Richard Lloyd

Last week’s judgment from London’s High Court in Unwired Planet v Huawei has elicited a lot of interest from the patent licensing community in the US.

Despite the fact that patent disputes between various players in the mobile sector have hardly been a rarity in recent years, there have been very few standard essential patent lawsuits over FRAND terms that have gone all the way in court. Judge Robart’s 2013 decision out of the Western District of Washington in Microsoft v Motorola Mobility has been perhaps the most commonly cited, in part because of the wide disparity in expected royalty rates between the two parties and the level of detail in the decision.

The High Court decision handed down by Justice Birss in the UK looks set to join that case as a cited authority and might even supplant it, according to some. Paul Michel, former Chief Judge of the Court of Appeals for the Federal Circuit, did not mince his words when he described it in an exclusive interview with IAM as “the decision of the decade” in FRAND SEP licensing. There’s no doubt that in 166 pages Justice Birss has laid down several important markers over just what constitutes fair, reasonable and non-discriminatory in SEP licensing negotiations.

For a little further analysis from someone who has been particularly close to this case I got in touch with former Unwired Planet CEO Boris Teksler. During his career at Apple, Technicolor, Unwired Planet and now Conversant, Teksler has become a vocal proponent of an overhaul of the SEP FRAND licensing regime.  Here’s what he had to say:

The key take away from Justice Birss’ opinion is his recognition that SEP FRAND issues can and should be resolved on a global basis, and not through piecemeal litigation on a country-by-country basis. Justice Birss took the bilateral FRAND obligations principle of the ECJ decision in Huawei v ZTE and applied that principle to an entire worldwide SEP portfolio. His approach, if adopted, will finally provide a much more efficient mechanism to resolve and hopefully avoid disputes about the appropriate value for a worldwide portfolio licence on FRAND terms. 

Justice Birss is the first judge to then do the hard work of determining the value of a worldwide FRAND portfolio licence. In doing so, he recognised that it is not enough to look simply at the overall number of declared SEPs, but instead it is necessary to identify “true" SEPs and set aside the “residue” SEPs. That winnowing process leads to a much truer valuation of a particular SEP portfolio (the numerator) with respect to the overall number of relevant SEPs (the denominator).  

Finally, the thoughtful process by which Justice Birss determined the benchmark and actual rates for the Unwired Planet worldwide portfolio of Ericsson patents provides a valuable look at what FRAND could be for other portfolios in the handset and infrastructure markets. This increases the transparency of the market by establishing a public reference point.

But what about the broader implications of the judgment, particularly its potential impact in the US? To that end I asked Professor Jorge Contreras of the University of Utah law school for an opinion. He wrote an analysis of the judgment soon after it was handed down but I wondered how he thought other courts might use it.

On one hand, courts in other countries need not follow the rulings of the UK courts (especially after Brexit!). However, this case is interesting in that the court is actually applying French law, which governs the ETSI policy.  Thus, the court's reasoning will be informative to any non-French court that is considering a dispute concerning an ETSI standard (ie, many of them). As such, US courts would do well to consider the UK court's reasoning, especially since it conducts its entire analysis without reference to the US Georgia-Pacific framework, which really does not work in the context of FRAND. In this sense, I would encourage the US courts to look at the methodology used by Justice Birss.

However, Ashley Keller of litigation funder Burford Capital cast doubt on how much sway the judgment will hold in the US. Instead, he forecast that the drift of cases from American courts to Europe will accelerate.

To my eyes, the ruling is a big deal, but not because it will influence US courts.  I think the federal judiciary will at best treat this as persuasive authority; but, more likely, will not consider it much if at all in US adjudications. The bigger impact could be to further the marginal incentive for patent holders to enforce in Europe (and by extension, for innovators to innovate there).  It is obviously but one opinion at the trial court level but the reasoning is extensive and thoughtful. If this sets the trend in the UK, expect more filings there.  And if it influences the long-awaited UPC, Europe will draw many suits that previously would have been filed on this side of the Atlantic.

Keller’s colleague Katharine Wolanyk added that they are already seeing an uptick in patent owners looking at financing for European cases, particularly at lawsuits being brought in Germany.

As well as adding to Europe’s appeal, Justice Birss’s judgment also underlines just how far the US patent system has fallen in comparison. Paul Michel, former chief judge of the Court of Appeals for the Federal Circuit, has in recent years become a sharp critic of a series of decisions, many from the Supreme Court, that have undermined patent rights. In a lengthy interview he was particularly forthright on how US courts suffer in comparison with a case like Unwired Planet

I think the judgment and the close reasoning by Justice Birss is altogether brilliant. It is a milestone regarding FRAND licences for products that are sold globally. From the standpoint of the US I think it is entirely enviable, it is so practical and reflects all the economic realities and not merely legal theories.

It is closely reasoned based on detailed, fully articulated economic facts that are realistically viewed. In my opinion, so much US litigation dealing with injunctions, or with FRAND licensing or with reasonable royalties in any context, is far too theoretical and done without proper attention, sometimes no attention, to the realistic economics that companies competing in these industries actually think about and follow. But Justice Birss’  analysis is solidly grounded in business realities and more so than just about any American ruling I can recall.

The problem for a US judge, trial or appellate, is that they’re strongly encumbered by the Supreme Court’s decision in eBay. If an injunction, or the threat of an injunction, can’t be used to compel a reasonable settlement between two companies then a settlement most likely won’t result. So a US judge starts out with the handicap of the severe restrictions of eBay at least as it has been applied by most judges in practice even if it isn’t entirely clear from the majority decision that it has to be applied in that way.

Then there is US damages law which in general seems to pay virtually no heed to what is done in any other jurisdiction around the world including the UK even though US damages law drew its genesis from English law. So the tradition in the US is heavily, I would say excessively, inward looking and I would think that’s very unfortunate, but it’s fairly strongly embedded in the mindset of most judges, including judges on the Federal Circuit.