of a Non-Disclosure Agreement (NDA) claim charts were provided on
17th December 2012 along with some other information about litigation brought
by
Unwired
Planet
against Apple and Google in Nevada USA. The first meeting
took place in May 2013 and a second meeting took place between
Unwired
Planet
and Samsung in August 2013.
Unwired
Planet’s
position is that since the start
in October 2012, Samsung were holding out.
69.
By August 2013, according to Mr Robbins, Unwired
Planet
had contacted 27
manufacturers and was in “active conversations” with 14, whilst the remaining
13 had “refused to engage with us at all”. In oral evidence, Mr Robbins stated
that there was not “much market interest in even discussing rates” and that he
had hardly managed to “speak about economics with anybody”, it being “largely
technology discussions”. Before me
Unwired
Planet
contend that this shows that
the licensees in general were holding out. Huawei contend that in fact the
rates
Unwired
Planet
were demanding were just too high. There is evidence that
[…] were prepared to at least contemplate deals at […] per LTE
unit rather than the $1 being proposed by
Unwired
Planet.
There was a debate
about how much the ARR played a part here. Mr Robbins downplayed its
significance but in my judgment from the beginning the ARR was an important
factor driving
Unwired
Planet’s
strategy.
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.
72.
On 13th September 2013, Mr Saru wrote letters to Mr Guo Ping and Mr Ren Zhenfei,
who are two Board members of Huawei, the latter being the founder and CEO,
suggesting that the two companies should “sit down and have an extended
discussion” at some point in October 2013 with a view ultimately to concluding
a licence. No reply was received to these letters. Huawei justified this on
the basis that the letters were not copied to Huawei’s IP or Licensing
departments. Mr Zhang explained that they were not brought to the attention of
those departments. No chasing letters were sent by Unwired
Planet
until 25th
November 2013 (see below).
October 2013
73.
By October 2013 further meetings with Samsung had taken place. Mr
Robbins said he feared that Samsung had no intention of ever engaging in
sensible commercial negotiations. By now Unwired
Planet
were concluding that
the underlying thesis, that the strength and depth of the portfolio would be so
compelling that licensing deals could be reach without litigation in many
cases, was wrong. On 23rd October 2013,
Unwired
Planet’s
CEO told Ericsson
that “…we are having to initiate new litigation due to lack of any licensing
happening”.
November 2013 - further contact with Huawei
74.
On 25th November 2013 Unwired
Planet
contacted Huawei’s IP department.
Huawei responded very promptly. There was a brief delay during December 2013.
On 13th January 2014 Huawei asked
Unwired
Planet
for claim charts. On 16th
January 2014,
Unwired
Planet
agreed to produce charts under an NDA and included
draft terms. On 29 January 2014 Huawei proposed different NDA terms. On the
same day,
Unwired
Planet
replied stating “thank you for your message. We will
consider this”. Mr Saru passed Huawei’s draft NDA to “our contract lawyer” for
consideration. There was no further contact until 10th March when
the litigation started.
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
76.
In order to facilitate litigation arrangements had to be made which
required Ericsson’s consent. This was embodied in an agreement dated 27th
February 2014. On 5th March 2014, the Board of Unwired
Planet
approved the
European 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.
81.
The litigation continued with various case management and strike out
hearings in 2014/2015. In June 2015, following directions from the court, the
parties made open offers. In February 2016 Unwired
Planet
and Huawei exchanged
open correspondence concerning their lack of progress in concluding a FRAND
licence. Each accused the other of the blame for the lack of progress.
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.
“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.”
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.
(ii) The history and purpose of FRAND
“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.
(iii) Enforceability of the ETSI FRAND undertaking and French law
98.
Although it is common ground in this case that Unwired
Planet
is bound
in law to license on FRAND terms, the questions of its enforceability and the
legal basis for it are not purely academic for two reasons, first because a
correct identification of the legal basis may inform decisions about the undertaking’s
scope and effect, and second because the degree of uncertainty around its
enforceability plays a part in the argument about abuse of dominance.
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.”
102.
No doubt this clear decision is the reason why neither side actually
disputes that as a practical matter the FRAND undertaking is binding on Unwired
Planet
and enforceable by Huawei. However the opinion of Huawei’s French law
expert, Prof Libchaber, is that in French law those conclusions are not correct
and, as is said in his second report (paragraph 10 footnote 7) the Court of
Appeal did not explore the legal basis for its conclusion and French law
matters were not in issue on the appeal. Given that the French law matters
were argued before me (in writing) and for the reasons already explained, it is
necessary to address the issue.
105.
Prof Libchaber noted that paragraph 1.4 of the ETSI Guide states that
the IPR Policy defines the rights and obligations of ETSI as an Institute for
its members and states that while non-members have certain rights under the
policy they (non-members) do not have obligations. Accordingly his opinion is
that non-members of ETSI such as Unwired
Planet
are not subject to any legal
obligations arising from French contract law under the policy. At this stage
the analysis is not concerned with the effect of making a declaration to ETSI
of SEPs and the French law expert relied on by
Unwired
Planet,
Prof
Fauvarque-Cosson, did not disagree with Prof Libchaber so far.
107.
The French Civil Code referred to in the previous paragraphs is called
the “old” French Civil Code because on 1st October 2016 a new Civil
Code relating to contract law came into force in France. The new Civil Code is
not retrospective and so it is not applicable to Unwired
Planet.
Prof
Fauvarque-Cosson referred to both and expressed the view that the changes did
not make any difference to the result for any of the matters in debate although
in some cases the law was clearer under the new Civil Code. Prof Libchaber
explained that the new Civil Code did not apply to
Unwired
Planet
but he did
not identify any specific aspect in which the difference mattered. In this
section I will refer to the two codes as the old Civil Code and the new Civil
Code.
(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
“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]
(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.”
(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] ___________”
(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.”
(3) The nature of any obligation which does arise
(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.
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.
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.
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)
A single set of FRAND terms - conclusions
(v) Can the court set a FRAND rate or other FRAND terms?
(vi) How to assess what is FRAND
“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
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.
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.
“Unpacking” licences
“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.”
FRAND on the facts of this case
197.
In order to determine what the values E, R and S are in this case two
tasks need to be performed. To determine S (Unwired
Planet’s
share of the
total) and R (the relative value of
Unwired
Planet’s
portfolio to Ericsson’s)
it is necessary to count Relevant SEPs. To determine E (the rate for
Ericsson’s portfolio) it is necessary to consider the comparable licences. At
the same time the
Unwired
Planet
comparables and other evidence on rates can be
addressed.
(i) Relevant SEPs – shares and ratios
198.
An area of dispute which makes a major difference to the final royalty
rate is how to count Relevant SEPs. As I have explained, R and S are ratios
which come from dividing Unwired
Planet’s
number of Relevant SEPs by a number
for another licensor such as Ericsson or the industry as a whole.
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.
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 |
|
Handsets |
RAN infrastructure |
2G/GSM |
2 |
1 |
3G/UMTS |
1 |
2 |
4G/LTE |
6 |
7 |
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
209.
The following tables are the same as the previous ones but incorporating
the parties’ rival denominators for the industry as a whole and the resulting
fractions which are produced. These tables show the values for S, Unwired
Planet’s
share of Relevant SEPs:
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% |
|
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.
211.
Similar differences between the parties’ contentions arise when looking
at the ratio R between Unwired
Planet’s
SEPs and Ericsson. They arise for the
same reasons because each side uses the same methods to count for the industry
as a whole and for individual companies.
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% |
215.
The [A] figures for Unwired
Planet
are the numbers in the totals column
for Huawei’s case on the numerators, as before. The [B] figures for Ericsson
are the numbers of relevant SEP families in Ericsson’s portfolio before the
MSA. All the figures in the table are produced by the HPA. Huawei point out
that they produce strength ratios R which are somewhat more favourable to
Unwired
Planet
than the about 5% size ratio derived from the details of the
transfer process itself.
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%
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% |
218.
Unwired
Planet’s
rival strength ratios R are presented in a slightly
different way whereby the numbers [A] and [B] are presented as the % ratios of
either company’s Relevant SEPs to the total number of Relevant SEPs, but the
result comes to the same thing as Huawei’s strength ratio. This time the
numbers are (I think) for handsets and are pre-MSA:
|
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
222.
Applying the multimode weighting factors produces the following results
for S, that is Unwired
Planet’s
share of Relevant SEPs overall:
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% |
|
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%] |
223.
The multimode tables above also include references to Unwired
Planet’s
80:20 approach. That is addressed in the next paragraph. In the course of
writing this judgment a small point arose on the RAN infrastructure figures
shown in italics in the table above on
Unwired
Planet’s
case. Huawei’s
Databook produced in closing showed the 0.88% figure in the LTE/UMTS/GSM row
and “not given” in the row for UMTS/GSM. Although infrastructure weighting is
not important, even bearing that in mind this did not make sense and after
considering the written materials it seemed that there had been a muddle about
numbers and about LTE/UMTS/GSM and UMTS/GSM. I worked out that 1.88% would be
the number for LTE/UMTS/GSM while 0.88% was what the number for UMTS/GSM would
be. I wrote to the parties. 0.88% is the right number for UMTS/GSM. 1.88% is
what the LTE/UMTS/GSM number would be although Huawei rightly pointed out that
Unwired
Planet
had not derived it before. I will include 1.88% because it is
simple maths, there was a muddle in
Unwired
Planet’s
FRAND Statement of Case
and because it cannot prejudice Huawei.
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:
|
||||
|
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%)
225.
Applying the multimode weighting produces the following results for R,
that is Unwired
Planet’s
strength ratio to Ericsson (pre-MSA) on the same bases
as before:
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% |
|
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% |
226.
Unwired
Planet
say that the 10.50% figure for the strength ratio R
between their portfolio and Ericsson’s is the right one to use if one is going
to draw a comparison with the 5% numerical size ratio and the two are not so
far apart as to be out of line. Huawei contend the opposite, 10% is too far
from 5% to be realistic.
The numerical evidence generally and rounding
227.
Having started to set out each side’s case I will mention a problem
inherent in that and in grappling with the cases. Both via the valuation
experts and in their submissions both sides presented the court with a blizzard
of figures. The summaries in this judgment represent a small fraction of the
numbers presented. There was a somewhat larger blizzard from Unwired
Planet
than from Huawei but the difference was not significant enough to make a
difference. A frequent problem is in keeping track of the bases on which
numbers are presented so as to try and make sure one is comparing like with
like. In practice, for example, it is impossible to ensure that on every
occasion two rival figures are both based on the state of the Ericsson
portfolio (pre- or post-MSA etc.), and multimode weighted or not, as well as
many other more subtle factors.
229.
In the discussion below the terms HWLTER and UPLTER refer to the
parties’ rival values for the relative strength ratio R between Unwired
Planet
and Ericsson for 4G/LTE multimode. HWLTER is 6.75% and UPLTER is 10.50%.
(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%.
233.
Mobile devices and handsets are the same thing. Infrastructure refers
to RAN infrastructure. In argument the parties focussed on the rates for
4G/LTE multimode handsets and I will do the same. To recap, Unwired
Planet’s
case is that the FRAND rate for its global SEP portfolio for 4G/LTE is 0.13%
whereas for 2G/GSM and 3G/UMTS the rate is 0.065%.
234.
Of course a rate of 0.13% is just over triple 0.040% but all the same these
numbers demonstrate that the parties are not now so far apart as some of the
rhetoric at trial might have led one to believe. At the start the rival
benchmark rates differed by an order of magnitude (0.2% for 4G/LTE from Unwired
Planet
and 0.022% for Huawei (based on the 0.034% UK offer and stripping out a
48.51% uplift). Nevertheless the difference is still substantial when one
bears in mind that as a royalty it is to be applied to very large revenues.
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”.
238.
The rates for 4G/LTE in the chart are derived in the following way. From
the 2014 Ericsson-Samsung one starts with Mr Lasinski’s preferred rate of [X]
as representative of Ericsson’s royalty rate for 4G, in other words value E.
Then a relative strength ratio R of 6.52% is applied to produce an effective
Unwired
Planet
rate of [Y] (i.e. [Y] = [X] x 6.52%) [C13/2/3
and databook p13]. Rounded up […]. Note that the 6.52% was taken
as R based on the portfolio post-MSA, before Lenovo and using multimode
weightings but that figure had been corrected in chief to 6.70%, see a letter
from Powell Gilbert dated 18th November 2016 which also explained
the change made no difference, as indeed it does not. Mathematically the
number ends up as […] as the effective rate for
Unwired
Planet,
which is
still rounded to […]. Using the HWLTER of 6.75% makes no difference
either. Of course using the UPLTER of 10.50% produces a rate of […] rounded.
239.
Unwired
Planet
do not deny that the 2014 Ericsson-Samsung licence is one
relevant comparable but contend it should be seen as one of many. In addition,
Unwired
Planet
point out that the Ericsson rate E used by Mr Lasinski is based
on […]. Using the HWLTEM or UPLTER gives slightly different numbers but
nothing turns on the difference. They are: […] respectively
240.
The 2016 Unwired
Planet-Samsung
licence involves a […] and, like
the […], it has other complications too. One complication it does not have
is scaling by strength ratio since it is an
Unwired
Planet
licence not an
Ericsson licence. Mr Lasinski’s evidence is that making many allowances in
Unwired
Planet’s
favour to increase the effective rate […]. This, say
Huawei, indicates that […] for
Unwired
Planet
is generous.
241.
Unwired
Planet
do not agree with this. First they say that the
Unwired
Planet-Samsung
licence is not a useful comparable at all because it must be
seen in a wider context of a developing relationship between PanOptis and
Samsung. Second, they say that in truth the rates in this licence are
pitifully small, much smaller than those derived by Mr Lasinski, which is said
to be a reflection of the first point.
242.
The […] licence has an Ericsson royalty rate which […]. […]
for 4G multimode handsets. Therefore using a HWLTER of 6.75% (as for […])
produces an effective Unwired
Planet
rate of […].
243.
The key terms of the 2016 Ericsson-Huawei licence, at least the royalty
rates, were decided in an arbitration rather than being negotiated between the
parties. Unwired
Planet
say this completely undermines the utility of this
licence as a comparable. Huawei do not agree.
245.
So for 4G/LTE Huawei contend the two Ericsson comparable licences have […]
and based on Huawei’s case for the strength ratio (R = 6.70%) that gives a rate
for Unwired
Planet
of […]. Huawei contend that the 2016
Unwired
Planet-Samsung
rate is lower at […] and so is the top down case at
0.028% but all this goes to show is that […] is generous to
Unwired
Planet.
246.
There is an issue on “hard-edged” non-discrimination arising from the
2016 Unwired
Planet-Samsung
licence. If it is accepted then Huawei contend the
rates applied to them should be same ([…] for 4G) as the rates in that
licence. I will treat this as a distinct issue.
Unwired
Planet’s
case on rates
247.
Unwired
Planet’s
opening case cannot be encapsulated with a single chart
in quite the same way as Huawei’s largely because Mr Bezant produced so many
charts. The charts are best seen in colour. This is one from Bezant 6,
Appendix 2 (U/10/p1):
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]
249.
Unwired
Planet
argue that no individual comparable, particularly the
ones singled out by Huawei, can bear the weight Huawei place on it.
Unwired
Planet
also argue that this chart indicates the existence of a wide spread of
rates in practice.
250.
The key thing about some of the Ericsson licences that Unwired
Planet
rely on in addition to the licences relied on by Huawei is that […].
Three to mention first are the 2013 Ericsson-Yulong licence, the 2011
Ericsson-ZTE licence and the 2011 Ericsson-RIM licence. Further licences
relied on by
Unwired
Planet
and in the chart are Ericsson licences with:
Samsung 2001, Sony, […] and Apple.
251.
[…] This converts to an Unwired
Planet
rate of […] using
the UPLTER of 10.50%. It is represented second from the right on the chart […].
Unwired
Planet
make the point that […].
253.
The 2011 Ericsson-ZTE licence is a 2G/3G licence. Nevertheless Unwired
Planet
rely on it for 4G. It includes […]. Using the UPLTER of 10.50%
produces an
Unwired
Planet
rate of […]. Using the HWLTER of 6.75% would
give […].
255.
The 2011 Ericsson-RIM licence […]. Unwired
Planet
say the
complications can be unpacked to a rate of […] for 4G. These values of
E correspond to
Unwired
Planet’s
rates of […] using the UPLTER of
10.50%. Huawei say this licence is difficult to interpret, its date means it
predates the reduction in rates and it was concluded at a time when RIM’s sales
mix was very focussed on high-end devices in the USA and Europe.
256.
That is sufficient to understand how Unwired
Planet
put their case.
There is no need at this stage to address the other Ericsson licences in the
chart. The further evidence
Unwired
Planet
rely on can be put into four
groups: the ARR from the MSA, publicly stated rates, the 2014
Unwired
Planet-Lenovo
licence, and licences from other licensors.
257.
The term of the MSA which Unwired
Planet
rely on as a comparable is the
ARR, which is 0.15% for 4G/LTE and 0.1% for 3G/WCDMA. Huawei make the point
that this is self-serving given that Ericsson benefit from royalties paid to
Unwired
Planet.
As a tool for assessing a benchmark FRAND rate today the ARR
has no value.
258.
The public statements about rates are addressed below. In terms of top
down aggregate royalties generally, Unwired
Planet
contend that while it may be
useful as a cross-check in certain circumstances, it is based on a false
premise that manufacturers in fact pay everyone who owns any portion of the
relevant pool whereas in practice they do not. Nevertheless they also point
out that using their case for their share S of the Relevant SEPs (say 1.25%)
and applying it to a total aggregate royalty burden T of 8% or 10% produces
rates close to their preferred rate.
259.
Turning to the 2014 Unwired
Planet-Lenovo
licence, on its face it
contains a lump sum licence payment of […] and running royalties
creditable against that lump sum of […] per product in defined “Major
Markets” (the MM rate) and […] per product in other territory (the OT
rate). In percentage terms […] compares favourably with the 0.2%
demanded by
Unwired
Planet
in 2014 and maintained until July 2016. Huawei
contend that to rely on the stated rates is to ignore the true economics of
this agreement. Huawei also point out that […].
260.
The licences from other licensors which Unwired
Planet
addressed, at
least at the start of the trial (see opening p103), are licences from Qualcomm
(to Huawei (two) and Samsung), licences from InterDigital (again to Huawei and
Samsung) and two licences in which Samsung were licensee (from […] and
Nokia). To the extent they are significant they can be addressed in context.
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%.
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%.
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.
271.
Moreover the combination of Huawei’s submissions on rates and Huawei’s
submissions on what Unwired
Planet’s
share of the Relevant SEPs is, shows that
in truth Huawei’s case does not support an aggregate royalty burden of 8%. It
supports a higher total burden than that.
272.
Where Huawei undoubtedly have a point is that the cross-check shows that
if Huawei’s case on Unwired
Planet’s
share S of SEPs overall (0.30%) is right,
the benchmark rate claimed by
Unwired
Planet
of 0.13% cannot be supported. It
would imply a total burden T of 43%. That is far too much. Conversely if
Unwired
Planet
are right about their share S of SEPs overall (1.25%), a
benchmark of 0.040% implies a total burden of 3.2%. That is much less than
Huawei themselves are prepared to countenance in these proceedings.
(iii) The MNPA and HPA techniques
The MNPA technique
274.
The MNPA was devised by Unwired
Planet
as a technique to use in
licensing negotiations. It is applied to 4G/LTE and in the original method
consisted of the following steps:
(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.
275.
The Revised MNPA was produced in 2016 in response to points made in the
litigation. It differed from the original MNPA in two major respects. At step
(2) the way the standards are identified was changed in such a way as to
incorporate more standards. At step (7) a different approach entirely is taken
to what Unwired
Planet
call applying essentiality filters. In the Revised
MNPA, instead of the three percentages at step (7), a figure derived by Dr
Cooper was used based on a detailed analysis he carried out on a sample of
Samsung SEPs. The figure used is 16.6%.
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 |
|||
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 |
|
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.
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 patents processed into 18,938 families |
||||||
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
290.
Huawei level a sustained attack on Unwired
Planet’s
MNPA both internally
(i.e. relating to the method itself) and externally (i.e. the way the method
was created and by comparing the results of the MNPA to other evidence).
Huawei’s major internal criticisms are: step (2) (the limitation to certain
standards), step (4) (the US/EP filter), step (5) (the pre-2009 cut off), step
(6) (handset filter), step (7) (the essentiality % filters).
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”.
292.
In summary Huawei contended that the evidence points clearly to Unwired
Planet
having around 6% of Ericsson’s portfolio (the strength ratio). They
also submitted that the MNPA was the only method which came close to giving
Unwired
Planet
a 1.5% plus share of the industry’s Relevant SEPs and that all
the other methods gave figures of less than 0.5%; and that the figures differ
by “a long way”.
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.
294.
As an outcome, Unwired
Planet
maintain that a strength ratio of 10.50%
for LTE multimode between
Unwired
Planet
and Ericsson is not inconsistent with
the evidence nor is a percentage of about 1.5% for
Unwired
Planet’s
share of
all the Relevant SEPs. They maintain Huawei’s figures are too low.
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.
297.
Huawei are correct that the MNPA was not devised to compare Unwired
Planet’s
portfolio with other companies’ individual portfolios but the fact
that
Unwired
Planet
now seeks to use it in this way too does not matter. What
matters in that respect are detailed issues.
298.
Huawei are right to criticise Unwired
Planet
for suggesting (or aiming
to leave one with the impression) that Dr Cooper was responsible for the MNPA
or parts of it as a method. Aside from his work on the sample from the HPA, he
was not. Neither was Mr Bezant. On the other hand, apart from specifics dealt
with later such as the 10%/20% optional/mandatory point I do not recognise the
suggestion that somehow Dr Cooper or Mr Bezant thought the MNPA was so flawed
that they were “keen” to emphasise they had no hand in its creation or that,
overall, they did not seek to defend its results “with any conviction”.
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).
300.
Huawei submit that this shows that the MNPA assesses Unwired
Planet’s
portfolio
as being far stronger than the portfolios such as Ericsson (of which Huawei
contend the
Unwired
Planet
portfolio was intended to be a representative
cross-section), Nokia (which Huawei point out Mr Saru explained was “careful in
declaring”) and Qualcomm (which Mr Bezant said in his report had a “strong
portfolio”). Huawei argue that these differences are systematic, very
substantial and irreconcilable with the fact evidence or indeed any reasonable
experience of the industry.
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)
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.
309.
Unwired
Planet
do have a point in that LTE Release 8 was the first and
fundamental release of LTE however Huawei contend that this approach gives no
value for later releases and is flawed.
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.
312.
Mr Yang gave evidence on this for Huawei. He said that in technical
terms Releases 9 to 11 involve significant developments many of which have been
deployed, while in commercial terms Releases 9 to 11 are highly valuable to
Huawei. Unwired
Planet
submitted Mr Yang was a fact witness but gave opinion
evidence. So he did but Mr Yang was a good witness, generally qualified to
discuss the topics he covered, and was simply seeking to explain his companies’
point of view.
From an August 2015 paper by consultants Analysys Mason.
315.
These two graphs are best understood in colour. To be precise the second
graph distinguishes between the two LTE duplex modes: FDD – which is used e.g.
in the UK and TDD – which is mostly just in China. In any event Unwired
Planet
say this second graph shows the very slow projected adoption of LTE-A.
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.
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)
323.
The points on step (6), the handset and infrastructure filter, were
mostly concerned with unpacking and Huawei’s portfolio. There is no need to
engage with that. Unwired
Planet’s
detailed approach to handsets and
infrastructure involves an assumption that 15% of the families with no handset
claim are RAN rather than core network. Having listened to Dr Kakaes’ oral
evidence on this I find that
Unwired
Planet’s
approach was reasonable. The
MNPA figure for handsets will be a lower bound but I doubt it is all that far
from the true figure.
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%.
329.
In my judgment adopting 28% as an overall essentiality ratio for 4G
cannot be criticised. It was reasonable both when Unwired
Planet
adopted it in
2013/14 and later on.
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.
331.
The other two percentages used by Unwired
Planet
(10% optional and 20%
mandatory non-deployed) were criticised as arbitrary. The problem is not with
the concept that there are optional features to which SEPs are essential and
mandatory features in a standard which are not deployed. I have no doubt both
exist (as Dr Cooper explained), albeit it is also true that some strictly
optional parts of LTE are really important (e.g. MIMO as Dr Kakaes explained).
The problem is justifying deductions of this magnitude. Combined together
these two fractions reduce the denominator by over a quarter and therefore correspondingly
could increase
Unwired
Planet’s
royalty rate by a third (1/100 = 1%, 1/75 =
1.33%). And in my judgment the problem is made much worse given the pre-2009
cut off and a limit on the number of standards considered at step (2). Dr
Kakaes was right that there was no reliable empirical basis for either
fraction. Mr Saru’s attempt to justify them in his oral evidence referred to
his experience in a vague way and to informal calls to old friends. That was
hopeless.
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.
336.
A question was whether it was right to use a rate for Samsung as in
effect an industry average. Huawei submitted there was no empirical evidence
that a rate for Samsung was representative of the industry as a whole. The
choice was Unwired
Planet’s
rather than Dr Cooper’s. He explained that he
would not expect the rates for different companies to be identical but he could
not see an a priori reason why there should be big variations between
companies. In my judgment the evidence, as best it is, is that the rates for
different companies can differ considerably (see the table above from the HPA)
but there is no systematic reason why one company’s rate should be different
from another. In my judgment using a rate for Samsung as representative of the
industry is not illegitimate given that Samsung is a major player. I doubt
Samsung has an essentiality rate which is significantly below average. There
are significant uncertainties in all these exercises and this is another but it
does not render the technique meaningless. Choosing to use the number derived
by Dr Cooper for Samsung rather than Huawei was the conservative choice.
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.
349.
Unwired
Planet
also pointed to the protocol document exhibited by Dr
Kakaes which provided that the evaluators in which the word “substantially”
appeared in a context which expanded the scope of what would pass as
essential. The text is:
“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)
350.
These points were all put to Dr Kakaes in cross-examination. He did not
accept Unwired
Planet’s
characterisation of the effect of these passages. One
suggestion he made in cross-examination and repeated in re-examination was that
the explanation related to a detail of ETSI IPR Policy which is involved in
considering whether it is not possible on technical grounds to do otherwise. I
accept Dr Kakaes’ evidence that this detail of the IPR Policy, which would
involve proving a negative, did not form part of the assessment of essentiality
but I do not accept that it is what passages in the written evidence were
talking about.
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.
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.
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.
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.
362.
Huawei derive the HWLTER of 6.75% using the HPA on its own and so they
can fairly submit it is the result of applying the HPA consistently. However
that number is based on a numerator which gives the same number of Relevant
SEPs in Unwired
Planet’s
portfolio as Dr Cooper’s more careful analysis. I
find that Dr Cooper’s analysis is likely to be closer to the true figure.
Compared with this, raw figures from the HPA tend to be overestimates. The
impact of that will apply to the denominator. I find the true strength ratio
R should be somewhat higher than 6.75%.
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
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.
371.
The focus of the debate on the MNPA has been on 4G handsets but the
weaknesses exposed in it also apply to the numbers Unwired
Planet
contend for
in relation to infrastructure on 4G. The points made do not apply to the same
extent to
Unwired
Planet’s
case on 2G and 3G.
(iv) Findings
about the strength of Unwired
Planet’s
portfolio
372.
The strength of Unwired
Planet’s
portfolio for multimode 4G handset
licensing is represented by two numbers: S (the share of the total Relevant
SEPs) and R (the ratio of
Unwired
Planet
to Ericsson). For 4G multimode
handsets
Unwired
Planet’s
number for S is 1.25% and for R is 10.50% (the
UPLTER). These are based on the MNPA and 80:20 approach. Given my findings
the true values are lower than this. Correspondingly Huawei’s number for S is
0.30% and for R is 6.75% (the HWLTER). These are based on the HPA. Given my
findings the true values are higher than this.
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:
|
UP patents |
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% |
|
UP patents |
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:
|
||||
|
UP patents |
HPA: Ericsson patents |
Adjusted Ericsson patents |
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.
381.
So for 4G multimode handsets I have concluded that Unwired
Planet’s
share S of the total pool is 0.70% while
Unwired
Planet’s
ratio to Ericsson R
is 7.69%. In principle these numbers ought to be linked by Ericsson’s share of
Relevant SEPs but the uncertainties mean that perfect consistency is not
realistic and I will not strive to find it.
(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.
385.
The oral evidence about the Lenovo licence was given by Mr Robbins, who
had been personally involved in the negotiations on the Unwired
Planet
side.
There are also some
Unwired
Planet
documents. The import of the evidence is
fairly clear. I find that both Lenovo and
Unwired
Planet
thought it was highly
unlikely that the prepayment would be exhausted. (Mr Robbins in
cross-examination said “certainly unlikely”.) […]. Nevertheless it
does not follow from this that Lenovo did not care what the running rate was.
That is for three main reasons. First, it was not inconceivable that Lenovo’s
sales would be large enough over the term to exhaust the royalty. It was
possible that they would be that large if Lenovo enjoyed a very high rate of
growth, comparable to that of Samsung. The running royalty will determine the
rate at which the lump sum is used up. Second, […]. Third, […].
For these reasons I find that the running rate was the product of genuine
negotiation. The […] and, of course, the lump sum pre-payment itself,
meant that Lenovo’s interests were protected to a high degree in any case but I
find that Lenovo still had an interest in negotiating a lower rate. Their
interest was modest compared to the negotiation of the lump sums and other
terms, but it was tangible.
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.
389.
I conclude that the Lenovo licence is not a useful comparable from the
point of view of setting a FRAND rate today given the other evidence now
available. However its utility depends on the other evidence available and so,
from the point of view of Unwired
Planet
in 2014, who were not privy to the
terms of any licences to which they were not a party, it may bear more weight.
I will address that in context if necessary.
(b)
Unwired
Planet-Samsung
2016
390.
As part of a settlement of these proceedings and after PanOptis acquired
Unwired
Planet,
the
Unwired
Planet-Samsung
licence was entered into on 28th
July 2016. Huawei contend it is in principle the best comparable in the case
while
Unwired
Planet
contend it is a poor comparable.
391.
As Huawei put it, they rely on the licence for both the FR and ND
elements of FRAND. At this stage I will focus on the weight and significance
to be attached to this licence as evidence of the fair and reasonable value of
the Unwired
Planet
portfolio in 2016. Hard edged non-discrimination will be
dealt with later.
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.
395.
Mr Lasinski made a point relating to the similarity of rates implied by
the […] licence and the […] licence. Similarly in figure 4 of
his third report which is set out above Mr Lasinski plotted rates derived from
the Unwired
Planet-Samsung
2016 licence on the chart together with rates from
those two Ericsson licences and two other data points.
Unwired
Planet
criticised this and submitted its effect was to make the rates derived from the
Unwired
Planet-Samsung
2016 licence look closer to the other three Ericsson
licences than they really are. That is because the rates used were the highest
rates Mr Lasinski derived from the
Unwired
Planet-Samsung
2016 licence and
while the difference is still a factor of […], if more realistic rates
were used for the
Unwired
Planet-Samsung
2016 licence it would be shown to be
an outlier. Mr Lasinski did not accept that was why he had chosen to plot
those rates in Figure 4 and since the idea that Mr Lasinski was setting out to
mislead was not put squarely to him in this context, it would not be fair to
him to make a finding on that.
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.
397.
There are major uncertainties deriving implied rates from this licence
but the figures used in Mr Lasinski’s figure 4 are too high. […]. On
these assumptions the 4G rate ranges from […] to […] and the
2G/3G rate ranges from […] to […]. These are all far lower than
the other rates in Figure 4 and relied on by Huawei as best comparables. It
supports Unwired
Planet’s
case that the
Unwired
Planet-Samsung
2016 licence is
an outlier and that
Unwired
Planet
are right that Mr Lasinski’s purported
generosity to
Unwired
Planet
in his calculations is a wolf in sheep’s clothing.
399.
In principle, it is obvious that one would expect a licence granted
under the same portfolio, to one of the parties in the proceedings, would be an
excellent comparable. Huawei pointed out that in British Phonographic
Society v MCPS [2008] EMLR 5, the Copyright Tribunal held that a
settlement by a co-defendant can be an “outstanding” comparator. There is no
doubt it can be, the question is whether it is. Before turning to the context
in which the licence was entered into, having now analysed the licence itself,
it can be said that the terms on their face raise a question mark over this
licence as evidence of the fair and reasonable value of the Unwired
Planet
portfolio in 2016. Even taking into account the uncertainties, the rates are
significantly lower than the rates Huawei contend for in these proceedings and
are significantly lower than the rate implied by […].
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. […].
401.
Mr Ware’s evidence was that the reason that PanOptis were interested in
this deal was because it would be “solving a problem for Samsung that would
significantly assist the development of the wider strategic relationship we
were in the process of negotiating and that could ultimately be of enormous
commercial value to us”. He also said that without this the acquisition of the Unwired
Planet
portfolio in late 2015 did not fit with his strategic vision.
402.
At about the same time that Samsung had approached PanOptis with this
idea, Ericsson also approached PanOptis encouraging it to purchase Unwired
Planet.
Ericsson was keen for PanOptis to purchase the portfolio as it
considered PanOptis to be a safe pair of hands. The fact that Ericsson wanted
PanOptis to purchase the portfolio was an additional reason why PanOptis were
interested in doing the deal because it would strengthen PanOptis’ existing
strategic partnership with Ericsson. Ericsson also indicated that it would be
prepared to waive the revenue sharing arrangements, which would allow PanOptis
to license the
Unwired
Planet
portfolio as it saw fit and which would avoid
Ericsson needing to be part of any litigation with prospective licensees.
403.
There were various negotiations and by March 2016 PanOptis dropped its
offer price from $50 million to $40 million due to Unwired
Planet’s
worsening
financial position.
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.
406.
Huawei do not agree with the way the transaction is characterised by
Unwired
Planet.
They say in response:
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 […].
407.
Huawei submit that the suggestion that PanOptis accepted a […] price
from Samsung because of the […] element to the acquisition does not sit
with the facts of the case. Whether or not Unwired
Planet
was in financial
distress is irrelevant. The licence was granted months after the purchase by PanOptis,
who were certainly not in any financial distress. The benefits to PanOptis
which are relied on were simply ordinary commercial aspirations and no more.
Mr Ware accepted that discussions with Samsung on other PanOptis portfolios had
pre-dated anything to do with
Unwired
Planet
and accepted that the first time
any written link between the licence and other PanOptis licences was recorded
was in his witness statement. He likewise accepted that there was no link
between […] and the acquisition nor was there any suggestion of a link
with […]. Huawei contend that Mr Ware accepted that these areas were
simply aspects in which he hoped his relationship with Samsung would develop
and more business would be done. Huawei submit that no link between the licence
and any of these other issues was ever made or suggested to Samsung and none of
the other alleged “benefits” was an actual additional cost to Samsung in any
event.
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
416. The third complication is that the licence also contains […]
417.
Mr Lasinski referred to a witness statement of Mr Kim of Samsung. Mr
Kim was going to attend trial but following the settlement he did not. In the
relevant paragraph Mr Kim said that Samsung had agreed […]. Unwired
Planet
criticised Mr Lasinski for this but I do not see the force in that
criticism since Mr Lasinski’s report makes his approach transparent so that the
court can understand the basis on which he approached it.
418.
Unwired
Planet
contended that little weight should be placed on Mr Kim’s
evidence because (i) he did not in the end attend trial, (ii) there is an
obvious reason why Samsung would wish to say the rates were cosmetic because
they had an interest in this action to keep comparable rates low, (iii) as with
Lenovo, there are good reasons why Samsung would not want a licence to contain
rates they thought were unreasonably high since those rates could be used in
later negotiations or in court, and (iv) although Ericsson was also a party to
this proceeding Ericsson’s fact witnesses had not been permitted to see this
part of Mr Kim’s evidence and so were unable to comment on it. The fourth
point came as a surprise to me during the trial (I had assumed Ericsson had had
a full opportunity to answer this evidence) and it seemed that Mr Lasinski had
made the same assumption.
(e) Ericsson-Huawei 2009
424.
To produce a rate therefore involves unpacking. Unwired
Planet
point
out that unpacking this licence using the HPA produces a spurious result. I do
not think this was contested. Consistent with his approach for other Ericsson
licences Mr Lasinski used Ericsson’s approved contribution approach to unpack
the lump sums. Mr Bezant used the MNPA along with the 80:20 approach. The raw
rates arrived at by the two experts are […] and […] respectively.
Mr Lasinski explained he regarded the […] rate as “conservative” (in
other words high and therefore favourable to
Unwired
Planet)
for a number of
reasons. They were two major points, first that further standards were
licensed as well as 2G/3G (CDMA and TD-SCDMA) and second how to treat the
Sony-Ericsson sales.
425.
Unwired
Planet
submitted that Mr Lasinski’s approach to this licence was
another wolf in sheep’s clothing in that the assumptions he had made were not
really in
Unwired
Planet’s
favour at all. That was because the resulting rates
derived from this process were presented as corroborative of the rates derived
from the other major comparables relied on, whereas in fact the rates in this
licence are low and do not corroborate Huawei’s case. Another symptom of this,
submitted
Unwired
Planet,
was that while Mr Lasinski had applied a 50%
adjustment to raw rates from other pre-2013 licences such as Ericsson-Yulong,
because he said the legal landscape changed around 2013 and licence rates after
that reduced, he had not applied that adjustment to the rate derived from this
2009 licence when it was presented in Mr Lasinski’s figure 4 (3rd
Report) which Huawei put at the forefront of their opening submissions.
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.
444.
There was a suggestion that Unwired
Planet
or Mr Bezant singled out
these licences as opposed to licences with larger licensees such as ZTE, RIM,
Huawei or Samsung but
Unwired
Planet
explained that that is not what happened.
The case management directions included provision for parties to choose certain
licences to inspect. The choices were sequential and
Unwired
Planet’s
choice
was made after licences from bigger players had already been chosen.
(h) Ericsson – ZTE 2011
(i) Ericsson-RIM
(j) Ericsson – Apple 2008
456.
This licence was entered into on 14th January 2008 […].
It is a 2G and 3G SEP cross-licence with […]. Apple’s licensed products
are handsets whereas Ericsson’s include handsets and infrastructure. […].
Mr Bezant derived two benchmark 3G rates from this licence, […], and
plotted implied Unwired
Planet
rates derived from each on the chart.
(k) Ericsson-Sony 2012
460.
Mr Lasinski’s view was that this licence should not be included in the
assessment, mainly because it is a related party transaction and also owing to
the other uncertainties. Unwired
Planet
pointed out that this stance was
inconsistent with the stance taken on the
Unwired
Planet-Samsung
2016. I
agree. They are not identical situations but the impact of the wider context
in which each transaction exists reduces the weight one can put on it. The […]
and the fact the […] also act to reduce the weight to be placed on this
licence
(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: […].
(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.
(vii) What is
the benchmark FRAND rate for Unwired
Planet?
475.
The outcome of considering the comparables is that I have benchmark
rates for Ericsson of 0.80% for 4G and 0.67% for 2G and 3G and no other
reliable comparables. Given the previous conclusion for the strength ratio R of
Unwired
Planet
to Ericsson for 4G multimode handsets as 7.69%, that indicates a
benchmark royalty rate for
Unwired
Planet
for a 4G multimode handset in 2016 is
0.062%.
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:
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
481.
Huawei submit that pursuant to the non-discrimination limb of FRAND 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. In closing
Huawei called this a “hard-edged point” (Closing para 210) and I have adopted
that expression for the sake of clarity. This is the place in the analysis to
consider Huawei’s hard-edged point. To recap, whereas general
non-discrimination was taken into account in setting a benchmark rate for the
portfolio, general non-discrimination did not discriminate between licensees.
The benchmark would be equally applicable to a major player like Huawei as to a
new market entrant. The hard-edged non-discrimination argument includes
consideration of the position of particular licensees, in this case licensees
who are major players like Huawei and Samsung.
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.
489.
Unwired
Planet’s
approach was to argue that the factors in Mr Ware’s
evidence which made the Samsung licence not a reliable comparable in the
context of setting a FRAND rate were also relevant to non-discrimination.
Huawei’s argument was the same albeit from the other direction, in other words
its case was that the Samsung licence was a reliable comparable for both
purposes for the same reasons. Both sides effectively equated the concept of
an equivalent/comparable transaction in the context of non-discrimination with
a comparable licence used in the analysis of royalty rates. Clearly the
concepts overlap but in my judgment the two are not identical and the
distinction is acute in the context of the Samsung licence. Used in an
assessment of an appropriate rate in accordance with the ETSI FRAND obligation,
comparable licences act as evidence of the value of the property being
licensed. A FRAND rate could still be set even if no licences existed at all
and even if there was no licence from
Unwired
Planet
to Samsung. Using that
kind of evidence inevitably takes into account the general non-discrimination
aspect of the ETSI FRAND obligation mentioned already. But a hard-edged
non-discrimination obligation, if it means anything, arises as a consequence of
entering into particular transactions with particular licensees. The issue is
what effect in law arises from the fact that
Unwired
Planet
have granted a licence
to Samsung under the same portfolio. The effect of this grant is that a major
competitor of Huawei, one who is otherwise “similarly situated” to Huawei, has
licensed the same portfolio.
490.
Mr Ware’s evidence explains the motives leading to the 2016 Unwired
Planet-Samsung
licence and explains why it was entered into on the terms it
contains. I have accepted that this shows why the terms are not reliable
evidence of the value of the portfolio but none of this alters the fact that
Unwired
Planet
have entered into the transaction and must take the consequences
in terms of anti-discrimination rules, whatever they may be.
Unwired
Planet
say that Mr Ware’s evidence shows that the transaction has “other relevant
commercial features” applying limb (c) of the three part test for a comparable
transaction derived from the ECSC decision 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.”
493.
I accept these broad statements, however the circumstances in this case
are striking. The licensee (Samsung) is, at best, one of a handful of major licensees.
The licence is for the same portfolio and relates to the same acts. It is contemporaneous.
I find that for the purposes of considering hard edged non-discrimination, the
Unwired
Planet-Samsung
2016 licence is an equivalent or comparable transaction
to the putative licence under consideration in this case, the one between
Unwired
Planet
and Huawei.
494.
So given these findings, in terms of competition law and assuming abuse
of dominance, that would leave the issues of distortion of competition and
objective justification to be considered. Before going further however it is
worth reflecting on the position which has been reached. Unwired
Planet’s
counsel described the discrepancy in pricing in the Attheraces
case as a very striking discrepancy. That was a three-fold difference (£361 vs
£900). The difference between the benchmark rate and the Samsung rate is much
larger than that. On one view it is a […] difference. Moreover the
discrepancy between the Samsung rate and the rates claimed by
Unwired
Planet
(0.13% now and 0.2% in 2014) are even larger. 0.2% is more than […] times
larger than […] and the difference between the rate of 0.13% which
(unlike 0.2%) was offered after the Samsung licence had been concluded is still
[…]. These discrepancies favour Huawei’s argument. However there is a
major difference between this case and a case like Attheraces,
because at this point in the argument the discrepancy is with respect to a
benchmark rate which represents what has been determined to reflect the true
value for the portfolio under licence. The discrimination is not that Huawei
is being required to pay a rate higher than that, the issue is that Huawei’s
competitor has been given a much lower rate.
495.
I turn to consider whether distortion of competition is part of the
non-discrimination limb of FRAND. Huawei’s simple case was that it was not
mentioned in the words of the undertaking. However as I have already noted,
none of the concepts which both sides agree need to be considered to address
non-discrimination are mentioned in the undertaking either so that simple point
is not as strong as it might seem at first sight. Conversely beyond submitting
that it should be included, Unwired
Planet’s
argument did not give reasons
why.
“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
499.
The third interpretation proposed by Prof Carlton is based on similarly
situated firms paying the same rate. It is based on the same concepts as
competition law. In effect this is the one Huawei contend for although one
cannot take that too far. The paper is not purporting to set out a fully
worked out proposal on the correct approach in law to interpret the FRAND
undertaking. It is not focussed on the distinction between the arguments of
Huawei and Unwired
Planet.
500.
The final text from the economics literature to refer to is Dr Niels’
textbook Economics for Competition Lawyers (2nd Ed, Oxford 2016).
At paragraph 8.51 he states that the non-discriminatory condition in FRAND “is
usually interpreted in the same manner as the general criteria for
anti-competitive price discrimination under the abuse of dominance rules”.
Although Dr Niels does not cite a reference for that, it may be that he had in
mind the kind of thing proposed by Prof Carlton. As with Prof Carlton’s paper,
Dr Niels’ paragraph is not focussed on the distinction between the arguments of
Huawei and Unwired
Planet.
504.
I turn to the point in British Airways. Huawei
made clear that they had not attempted to conduct the kind of economic analysis
which would be required to establish that the dissimilarity between the rates
in the Samsung licence and the rates demanded by Unwired
Planet
distort
competition. They contend it is not necessary in this case and rely on British
Airways as authority for the proposition that such an analysis is
not always necessary. The case was about travel agents’ commissions and a reward
scheme practised by BA. The CFI had held that the competition between them had
“naturally” been affected by the discriminatory payment conditions in BA’s
reward scheme. On appeal BA submitted this was not sufficient to justify a
finding of breach of what is now Art 102(c) and what was needed was concrete
evidence of competitive disadvantage. This is recorded at paragraph 142. The
CJEU rejected that submission in paragraphs 143 to 149.
“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.”
509.
As Unwired
Planet
pointed out, in that case the court had had evidence
of the competitive position in the downstream market (i.e. between travel
agents). It was able to find in paragraph 146 that they compete intensely with
each other and that their ability to do so depended on two factors, one of
which was their individual financial resources. It was also able to find in
paragraph 147 that the BA payment scheme could lead to exponential changes in
the revenues of travel agents. As
Unwired
Planet
also pointed out, there has
been no analysis in this case of the extent of competition in the phone or
infrastructure market, nor has there been any analysis of the factors necessary
to compete in that market to justify a finding like the one referred to in
paragraph 146, nor has there been any effects-based analysis here like the one
referred to in paragraph 147.
511.
What evidence is there in this case? Huawei rely on two strands of
evidence: first, Ericsson’s intentions and the genesis of Unwired
Planet,
and
second, direct financial evidence.
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.”
515.
In financial terms Huawei’s complaint is presented by reference to two
pie charts which are intended to illustrate the disparity between Samsung and
Huawei comparing the July 2016 Unwired
Planet
proposal against the Samsung
licence (using Mr Lasinski’s figures) and taking into account the difference in
revenue which would be licensed between the two undertakings. The figures are
annual and in dollars. They are for 2G, 3G and 4G together and reflect
estimates of the sales mix relating to these standards. The resulting
calculations are that under the Samsung licence Samsung will pay
Unwired
Planet
[…] on its annual worldwide sales of relevant goods, which one can take
as being worth $73 billion; whereas at the rates claimed by
Unwired
Planet,
Huawei would be required to pay $34 million pa on its annual global sales,
which are worth $30.2 billion. The pie charts are these:
516.
I include the pie charts because Huawei put them forward with some
prominence but just like Unwired
Planet’s
chart of rates included in this
judgment and like any visual presentation, care needs to be taken with them.
Unwired
Planet’s
chart presents far too many rates from the same licence as if
they were independent data points. In Huawei’s pie chart here the area of the
left circle is about $103 billion whereas the area of the right circle is $48
million and so, scaled with the left circle, the right circle should be tiny.
There is no question that the rates applied to Samsung under the Samsung
licence are far lower than the benchmark rates derived above and lower still
than the rates claimed by
Unwired
Planet
in July 2016. I will take it that the
value of Huawei’s annual licensed revenues is likely to be about half
Samsung’s.
517.
In cross-examination counsel put figures to Dr Niels. The rate for
Samsung was put as in effect […] per device for Samsung (assuming a sale
price of […] per device, […] is about […]). The
equivalent rate for Huawei was put at about 50 to 75 cents per device. These
are reasonable assumptions, which if anything favour Unwired
Planet.
A figure
for Huawei’s profit margin was taken from public information as being between
about $6 and $19 per device. Counsel put to Dr Niels that in that context the
difference in rates ([…] vs 75 cents) would appreciably distort
competition. Dr Niels did not agree. He was prepared to assume the figures
were correct but explained that one could not draw the conclusion that
competition would be distorted because given the average selling price of the
products (for Huawei assuming $164 to 185) the rate is very, very low. He
acknowledged the rate was a higher percentage of the profit margin but that did
not change his view. He said that no-one had done a detailed analysis of
distortion of competition and to do that you would have to look at how the market
works downstream and how operators set prices. In his opinion one still has to
ask what ultimately happens to the small price differential, is it passed to
end consumers, mobile operators or is it absorbed by Huawei? Even assume some
or all of it was passed on you would have to look at whether customers switch
significantly given this is such a small share of the market price. Counsel then
put the pie charts to Dr Niels but he questioned whether grossing up the
difference in this way was meaningful and maintained that what mattered was the
differential between Huawei and Samsung as a percentage of total margin and
those struck him as low “or at least so low that they are again unlikely to
really distort competition significantly” [Day 16/43/15-17].
520.
Finally I should mention that Huawei were entitled at one stage to think
that Unwired
Planet
were conceding that distortion of competition was not a
necessary part of hard-edged non-discrimination. Huawei did not suggest that
they did not call further evidence on this topic because they thought
Unwired
Planet
had conceded the issue. If
Unwired
Planet
did change their stance, the
change did not prejudice Huawei.
(ix) Rates - conclusions
522.
Since the hard-edged non-discrimination point has been rejected, I find
that the benchmark FRAND rates for the Unwired
Planet
portfolio are as set out
in the table above. It follows that none of the offers made by
Unwired
Planet
in 2014, 2015 or 2016 involved rates which were FRAND. They were too high. It
also follows that the benchmark rates on which Huawei’s offers have been based
were not FRAND either. They were too low.
(x) The Other Disputed Terms
523.
Aside from a rate, the parties do not agree about other terms. The
major disagreement is about scope (UK or worldwide) then there are
disagreements about a few of the terms of a UK licence. Since Huawei did not
engage with Unwired
Planet
on the terms of a worldwide licence, I only have
Unwired
Planet’s
position on that.
(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.
525.
The same topic arises under the ETSI FRAND undertaking and in
competition law. It makes more sense to consider it once. The answer to the
scope question has a bearing on the question of an injunction and equitable
refusability but those issues are best addressed separately. For the purposes
of the competition law aspect I will assume Unwired
Planet
is in a dominant
position.
“- 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.”
527.
The first three points are fairly self-explanatory. The parties did not
agree about the fourth point. Huawei submitted that the fourth test is simply
whether the conduct is “capable of restricting competition” (Microsoft
at paragraphs 866-867) and that this is consistent with the overall position
under Art 102, which requires proof only of potential effects on competition.
Huawei referred to paragraphs 868, 977 and 1035 and submitted that in these
paragraphs the CFI observed that it is ordinarily presumed in tying cases, in
the absence of specific circumstances suggesting otherwise. Huawei submitted
that Unwired
Planet
had not suggested any such specific circumstances in the
present case and that both the bundling practices in issue, the
multi-jurisdictional bundling and also the bundling of SEPs with non-SEPs which
took place in
Unwired
Planet’s
April 2014 offer, pose an obvious and real
threat of distortions in competition.
528.
Unwired
Planet
submitted that Prof Neven had not been asked to analyse
bundling in terms of a standalone abuse (which was correct). They submitted
that an appreciable effect on competition always had to be shown (citing Post
Danmark C-209-10 ECLI:EUL2012:172 at paras 24, 39 and 44, as well
as the EU Commission’s Guidance on enforcement priorities in applying Art 102
(24th Feb 2009 OJ EU C45/7) at paragraphs 20-22).
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.
541.
In practice, subject to Venezuela, the country of manufacture referred
to is China. Huawei did not challenge the principle but submitted a focus on
China brings back the debate about the ongoing Chinese invalidity proceedings.
As to Venezuela, Unwired
Planet
pointed out that Mr Zhang’s evidence was that
the manufacturing facility there puts together components made in China.
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.
543.
Before turning to the impact of the litigation, this is a convenient
point to ask what sort of licence for Unwired
Planet’s
portfolio would be FRAND
in terms of its geographical scope when applied to a multinational licensee
like Huawei? I will start by asking what a willing licensor and a willing
licensee with more or less global sales would do. There is only one answer.
Unwired
Planet’s
portfolio today is (and in 2014 it was) sufficiently large and
has sufficiently wide geographical scope that a licensor and licensee acting
reasonably and on a willing basis would agree on a worldwide licence. They
would regard country by country licensing as madness. A worldwide licence
would be far more efficient. It might well have different rates for different
regions and for different standards but that is another matter. The employment
of different rates would not lead the parties to abandon a worldwide licence
and go for country by country licensing. Assuming the licensee was a Chinese
multinational like Huawei, they might well agree on different rates for China
as for the Rest of the World but again they would not go for country by country
licensing. If the multinational had a significant manufacturing base in
another country in which the portfolio was weak, again that could be taken into
account.
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.
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.
“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.
555.
I accept that there is no such thing in law as a portfolio right. At
least from the perspective of English law, Unwired
Planet
should sue on SEPs in
the countries in which they exist. However this does not preclude a finding
that worldwide licences are FRAND. The first submission is relevant but not
determinative.
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.
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.
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).
568.
The sixth point is about the conduct of the litigation. The key issue is
a complaint that UK only licensing was not offered (on an open basis) by
Unwired
Planet
for a year after the litigation began. However this rings
hollow since Huawei have never (on an open basis) offered to take a worldwide
licence at all.
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.
572.
I conclude that a worldwide licence would not be contrary to competition
law. Willing and reasonable parties would agree on a worldwide licence. It
is the FRAND licence for a portfolio like Unwired
Planet’s
and an implementer
like Huawei. Therefore,
Unwired
Planet
are entitled to insist on it. It
follows that an insistence by Huawei on a licence with a UK only scope is not
FRAND.
(b) Should the court settle the FRAND terms of a worldwide licence?
573.
All of Unwired
Planet’s
worldwide offers since 2014 have been put as
licences with single global blended royalty rates. That needs to be addressed
along with any other relevant terms.
574.
Huawei did not engage with Unwired
Planet’s
proposed terms of a
worldwide licence because they contended it was not open to
Unwired
Planet
to
insist on it both in principle (i.e. the FRAND and competition law bundling
points I have rejected) and from a procedural point of view. Huawei’s case on
the procedure is that a UK only licence is the inevitable and mandatory outcome
of this case as a consequence of an earlier case management ruling and certain
subsequent procedural steps.
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.
577.
From the beginning Huawei have contended that Unwired
Planet’s
offers
such as the 2014 offer were not FRAND and contrary to competition law and
sought certain remedies accordingly, such as refusal of an injunction. In one
sense such an issue is narrow in that one could simply decide whether an offer
is or is not FRAND etc., and if it is not, go no further. A difficulty could
be that the offers concerned were never put together with fully worked out
contract terms but that might not matter in practice since no doubt the big
issue of the rate could be addressed and, on Huawei’s case, certain terms such
as bundling SEPs and non-SEPs together were such that they could never be
FRAND.
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.
580.
Huawei have always known that Unwired
Planet
ranked their offers in the
sense that their first preference was for a worldwide licence. Huawei do not
suggest that
Unwired
Planet
ever indicated that if Huawei said they would take
a UK portfolio licence then the issue of scope was resolved. The case is not
put on that basis. Huawei referred to the odd aspect of Mr Bezant’s evidence
but it does not bear out the argument. The oddity of Mr Bezant’s approach is
that it applies just as much as setting a UK only rate as anything else.
581.
It is true that fully worked out terms were only put forward openly after
the start of the trial, as a result of me asking the parties to produce and
engage with them. That cannot make a material difference. If Huawei thought
they were prejudiced by the absence of such terms earlier in the action they
could have asked. But I am left with a set of worldwide terms proposed by
Unwired
Planet
and no engagement with Huawei. In other circumstances it might
have been appropriate to hand down a judgment dealing with the big issues, such
as rates, and then leave it to the parties to agree the smaller points or
isolate the differences down to a few points. That is often done in the
Copyright Tribunal. However this issue was discussed extensively during the
trial. This trial is meant to be the point at which the court decides whether
to grant or refuse a final injunction against Huawei following findings of
infringement of valid claims over a year ago. The only way that can be done
fairly is if at the point the injunction would bite a fully worked out licence
is available in relation to which the court has decided FRAND, competition law,
and equitably refusability. These proceedings have gone on long enough.
There is no justification in allowing yet another round of evidence and
argument and so I will do the best I can with the material.
(c) FRAND rates in a worldwide licence
582.
The evidence before me is clear that willing parties would agree that a
worldwide licence in this case would have a different rate for sales in China.
They would not have a carve out which left China unlicensed ([…])
because Unwired
Planet’s
portfolio of declared SEPs clearly includes China.
The rate is determined by the number of Relevant SEPs but a licence is a
licence on declared SEPs.
584.
However that is not the end of the story. Unwired
Planet’s
portfolio is
smaller in China than in elsewhere and
Unwired
Planet
have fewer Relevant SEPs
there than the numbers used to set the benchmark rates above. However this can
readily be catered for. A fair and reasonable approach consistent with
everything which has gone before would be to scale the rate with an additional
factor determined by the number of Relevant SEPs in China identified by Dr
Cooper. For multimode the fair approach is to scale the multimode rates by
reference to the Relevant SEP numbers in the highest relevant standard rather
than recalculate the weighting.
586. All these points together produce the following table:
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% |
587.
The question turns to whether any other regions of the world should have
lower rates than the benchmark rate. Parties negotiating in a FRAND way would
not try to divide up the world into too many categories since it risks being
unworkable but there is at least one comparable licence in which the contract
treats three regions of the world differently and that is a fair and reasonable
approach. Outside China, a FRAND approach would be to divide the rest of the
world into major markets (MM) and other markets (OM) by reference to the number
of declared SEPs in force held by Unwired
Planet
in that country. The three
standards 2G, 3G or 4G would be treated individually. A table setting out the
numbers of declared SEPs held by
Unwired
Planet
around the world is at Annex
1. Bearing in mind that table, a FRAND approach would be to set MM countries
for a given standard as those with more than a certain number of declared SEPs
for that standard. In my judgment a fair threshold for 2G or 3G would be 2 or
more declared SEPs and for 4G would be 3 or more declared SEPs. Any country
below the threshold would be OM for that standard. Based on the figures in
Annex 1 this produces the following table of MM countries. The remaining
countries in Annex 1 are OM states for all standards as is the rest of the
world.
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 |
|
|
|
591.
The starting point to arrive at the FRAND rate for the MM countries
would be the benchmark rate. However the benchmark rate was set by reference
to a number for Relevant SEPs focussed on the United Kingdom. Applying that to
all MM countries is too generous to Unwired
Planet
because the UK has more
Relevant SEPs for 4G handsets than any other country. The most any other 4G MM
countries have (including applications) is 5 and they are the USA, France,
Germany, India and Spain. Of the other 4G MM states: Italy, Japan and the
Netherlands have 4 Relevant 4G SEPs, Canada and Ireland have 3, New Zealand and
Switzerland have 2, and Taiwan has 1. The FRAND approach in the circumstances
would be to set the MM rate as a single rate, for all countries including the
UK. In my judgment the FRAND approach would be to use a factor based on taking
5 as the number of Relevant SEPs for LTE. The markets in which the number is 5
or more are some of the most valuable markets in the world. The scaling for
multimode will use the same approach as taken for China. There is no need to
make a similar adjustment to the benchmark for 2G nor for 3G. This produces
the following table:
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
595.
In addition to incorporating the terms I have addressed already, the
worldwide licence draft provided by Unwired
Planet
must be amended where
appropriate to conform (a) to the agreed terms of the UK draft and (b) to the
rulings I will make below on the disputed terms of the UK draft. With those
amendments the worldwide licence document would be the FRAND licence between
these parties.
(e) The terms of a UK only portfolio licence
596.
Since I have decided a worldwide licence is FRAND and Unwired
Planet
are
entitled to insist on it, the question of terms of the UK only licence does not
arise but in order to settle the worldwide terms, I will decide the issues.
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.
599.
Unwired
Planet
contended that on that second assumption the rates should
be higher than they would otherwise have been. I agree with the principle.
That is because I infer that all the comparable licences in issue would have
been negotiated on a less stringent basis and therefore the rates would inevitably
be reduced somewhat to price in some uncertainty about the issues of validity
and infringement/essentiality. However since the UK only licence is not put on
that basis now, it is not necessary to arrive at a figure for that uplift.
601.
Mr Bezant’s evidence was that Unwired
Planet’s
approach to this uplift
made sense but he did not advance any specific points on the size of this
particular uplift.
602.
I believe the inefficiency and inconvenience of state by state licensing
is very substantial. Scores or even hundreds of licences would be required.
A FRAND rate for state by state licensing would include a larger uplift than
the one proposed by Mr Lasinski. Unwired
Planet
proposed a higher uplift for
handsets than for infrastructure but did not draw my attention to any reason
why there should be a difference. I find that a FRAND uplift for state by
state licensing is 100% for all rates. In other words the rates would be
double.
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
605.
Unwired
Planet
submit that the problem arises from the opacity of
Huawei’s business. There is no readily available public information and Huawei
have not provided any in this case.
Unwired
Planet
suspect that Huawei derive
a substantial portion of their infrastructure revenue not from sale of
equipment but from convoyed services and contend that a fair royalty should
take that into account. Their proposed clause provides that the royalty base
will include all revenues “directly or indirectly derived from the sales of
infrastructure equipment” including “any revenues derived from maintenance or
operation”. As a comparable
Unwired
Planet
refer to a licence between Huawei
and […] which includes services within the royalty base.
606.
I prefer Huawei’s case to Unwired
Planet’s.
The risk that a licensee
will sell at an undervalue and earn income through convoyed services is real
enough but
Unwired
Planet’s
solution is too extreme. The fact that no
information has been provided is not such a weighty point since, unless yet
more anti-avoidance clauses were put in the licence, a licensee could always
change its practices in future. Although we do not know whether […] exchanged
any details about this, the absence of services from that licence is a relevant
comparable.