26 Nov 2018

The Court of Appeal recently handed down its judgment in this landmark case. Potential licensees of standard essential patents (SEPs) now have greater certainty but may be unhappy with elements of the Court of Appeal's ruling.

Background

In the High Court, Mr Justice Birss found in favour of Unwired Planet, which was only willing to enter into a global licence of various SEPs with Huawei. However, Birss held that the rate offered by Unwired Planet for the global licence was too high and so it was appropriate for the Court to set a FRAND rate.

Huawei appealed Birss' judgement. It was unhappy at having to take a global licence of the SEPs. It also felt the FRAND rate set by Birss was discriminatory as it was not at the same level as the rate agreed in the settlement between Unwired Planet and Samsung. The third limb of Huawei's appeal was a procedural one. It claimed that Birss should not have granted Unwired Planet injunctive relief against Huawei because Unwired Planet had not indicated which patents were infringed by Huawei and had not offered a FRAND licence of the relevant SEPs.

The Court of Appeal's judgment

The Court of Appeal decided that Birss was wrong to conclude that there could be only one set of FRAND terms, but he was correct to decide that in the interests of efficiency, the licence would be worldwide. The Court of Appeal concluded that outside any patent disputes, willing licensors and willing licensors of SEPs would only consider global licences.

On the issue of discrimination, the Court of Appeal held that the non-discriminatory limb of FRAND is not to be treated as akin to the insertion of a "most favoured licensee" provision. The existence of the lower rate in the Samsung licence did not lead to an automatic lowering of the benchmark set to reflect a fair and reasonable value of the Unwired Planet patent portfolio.

On the procedural challenge, the Court of Appeal pointed out that the purpose behind the Huawei v ZTE ruling was to provide a safe harbour to SEP owners – to inform them of what steps were needed to avoid being found to have abused a dominant position. The ruling did not amount to a decision that in order to show a lack of abusive conduct, the SEP holder would have to follow strictly the steps set out in Huawei v ZTE. The Court held that by March 2014, a month after Unwired Planet commenced proceedings, Huawei knew roughly what type of licence it would need to seek from Unwired Planet, and so its appeal on this procedural ground should fail.

Comment

There is some logic to the Court of Appeal's finding that outside any patent disputes, willing licensors and willing licensees of SEPs would only consider global licenses. SEPs are typically linked to standards which are adhered to on a worldwide basis. Manufacturers of products requiring licences of SEPs, particularly technology products, will often be sold worldwide. However, if there are SEPs which are only adhered to in certain parts of the world because different standards are applied elsewhere, would a FRAND license need to be global in such circumstances? Presumably, a FRAND licence in such a case would only need to cover those territories which adhere to the standard linked to the SEPs?

Whilst the Court of Appeal did not agree with Huawei's arguments on discrimination, it also did not agree with either the rate proposed by Unwired Planet or the rate proposed by Huawei for the FRAND global licence. The FRAND rate set by the Court of Appeal was less than half the rate offered by Unwired Planet, and 50% greater than the rate proposed by Huawei. How close the FRAND rate set by the Court of Appeal was to the rate Unwired Planet agreed with Samsung is not clear. If there was a significant difference between the two rates, this begs the question whether the FRAND rate set by the Court of Appeal reflected the proper value of the licensed SEPs. It also begs the question as to whether the rate offered to Samsung was unduly low, thus giving it an unfair competitive advantage?

The Court of Appeal's finding in relation to Huawei's contention that Unwired Planet had abused its dominant position by not offering to license its SEPS on FRAND terms before commencing proceedings against Huawei, may cause some raised eyebrows. Whilst the injunctive relief granted to Unwired Planet was suspended pending the outcome of the appeal, the question is whether Unwired Planet should, at the very least, have made Huawei aware that it was willing to license its SEPs on FRAND terms before it commenced proceedings (which it did not do) – thus potentially avoiding the need for the proceedings. This issue may well yet come up again in other litigation involving SEPs.

Huawei has applied to the Supreme Court for leave to appeal the Court of Appeal's judgment. It remains to be seen whether such leave will be granted.