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Patents: multiple FRAND terms possible, says UK court

It is possible for more than one set of proposed licensing terms for standard-essential patents (SEPs) to be fair, reasonable and non-discriminatory (FRAND), the Court of Appeal in London has said.24 Oct 2018

According to the court, in some circumstances competing offers from rights holders and prospective licensees to licence SEPs could both be FRAND, including potentially where the difference is over whether the licence terms should apply globally or are specific to an individual country.

The Court of Appeal confirmed the point in a landmark ruling in which it backed a SEP rights holder's right to require a user of its patents to enter into a licensing agreement with global effect.

"Patent licences are complex and, having regard to the commercial priorities of the participating undertakings and the experience and preferences of the individuals involved, may be structured in different ways in terms of, for example, the particular contracting parties, the rights to be included in the licence, the geographical scope of the licence, the products to be licensed, royalty rates and how they are to be assessed, and payment terms," the Court of Appeal said. "Further, concepts such as fairness and reasonableness do not sit easily with such a rigid approach."

"In our judgment it is unreal to suggest that two parties, acting fairly and reasonably, will necessarily arrive at precisely the same set of licence terms as two other parties, also acting fairly and reasonably and faced with the same set of circumstances. To the contrary, the reality is that a number of sets of terms may all be fair and reasonable in a given set of circumstances," it said.

The Court of Appeal said that, in the event that there are two or more sets of licensing terms found to constitute FRAND, it is open to the rights holder to select the terms it prefers to offer.

"If the SEP owner and prospective licensee cannot agree upon the terms and royalty rates of a FRAND licence and the question of what is FRAND falls to be decided by a tribunal, whether a court or an arbitrator, then the tribunal will normally declare one set of terms as FRAND and that will be the set of terms the SEP owner must offer to the prospective licensee," the court said. "If, however, the outcome of the proceedings is that two different sets of terms are each found to be FRAND then in our judgment the SEP owner will satisfy its obligation to ETSI if it offers either one of them. It will in that way be offering an irrevocable licence of its SEPs on FRAND terms."

ETSI is the European Telecommunications Standards Institute, one of a number of standard-setting organisations which works with companies to develop industry-standard technology. A SEP is a patent for technology that has been developed as industry standard and where it is impossible for other businesses to make products that adhere to that standard without using the patented technology. SEP owners will generally commit to licensing their SEPs to others on a FRAND, or RAND, basis as a condition of having their technology recognised as a standard.

In the case before the Court of Appeal, Chinese technology company Huawei challenged an earlier ruling in which it was issued with the world's first 'FRAND injunction'. The injunction, which has yet to become effective as a result of Huawei's appeal, bans Huawei from selling devices featuring wireless communications patents owned by Unwired Planet in the UK unless it accepts a worldwide licence to use those patents. Huawei was previously found to have infringed two of Unwired Planet's SEPs, which Unwired Planet had developed through ETSI.

Although Huawei has undertaken to enter into whatever licence is finally determined to be FRAND by the courts, the company argued before the Court of Appeal that it was "wrong in principle" for a national court to impose a global licence obligation on the basis of a national finding of infringement. It argued that doing so "leads to results which are manifestly unjust" and sought country-by-country licensing agreements with Unwired Planet, according to the Court of Appeal.

Huawei also claimed that the court should not impose different licensing rates on it as opposed to ones that Samsung licence has agreed to pay under the terms of its licence to use Unwired Planet's SEPs.

Huawei further argued that it had a defence to the grant of an injunction in this case because Unwired Planet had sued it "without giving any notice of which SEPs were said to be infringed or why, and without having made any [FRAND] licensing offer".

In its ruling, the Court of Appeal rejected Huawei's arguments. Although it held that it is possible for more than one set of FRAND terms for SEPs to exist, it said that it would have been "madness" to require Unwired Planet to agree to country-by-country licences with Huawei for use of its SEPs.

The Court of Appeal also rejected Huawei's claim that the FRAND terms set by the High Court in the case were not 'non-discriminatory' even though they require Huawei to pay a higher global royalty rate than Samsung does to use the same patents despite the two businesses being "similarly situated", as the High Court found.

The Court of Appeal found that the Huawei and Samsung terms were equivalent and comparable but said that "differential pricing is not per se objectionable".

"We consider that a non-discrimination rule has the potential to harm the technological development of standards if it has the effect of compelling the SEP owner to accept a level of compensation for the use of its invention which does not reflect the value of the licensed technology," the court said.

The court warned, though, that SEP holders that offer some licensees reduced royalty rates in comparison to others risk falling foul of EU competition laws if doing so causes competitive harm.

The Court of Appeal also dismissed Huawei's claims that it had a defence to the granting of a FRAND injunction against it under competition laws. That argument was based on an interpretation of a 2015 ruling by the Court of Justice of the EU (CJEU). The CJEU, in that ruling, set out conditions for SEP owners to follow to enforce their rights in SEPs without falling foul of EU competition laws.

The Court of Appeal ruled, though, that only one of the steps that the CJEU had set out was "mandatory" for SEP owners to follow to avoid infringing competition law when pursuing infringement action. It said SEP owners must give notice to or consult with an alleged infringer before bringing an action for a prohibitory injunction or for the recall of products against that company. 

The CJEU said in its ruling that SEP owners would not be held as abusing a dominant market position, in breach of competition laws, if it brought an action seeking an injunction against an alleged infringer of its SEPs if it had "alerted the alleged infringer of the infringement complained about by designating that patent and specifying the way in which it has been infringed", presented a written offer for a licence to a willing licensee, and then subsequently pursued an injunction if the alleged infringer had continued to use the patents in question and not "diligently responded" to the written offer.