Unwired Planet v Huawei – essentially fair?

The lengthy, long-awaited judgment in Unwired Planet v Huawei Technologies provides guidance on the determination of fair, reasonable and non-discriminatory (FRAND) royalty rates for standard-essential patents on a worldwide basis. This report sets out a summary of the key conclusions.

Unwired Planet asserted six of its European patents against various mobile phone and infrastructure manufacturers in the United Kingdom. Five of the patents were acquired from Ericsson and the sixth patent arose from work done by Unwired Planet. The five patents acquired from Ericsson were declared as being standard-essential patents. Of the six patents, four were heard at technical trials, and two of these were found to be valid, infringed by Huawei and Samsung, and deemed to be essential to relevant 2G, 3G and 4G standards. The remaining two technical trials were adjourned. Since then, Samsung settled (for further details please see "Patents Court rules in third technical Unwired Planet trial" and "Court battle over Unwired Planet patents continues").

In relation to the determination of FRAND royalties, Mr Justice Birss has now concluded as follows:

• An appropriate way to determine a FRAND royalty is to determine a benchmark rate which is governed by the value of the patentee’s portfolio, and will be fair, reasonable and generally non-discriminatory.
• The rate does not vary depending on the size of the licensee.
• Small new entrants should pay a royalty based on the same benchmark as established large entities.
• The non-discrimination limb of FRAND does not consist of a further 'hard-edged' component which would justify a licensee demanding a lower rate than the benchmark rate because that lower rate had in fact been given to a different but similarly situated licensee. If FRAND does include such a component, that obligation would apply only if the difference would distort competition between the two licensees.
• A FRAND rate can be determined by using comparable licences if they are available.
• Freely negotiated licences are relevant evidence of what may be FRAND.
• A top-down approach can also be used in which the rate is set by determining the patentee’s share of relevant standard-essential patents and applying that to the total aggregate royalty for a standard, but this may be more useful as a crosscheck.
• In assessing a FRAND rate, counting patents is inevitable.

The judge has also confirmed that:

• the issue of FRAND is justiciable in an English court and enforceable in that court;
• it is not necessary to rely on competition law to enforce the FRAND undertaking;
• the boundaries of FRAND and competition law are not the same – a rate may be above the FRAND rate but not contrary to competition law;
• there is only one set of licence terms which are FRAND in a given set of circumstances; and
• an implementer who refuses to take a licence on terms found by the court to be FRAND has chosen to have no licence, and so if they have been found to infringe a valid patent, an injunction can be granted against them.

In terms of the facts of the case and the consequences for Huawei, it was noted that the terms of a worldwide licence had been proposed by Unwired Planet and the judge confirmed that these were indeed FRAND compliant. So far, Huawei has agreed to such terms on a UK-only basis and has refused to take a worldwide licence. The judge has indicated that it is FRAND compliant for Unwired Planet to insist on a worldwide licence. However, while this means that Huawei is presently unlicensed, the judge decided not to injunct Huawei immediately. A final injunction will now be considered at a further hearing once Unwired Planet has drawn up a full set of the terms of the worldwide licence and served this on Huawei. If Huawei still refuses to agree to these terms, the judge will also have to consider whether damages for past infringements should be awarded and in this regard he has indicated that, to the extent damages should be awarded, they will be at the same rate as the appropriate FRAND rate.

In summary, the judge has provided strong guidance on how worldwide FRAND royalty rates should be determined. This should afford some useful and long-awaited guidance to parties involved in licensing standard-essential patents as to how royalty rates should be determined, and in future how a UK court will view disputes involving standard-essential patents and licence rate determination.