A blissful summer for SEP owners
From key court decisions in the United States and Europe to positive policy developments, the standards community has had much to celebrate this year
While most of the world would be glad to forget 2020, owners of SEPs are taking a different view after a summer replete with positive developments from both courts and regulatory authorities on contentious licensing and litigation topics.
First, in a watershed antitrust ruling, a Ninth Circuit Court of Appeals panel unanimously ruled in favour of Qualcomm in its litigation with the Federal Trade Commission (FTC). The panel rejected the argument that a company that has agreed to license its SEPs on FRAND terms has an antitrust duty to license at the component level. It also rejected the claim that an SEP holder’s royalty rates are unreasonable simply because they are based on handset prices. The panel echoed sentiments recently expressed in commentary from other US agencies, including the Department of Justice (DOJ), questioning whether antitrust law is suited to resolve FRAND disputes and recognising that its misapplication could chill innovation. The Ninth Circuit’s decision is already having an impact. For example, a federal court in Texas positively cited these rulings in a recent decision dismissing an antitrust and FRAND challenge brought by a sophisticated implementer against the Avanci licensing platform and some of its members.
Next, the DOJ, building on its prior guidance on FRAND and SEPs, weighed in with two important business review letters reflecting its alignment with these judicial developments. First, it supplemented its 2015 business review letter to the Institute of Electrical and Electronics Engineers (IEEE) to clarify that it did not endorse the IEEE’s 2015 IP Rights Policy changes. In particular, the department pushed back on the IEEE’s recommendations to cap FRAND royalties based on the smallest saleable patent practising unit (SSPPU) and drastically limit the availability of injunctions. The DOJ advised that these policies failed to account for the risk of hold-out by implementers and could harm innovation incentives. The DOJ encouraged the IEEE to revisit its policy.
Second, the DOJ evaluated the Avanci 5G SEP licensing platform and concluded that it does not intend to challenge the platform. Here, the department accepted Avanci licensing end products rather than to component suppliers, citing similar practice with cellular handset licensing, and rejected capping royalties based on SSPPU.
Across the pond, in a consolidated review of three lower-court decisions, including in Unwired Planet’s suit against Huawei, the UK Supreme Court upheld UK courts’ jurisdiction to require agreement to a worldwide FRAND licence as a condition for a party to avoid injunctions to halt continuing SEP infringement in the United Kingdom. The court rejected a so-called ‘hard-edged’ non-discrimination obligation, ruling that ETSI’s FRAND obligation does not require SEP licensors to provide identical terms to all licensees in order to comply with FRAND principles.
Also in Europe, in July 2020 Germany’s highest court issued a ruling in Sisvel’s SEP case against Haier, outlining the criteria for implementers to demonstrate that they are willing licensees. The court ruled, among other things, that Haier’s failure to timely demonstrate and clearly express its willingness to enter into a FRAND licence fell short of those criteria. It also rejected a hard-edged non-discrimination obligation and ruled that Sisvel had discharged its FRAND obligations.
Although Unwired Planet and Sisvel, as well as legal developments in the United States, could pave the way for SEP owners increasingly seeking and obtaining injunctions, other jurisdictions may also have a say in how global SEP litigation unfolds. For example, China’s Supreme People’s Court recently issued its first anti-suit injunction, granting Huawei’s request to enjoin Conversant from enforcing an injunction that it obtained in Germany. These decisions illustrate that both licensors and licensees will need to carefully monitor legal developments around the world, as the SEP litigation playbook will necessarily continue to evolve.
This article provides a summary of these key developments, including how licensors will benefit and how licensees may react.
FTC v Qualcomm brings balmy weather to SEP owners
On 11 August 2020 a unanimous Ninth Circuit panel handed Qualcomm a victory in its years-long antitrust litigation against the FTC. The FTC had argued – and the district court had previously ruled – that Qualcomm violated the Sherman Act (15 USC §§1 and 2), by unreasonably restraining trade in, and unlawfully monopolising, alleged code division multiple access (CDMA) and premium long-term evolution (LTE) cellular modem chip markets. The Ninth Circuit panel disagreed, holding that Qualcomm’s practices do not violate antitrust laws and vacating the district court’s ruling. The panel’s opinion offers welcome insights on the role of antitrust law in addressing disputes rooted in FRAND obligations.
As the Ninth Circuit panel recounted: “Over the past several decades, [Qualcomm] has made significant contributions to the technological innovations underlying modern cellular systems, including… CDMA and… LTE cellular standards… Qualcomm protects… its technological innovations through its patents, which it licenses to original equipment manufacturers (‘OEMs’).” The panel noted that Qualcomm’s patents included a mix of cellular SEPs, non-cellular SEPs and non-SEPs, and went on to observe that because “SEP holders could prevent industry participants from implementing a standard by selectively refusing to license, [standard-development organisations (SDOs)] require patent holders to commit to license their SEPs on fair, reasonable, and non-discriminatory (FRAND) terms before their patents are incorporated into standards”.
Qualcomm, the panel noted, licenses its patent portfolios “exclusively at the OEM level, setting royalties on its CDMA and LTE patent portfolios as a percentage of the end-product sales price”, commonly referred to as ‘device-level licensing’. The panel cited Nokia and other companies’ submissions, which stated that “OEM-level licensing is now the industry norm”.
In addition to licensing its patents, Qualcomm also manufactures and sells modem chips. Its practice, the panel recounted, has been to decline to sell OEMs modem chips unless potential buyers have obtained a licence to Qualcomm’s SEPs – a practice that the FTC had referred to as Qualcomm’s ‘no licence, no chips’ policy. The panel noted that in the absence of this practice, “because of patent exhaustion, OEMs could decline to take licenses, arguing instead that their purchase of chips from Qualcomm extinguished Qualcomm’s patent rights with respect to any CDMA or premium LTE technologies embodied in the chips”. The panel characterised Qualcomm’s practices as being chip-supplier neutral, in that “OEMs are required to pay a per-unit licensing royalty to Qualcomm for its patent portfolios regardless of which company they choose to source their chips from”.
Following a 10-day bench trial, the district court had ordered a permanent, worldwide injunction precluding several of Qualcomm’s business practices, concluding, among other things, that:
- Qualcomm had an antitrust duty to license its rival chipmakers and was required to do so by its FRAND commitments;
- its royalty rates were “unreasonably high” because they were based on the price of the end device and amount to a surcharge on rival chipmakers – the so-called ‘anti-competitive surcharge theory’; and
- its ‘no licence, no chips’ policy was anti-competitive.
The panel reversed the district court judgment and vacated the injunction. Its analysis stressed the importance of not chilling technological innovation through the misapplication of antitrust law. The panel noted: “novel business practices – especially in technology markets – should not be conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” The panel sympathised with “the persuasive policy arguments of several academics and practitioners… who have expressed caution about using the antitrust laws to remedy what are essentially contractual disputes between private parties engaged in the pursuit of technological innovation”.
The panel quoted the Honourable Paul R Michel, retired chief judge of the US Court of Appeals for the Federal Circuit, who submitted that “it would be a mistake to use the hammer of antitrust law… to resolve FRAND disputes when the more precise scalpels of contract and patent law are effective”. The panel also quoted former FTC Commissioner Joshua Wright, who warned that imposing antitrust remedies when contractual or patent remedies are available “can have harmful effects in terms of dampening incentives to participate in standard-setting bodies and to commercialize innovation”.
Addressing the district court’s rulings, the panel first addressed whether Qualcomm had an antitrust duty to license its patents to rival chipmakers. Citing the Supreme Court’s Linkline decision, the panel explained that “there is ‘no duty to deal under the terms and conditions preferred by [a competitor’s] rivals”. The panel also agreed with the FTC’s concession that Qualcomm’s conduct did not meet the Aspen Skiing exception for imposing a duty to deal. Accordingly, the panel held that: “Qualcomm’s OEM-level licensing policy… is not an anticompetitive violation of the Sherman Act.”
The panel further held that even if Qualcomm had a contractual FRAND duty to license to chip suppliers (an issue the panel did not reach), the record included no identifiable harm to competition from Qualcomm’s device-level licensing. By contrast, the panel found that “Qualcomm’s… procompetitive justification that licensing at the OEM and chip-supplier levels simultaneously would require the company to engage in ‘multi-level licensing,’ leading to inefficiencies” was both reasonable and supported by submissions from other companies.
Second, as to the FTC’s anti-competitive surcharge theory, the panel held that it “fails to state a cogent theory of anticompetitive harm”. The panel rejected the district court’s determination that an SEP holder’s royalty rates are unreasonable simply because they are based on handset prices, holding that the district court’s conclusion had misinterpreted Federal Circuit law regarding “the patent rule of apportionment” and SSPPU. The panel further ruled that: “Regardless of the ‘reasonableness’ of Qualcomm’s royalty rates, the district court erred in finding that these royalties constitute an ‘artificial surcharge’ on rivals’ chip sales.” It rejected the contention that Qualcomm’s licensing amounted to a double dip, stating: “When Qualcomm licenses its SEPs to an OEM, those patent licenses have value… regardless of whether the OEM uses Qualcomm’s modem chips or chips manufactured and sold by one of Qualcomm’s rivals.”
Third, the panel held that no “cogent theory of anticompetitive harm” had been articulated with respect to Qualcomm’s ‘no licence, no chips’ policy. It concluded that even if it were to conclude that the policy “raises the ‘all in’ price that an OEM must pay for modem chips… [w]hether that all-in price is reasonable or unreasonable is an issue that sounds in patent law, not antitrust law”, holding that “neither the Sherman Act nor any other law prohibits companies like Qualcomm from (1) licensing their SEPs independently from their chip sales and collecting royalties, and/or (2) limiting their chip customer base to licensed OEMs”.
The panel’s decision aligns with views that had been expressed by other US regulators that antitrust liability should be deployed with care in addressing what are fundamentally patent and contractual disputes. For example, while the FTC pursued litigation against Qualcomm, other US agencies, including the Department of Justice, issued guidance dismissing the suggestion “that antitrust law is applicable to F/RAND disputes”. The DOJ also cautioned in a statement of interest filed in FTC v Qualcomm that the assertion of antitrust claims against FRAND licensors risks chilling innovation.
The panel’s decision followed recent authority upholding device-level licensing and dismissing the rigid application of SSPPU in FRAND and antitrust disputes. Specifically, the US District Court for the Eastern District of Texas recently concluded in HTC v Ericsson that: “Several independent sources confirm that the prevailing industry standard or approach has been to base FRAND licenses on the end-user device.” The Texas court ruled that ETSI’s FRAND commitment “does not require a FRAND license to be based on SSPPU” and, in a later ruling, found it to be an established fact that the cellular industry does not license using the modem chip as the royalty base.
In late September the FTC indicated that it would seek a rehearing en banc.
IEEE in the spotlight
The DOJ’s 2015 business review letter to the IEEE had analysed proposed revisions to the latter’s patent policy relating to SEP licensing and FRAND obligations that, among other things, would have made injunctions for SEP infringement essentially unavailable other than in narrow circumstances and would have capped FRAND royalties based on SSPPU. In its 2020 IEEE letter, the DOJ described its supplementation of the 2015 letter as an “extraordinary step”.
This, the DOJ said, was necessary to make clear that its 2015 IEEE letter did not endorse the IEEE’s 2015 policy. Of particular concern to the department was the fact that its 2015 letter had been proffered and interpreted as endorsing restrictions on injunctions and endorsing the use of SSPPU to cap royalties. The DOJ was also concerned that the 2015 IEEE letter did not adequately address the prospect of hold-out by implementers or the importance of preserving innovation incentives for SEP holders.
As to injunctions, the DOJ found that “concerns over hold-up”, which had been proffered as the reason to limit injunctions, “have largely dissipated”. It cited the Ninth Circuit’s recent warning, discussed above, that caution is warranted in “using the antitrust laws to remedy what are essentially contractual disputes”. It also cited its withdrawal of the 2013 Policy Statement on Remedies for Standards-Essential Patents, aimed at ensuring that injunctions for SEP infringement are available on equal footing with any other patents. The DOJ concluded: “Denying essential patent holders access to injunctive relief has the potential to lessen for inventors and thereby to harm incentives for innovation.”
As to SSPPU, the DOJ noted that capping FRAND royalties based on SSPPU was inconsistent with the law. It quoted a 2018 Federal Circuit decision that “emphasized that there are ‘a variety of ways’ parties might value patented technology”, including “using the accused [end product] as a royalty base”. It highlighted the Ninth Circuit’s recent decision, which “rejected the notion that not relying on [SSPPU] ‘exposes a firm to potential antitrust liability’”. Again quoting the Ninth Circuit’s recent opinion, the DOJ noted that: “No court has held that the SSPPU concept is a per se rule for ‘reasonable royalty’ calculations.”
The DOJ also relied on industry practice in forming its conclusion, citing the key observation that “real-world licenses often set royalties based on end-product revenue” and “[p]arties should not be discouraged from relying on these licenses – particularly since this sort of market-based evidence is often the most effective method of estimating an asserted patent’s value”. SSPPU, the DOJ stressed, is a tool to aid juries in evaluating damages in patent infringement cases, but “the rules for calculating damages need not be coextensive with the rules governing how sophisticated parties negotiate licenses”. Ultimately, the DOJ urged that “parties should be given flexibility to fashion licenses that reward and encourage innovation”.
Finally, the DOJ emphasised the need to address implementer hold-out to ensure adequate innovation incentives in standardised industries. It expressed regret that its 2015 IEEE letter focused on the risk of hold-up by patent holders without considering the possibility of hold-out by patent implementers or the policy’s effect on innovation incentives for patent holders. The department was concerned that “ignoring… incentives of implementers to ‘hold out,’ risks creating false positive errors of over-enforcement that would discourage valuable innovation”. “Hold out”, the DOJ said, “can significantly undermine innovation incentives… and deserves consideration in SDO licensing policies.”
Based on these considerations, the DOJ directed that “any SDO policy updates should encourage good-faith bilateral licensing negotiation by both patent holders and implementers”. It also specifically encouraged the IEEE to consider changes to its policy in view of “the important issues and potential harms identified in this Letter”. The DOJ noted the urgent need to ensure that any policy updates reflect “the interests of all stakeholders”. It articulated concern, based on its experience, that “a group of implementers working collectively may have both the motive and means to impose anticompetitive policies or rules that favor their interests to the detriment of others”. In conclusion, the department further encouraged the IEEE “to consider whether changes are needed to promote full participation, competition, and innovation in [its] standard setting activities”.
Avanci gets a boost
The DOJ’s 22-page Avanci business review letter includes welcome legal support for owners of SEPs that collaborate on licensing platforms. Subsequently, the US District Court for the Northern District of Texas dismissed a complaint brought by Continental against certain Avanci members alleging, among other things, that they violated antitrust laws.
In its Avanci letter, the DOJ evaluated Avanci’s proposed 5G platform under principles previously developed for patent pools since the pool operator aggregates complementary SEPs from various licensors. It concluded that the Avanci platform does not harm competition and therefore the DOJ has no intention to challenge it.
There are certain logical underpinnings of the DOJ’s letter that are highly significant. First, the department noted its favourable view of patent pools generally and specifically found that “the proposed 5G Platform may help to integrate emerging 5G technologies into vehicles faster, with less risk and less cost”. Second, it approved of the provision of point incentives to licensors because they are “intended to discourage hold out by licensees and assist with enforcement, which benefits both large and small licensors”. Third, consistent with the Ninth Circuit’s ruling in Qualcomm, the DOJ accepted that Avanci can seek to license end products rather than to suppliers of components that may also be infringing as it “understands that many cellular SEP holders choose to license at the end-device level for many of the same reasons, and thus, they may be more likely to join the Platform”. It also found that there is “no single correct way to calculate a reasonable royalty in the FRAND context”, rejecting the argument that licences must be offered for components. Also aligned with Qualcomm, the DOJ specifically rejected using the smallest saleable unit as the only royalty base for cellular licensing.
In litigation brought by Continental against Avanci, a US federal court reached similar conclusions in dismissing the auto supplier’s complaint. Continental challenged the Avanci platform for not licensing component makers and for allegedly charging supra-FRAND royalties by not using component pricing for the royalty base. The court held that Continental lacked antitrust standing because it failed to sufficiently plead an antitrust injury. It specifically noted that licence fees paid by the automotive makers were not plausibly alleged to have been passed on to Continental. “The anticompetitive conduct allegedly directed at the downstream OEMs does not create an antitrust injury for the upstream… suppliers, like Plaintiff.”
The court went on to conclude that even if Continental had standing, its antitrust allegations failed to state claims. As to Section 1, the court found that there was no restraint of trade under a rule of reason analysis since the Avanci platform did not preclude bilateral licences. As to Section 2, it disagreed that “alleged exclusion of competitors and maximizing of rates in the standard setting context constitutes anticompetitive conduct actionable under § 2 of the Sherman Act”. The court held that even if a licensor breaches its FRAND obligations by charging too high a rate, this is not sufficient anti-competitive conduct on which to base a Section 2 claim.
Along the way, the court positively and repeatedly cited the Ninth Circuit’s decision in Qualcomm. Quoting this, it concluded: “Defendants’ charging of ‘licensing royalties, and alleged harm to OEMs’ is a ‘distinct business practice’ from any conduct toward… component suppliers.” In ruling that Continental had failed to plead cognisable antitrust claims, the court, citing the Ninth Circuit’s decision, held that: “An SEP holder may choose to contractually limit its right to license the SEP through a FRAND obligation, but a violation of this contractual obligation is not an antitrust violation.” Crucially, the court also relied on Qualcomm, as well as a statement of interest from the DOJ, in noting the potential harm to innovation that could result in permitting antitrust liability for, what are in essence, contract claims. It stated that “the use of antitrust remedies to address an SEP holder’s contractual FRAND obligations may deter patent holders from seeking inclusion in the standard, thereby inhibiting the achievement of the procompetitive goals of the standard setting process”. It therefore expressed the need for caution “about using the antitrust laws to remedy what are essentially contractual disputes between private parties engaged in the pursuit of technological innovation”.
The United Kingdom has its say in Unwired Planet
The fine weather continued for SEP owners when the UK Supreme Court affirmed lower-court decisions on key FRAND issues in Unwired Planet. The ruling contains important legal rulings on SEPs/FRAND licensing and will cause both SEP holders and implementers to re-evaluate procedures and the appropriate forum for resolving contested FRAND licences. In addition to addressing a number of subsidiary and nuanced topics, the decision directly tackles five key legal questions, which can be simply recited (see Table 1).
These holdings were influenced by ETSI’s IP Rights Policy, which the court viewed as “contractual modifications to the general law of patents… designed to achieve a fair balance between the interests of SEP owners and implementers, by giving implementers access to the technology protected by SEPs and by giving the SEP owners fair rewards through the licence for the use of their monopoly rights”. They were also influenced by industry practice in negotiating licensing agreements. As the court put it; “SEP owners, which have a large portfolio of patents covering many countries, and implementers, which market their products in many countries, would as a matter of practice voluntarily negotiate worldwide licences, or at least licences from which a given territory is carved out while the rest of the world is licensed.”
The court also seemed persuaded that its approach avoided the “madness” of country-by-country resolution that would result if a willing licensor and willing licensee failed to negotiate a global licence. In such circumstances, “implementers who were infringing the patents would have an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties. It would not make economic sense for them to enter voluntarily into FRAND licences.” In another nod to industry practice, the court seemed to approve of the lower court’s use of comparable licences – “licences which parties engaged in the telecommunications industry had already agreed and operated”.
Another interesting point was made in the court’s discussion of a UK court’s inability to determine validity or infringement of foreign patents. It left open the possibility that an implementer could, in appropriate circumstances, ask that a licence include a reservation to challenge foreign patents (or some sample of them) in foreign courts. Whether such reservations are subsequently adopted in licences and whether implementers end up trying to reduce royalties by pursuing invalidity or non-infringement actions in jurisdictions outside the United Kingdom remains to be seen. If they do, the multiplicity of litigation could counteract the intended benefit of single-forum litigation that the court cited as a basis for awarding injunctive relief and could, at least potentially, decrease the perceived attractiveness of the United Kingdom as a venue for addressing SEP infringement.
SEP owners will also have to give serious thought to their appetite for potentially allowing one court to set a worldwide FRAND licence against a reluctant implementer. There may be circumstances where the patent owner may prefer to resolve the infringement and validity of certain patents and then seek a bilateral negotiation without further court intervention. Additionally, knowing that the UK courts are a public forum to address worldwide FRAND licensing, parties may give more consideration to arbitration to determine FRAND rates not only to keep their disputes private but also to have them decided by an arbitration panel that may have greater expertise in understanding FRAND and attendant SEP valuation matters.
Table 1 – Unpacking Unwired Planet
|Whether a UK court can:||Yes to both parts. The court relied on the European Telecommunications Standards Institute (ETSI) IP policy, which it found sought to balance the interests of SEP rights holders and implementers.|
|Whether the United Kingdom is an appropriate forum to determine those matters.||Yes. There was no proof that the offered alternative jurisdiction, China, would take jurisdiction over a worldwide FRAND dispute.|
|Whether the non-discriminatory language in the ETSI policy imposes a so-called ‘hard edged’ licensing requirement.||No. ‘Non-discriminatory’ does not mean that every licensee pays the same rate. ETSI had rejected a “most favoured licence” approach to setting royalty rates when it developed its IP policy. Rather, non-discrimination is part of a single, unitary obligation to license on FRAND terms.|
|Whether an owner of an infringed SEP should be categorically denied an injunction if it has not complied with the guidance given in the judgment of the CJEU in Huawei v ZTE.||No. The guidance in Huawei v ZTE establishes a safe harbour, but does not impose mandatory rules. Whether an SEP owner is abusing a dominant position will depend on the overall circumstances, drawing guidance from the Huawei v ZTE decision where appropriate.|
|Whether UK courts retain equitable jurisdiction to impose injunctions for continuing infringement of UK SEPs in the absence of agreement to enter a worldwide licence, given the possibility of damages as an alternative remedy.||Yes. There is nothing inequitable in requiring a party to take a FRAND licence to avoid an injunction. Damages would likely not be an adequate substitute for an injunction because, in absence of an injunction, the patentee would be required to undertake impractical and expensive country-by-country litigation.|
Germany sets the SEP trend
Astute observers might trace this fine weather back to Germany, where in July 2020 the country’s highest court, the Federal Court of Justice, issued its written decision in Sisvel’s ongoing SEP case against Haier (English translation available here). The court had previously issued a provisional oral ruling at a hearing in May 2020, where it tentatively ruled that implementer Haier had failed to comply with its FRAND obligation to demonstrate willingness to enter into a licence based on its conduct during licensing negotiations with SEP holder Sisvel. In its decision, the court rejected Haier’s defence that Sisvel did not offer FRAND terms and rejected the hard-edged interpretation of the non-discriminatory aspect of the FRAND requirement, recognising that FRAND does not mandate that all licensees get the same deal. The decision also sets a high bar for implementers to meet their FRAND obligation to be a willing licensee. Specifically, the court took aim at various hold-out and delay strategies, pointing out that an implementer must actively engage in licensing negotiations with the clear, distinct and unconditional intention of obtaining a licence on FRAND terms.
The litigation between Sisvel and Haier began in 2014, when Sisvel sued Haier in the Dusseldorf Regional Court, alleging that it had infringed two European patents essential to the GPRS/UMTS standards. In December 2015 the Dusseldorf court found that Haier had infringed Sisvel’s SEPs and had failed to respond to Sisvel’s licence offers during negotiations in a timely manner. On appeal in April 2017, the Dusseldorf Higher Regional Court affirmed the infringement ruling, but also determined that Sisvel had violated its FRAND obligation by granting discounts to an existing licensee – HiSense – that were not offered to Haier and that the resulting discriminatory pricing was non-FRAND and an abuse of Sisvel’s dominant position in the patent licensing market. As a result, the court ruled that while Sisvel was owed past damages for the infringement, it was not entitled to a going-forward injunction. Both parties appealed to the German Federal Court of Justice.
During the May 2020 hearing, the court announced a tentative judgment, which was later made final in its July 2020 written decision. The court confirmed that Sisvel’s patents were essential to the GPRS/UMTS standards and that Haier had infringed them. As to the FRAND decision, the court made a number of rulings that provide important clarifications concerning how implementers and SEP holders should approach licence negotiations.
First, the court emphasised that there is no strict formula for assessing whether counterparties have met their obligations during FRAND licensing discussions. The court identified the touchstone to FRAND compliance as willingness to identify FRAND-compliant terms and to work actively towards a FRAND agreement.
The court also explained that implementers may violate their FRAND obligations by not negotiating in good faith, by delaying negotiations or by rejecting offers that are objectively FRAND-compliant. The court emphasised that an implementer must work with the SEP holder and must clearly and expressly declare that it is willing to take a FRAND licence on whatever terms are in fact FRAND. In this case, the court ruled that Haier had breached its obligations because it did not express a willingness to enter into a licence agreement on FRAND terms. The court also ruled that Haier’s behaviour had unduly delayed negotiations. Haier’s delay and the evidence that it refused to engage in good-faith FRAND discussions demonstrated that it was not a willing FRAND licensee.
The court also explained that an SEP owner may violate its FRAND obligations by not accepting an implementer’s FRAND offer or by failing to provide sufficient information to the potential licensee that would allow it to assess whether the SEP owner’s offer complies with FRAND or to make a determination as to what terms would yield a counter-offer that is FRAND-compliant. It ruled that claim charts are regularly sufficient but not essential for an SEP owner to meet this obligation. In this case, the court ruled, Sisvel met its FRAND obligations by identifying the infringed patents and infringing articles, specifying the relevant standard and making a FRAND offer.
Finally, the court rejected Haier’s theory that Sisvel’s licence to HiSense showed that its offer to Haier was discriminatory and thus non-FRAND. It distinguished the HiSense licence on the basis that HiSense is a Chinese state-owned entity able to exert stronger leverage during negotiations and thus can secure more favourable terms than would have resulted from ordinary arms-length negotiations. In doing so, it made clear that SEP owners are not obligated to offer identical conditions to all implementers or prospective licensees in order to comply with FRAND requirements. In so doing, the court recognised that the business realities of patent licensing demand that not every prior licence serves as a model for the next, but rather that it simply reflects the best terms at the time and under those specific circumstances.
Therefore, terms and conditions may differ across FRAND licensees, provided that this does not harm competition between similarly situated licensees.
Consistent with the Court of Justice for the European Union’s (CJEU) decision in Huawei v ZTE, the German Federal Court of Justice confirmed that an SEP owner is not necessarily precluded from seeking an injunction against an implementer. Rather, whether an injunction would be appropriate relief depends on how the SEP holder and the implementer have conducted their FRAND negotiations and where, as here, the implementer does not comply with its FRAND obligation as a willing licensee, the SEP owner is free to seek an injunction against that party.
China flexes its muscles
Following these important FRAND developments in the United States, United Kingdom and Germany, other jurisdictions will likely weigh in, ensuring that the global landscape for resolving FRAND disputes continues to evolve. Courts in other countries might follow the Unwired Planet decision and provide additional forums for determining worldwide FRAND rights. Or they could look to enjoin parties litigating in their country from seeking such worldwide resolution in the United Kingdom or from enforcing injunctions obtained abroad.
The anti-suit injunction is a potentially powerful procedural and strategic tool that companies can use to prevent a foreign court from initiating actions to resolve global FRAND disputes. And attempts to seek anti-suit injunctions are only likely to increase following the UK Supreme Court’s Unwired Planet ruling affirming the jurisdiction of UK courts to require agreement to a worldwide FRAND licence as a condition for a party to avoid an injunction.
A September decision issued by the People’s Supreme Court in China, for example, granted Huawei’s request to enjoin Conversant from enforcing an injunction that it obtained in Germany. The Chinese court held that it has the power to enjoin parties from foreign actions that undermine legal proceedings in China. It maintained that an injunction against Huawei in Germany would force it to settle its worldwide disputes at an amount 18.3 times greater than the rate determined by the Chinese courts.
This may lay the groundwork for future injunctions against parties seeking worldwide FRAND rate determinations in the United Kingdom (or elsewhere) if they have parallel litigation in China concerning the same portfolio of SEPs.
All in all, it has been a summer of fine weather and additional clarity for SEP owners. Forecasters can only hope that the skies remain clear.
The 2020 Olympics may have been delayed but its place was filled by a global competition for most significant FRAND/SEP decision. Here were the key events:
- The US Ninth Circuit Court of Appeals gave a victory to licensors who prefer to license end products over component by reversing a lower court that had found Qualcomm had an antitrust duty to license component makers.
- The US DOJ echoed the pro-patentee squall by:
- supplementing its prior 2015 IEEE letter to advise against forcing SEP owners to license only the smallest saleable unit and limiting injunctions; and
- stating that it would not challenge the Avanci licensing platform’s focus on licensing end products.
- In a long-awaited decision, the UK Supreme Court tagged in with its affirmance of UK courts’ power to force licensees to accept a global FRAND licence, with terms dictated by the court, or face an injunction for their products in the United Kingdom.
- Not to be left out of the summer fun, the German Federal Court of Justice rejected a hard-edged non-discrimination requirement and set a high bar for implementers to meet their FRAND obligation to be deemed a willing licensee, further opening the door for injunctions based on SEPs in Germany.
- We will have to see how this plays out with the People’s Supreme Court in China also flexing its muscle in a recent decision that finds it has power to enjoin parties from foreign actions that undermine legal proceedings in China.