In the fourth and final day of the landmark UK Supreme Court Unwired Planet v Huawei and Conversant v Huawei and ZTE appeals, the respondents (Unwired Planet/Conversant) concluded their submissions. They sought to rebut the appellants’ (Huawei/ZTE) submissions about the inappropriate nature of the relief granted by Birss J in Unwired Planet and rejected the suggestion that the English Court should not entertain global FRAND claims under ‘forum conveniens’ jurisdictional principles. They also expanded on their contention that the ND limb of the FRAND requirement is a contextual rather than hard-edged obligation that needs to be applied in light of all of the circumstances.
Following the respondents’ submissions, ZTE used its closing submissions to develop the point that the pursuit of an injunction in circumstances that are not FRAND may be in breach of the SEP-holder’s ETSI undertaking. ZTE then went on to emphasise that the grant of a global licence by the English Court upon threat of an injunction infringes the right of other nations to determine matters within their own territories (especially where the nexus with the UK is said to be minimal). ZTE concluded with the rhetorical statement that it is up to the English Court to decide whether it wants to shift the balance in the patent system towards NPEs (such as the appellants) by allowing them to demand royalties in the UK in respect of foreign patents, the validity of which is not justiciable before the English Court.
Huawei’s closing submissions were forceful and ‘big picture’ in nature. They emphasised what they called the “absurdity” of the respondents asking the courts of a jurisdiction where the appellants have relatively negligible sales, to set a global licence covering China (the jurisdiction where the majority of the appellants’ sales take place), while simultaneously not being prepared to sue in China to vindicate their alleged property rights, nor have them valued by Chinese courts. Huawei similarly sought to draw attention to what it alleges is the ultimate business model of NPEs like the respondents, i.e., to leverage the injunctive powers of the English Court to obtain enormous financial returns in respect of untested portfolios of largely foreign patents on the back of infringement of potentially a single infringed UK patent, noting that Unwired Planet has subsequently commenced a multi-billion-dollar claim against another large implementer on a similar basis. In his concluding remarks, Lord Reed (the Deputy President and soon-to-be President of the Court) noted that it may take some time for the Court to consider the parties’ submissions and write a judgment. This suggests that the Court may not deliver its decision in the near-term, and in all likelihood not before (hopefully early) 2020.
The main submissions made by the respondents were:
- They referred to further court decisions, such as Philips v Asus (NL) and Samsung v Huawei (CN), in support of the contention that the direction of travel of FRAND principles and authorities is consistent with the decision of Birss J in Unwired Planet as regards the availability of injunctive relief. The respondents submitted that implementers are entitled to reserve the right to challenge patents after entering into a licence agreement, but not beforehand. Indeed the respondents noted that in the latter case, when Huawei was in the position of seeking to assert its patents, it advocated in favour of injunctive relief.
- On the matter of jurisdiction, the respondents emphasised that the ‘forum conveniens’ principle of jurisdiction is about ensuring a claimant brings its claim (if it so chooses) in an appropriate forum, rather than about restricting which claims a claimant may bring. They further contended that the appellants want to prevent them from enforcing their patents outside of China, and want to limit the forums in which SEP-holders can bring proceedings.
- They stated that the appellants were attempting to characterise the claims in the proceedings in a manner that over-generalises them in order to bolster their jurisdictional arguments.
- The non-discrimination limb of FRAND must be considered in light of the overall context, along with all other relevant factors including fairness and reasonableness, and through a competition law lens. Moreover, licensing conduct is more likely to be considered discriminatory where it is liable to result in market distortions.
- The non-discrimination limb is not meant to operate as a ‘Most Favoured Nation’-type obligation, and the fact that a party chooses to licence its SEPs below a FRAND rate, or below their true market value, does not mean that the portfolio must thereafter be licensed at the same, sub-FRAND rate.
- Failure to comply with the CJEU’s Huawei v ZTE framework/guidelines does not necessarily mean that a party will have failed to comply with its FRAND obligations. Rather, this framework provides a basis for ensuring that a party complies with its FRAND negotiation obligations.
ZTE made the following key submissions in closing:
- If the Court is convinced by Huawei’s position that the English Court lacks jurisdiction, then that decision will apply to ZTE as well, and this remains its preferred outcome. However, on a secondary basis, it has put forward its own case on jurisdiction, which (as can be observed from the Day 2 summary) is more nuanced and contingent in its operation.
- The decision of the English Court to grant a global licence in the circumstances, and at threat of a UK-wide injunction, infringes the rights of other nations to determine matters within their own territories, such that it is not merely a question of private rights at stake, but also comity between national courts. ZTE also repeated its contention that Conversant wants the rate for the relevant Chinese patents to be set by the English Court, even if the rates set would breach Chinese law. Moreover, the effect of the English Court setting Chinese rates would be to move the market price away from where it would be under Chinese law.
- In seeking for the English Court to set a global FRAND rate, the respondents are proposing a system for the resolution of FRAND disputes that does not reflect market practice. This is because in the market, SEP-holders typically commence patent infringement ‘test cases’ in a number of jurisdictions before progressing their licensing negotiations. Accordingly, by allowing the SEP-holders to immediately obtain a global licence, the English Court is improperly granting them something that they would not be able to obtain if they were negotiating consensually in the real world.
- Conversant has chosen to sue ZTE in the UK (notwithstanding that its UK sales are negligible in the context of its global business), because in light of the Unwired Planet decision, it is a highly favourable jurisdiction for NPEs. ZTE concluded its submissions by querying whether Conversant has provided any justification for the English Court to shift the balance in FRAND matters away from implementers and towards NPEs.
Huawei's closing submissions were as follows:
- What is ultimately happening in the case is that the respondents, both NPEs, have sought to obtain a global licence from the English Court in respect of a patent portfolio consisting mostly of foreign patents, rather than in China, notwithstanding that the vast majority of Huawei’s sales are in China and only a very small proportion are made in the UK. Moreover, they have refused to bring proceedings in China where key disputed IP rights were granted, and similarly seek to avoid the valuation of these patents by Chinese courts.
- Huawei was also keen to emphasise that — contrary to the suggestion by the respondents that it is somehow a ‘free-rider’ while the respondents are innovators — the respondents are in fact NPEs while Huawei makes substantial investments in R&D and is a significant contributor to standards around the world.
- The appropriate remedy in the circumstances would be damages in respect of UK infringement rather than a global royalty. This is on the basis that the Respondents’ UK rights are the only rights in respect of which the English Court has jurisdiction (in circumstances where the validity of foreign rights is contested), and that injunctive relief should not be granted in the UK in support of these foreign rights.
- Contrary to the suggestion of the respondents, the decision by the English Court to grant a global licence in respect of foreign patents does impinge on the validity of those patents, and also offends notions of comity and public policy. The idea that a party might be ordered to pay hundreds of millions of dollars in England for rights which they dispute but which cannot be disputed in England was characterised as absurd.
- Courts in different jurisdictions approach questions of portfolio valuation differently, and there can be significant institutional differences between them, such that the English Court should not impose its particular approach for calculations onto other jurisdictions.
- Contrary to the impression the respondents sought to paint through their reference to foreign cases, no court anywhere in the world other than the English Court has set a FRAND rate on a global basis. The decisions raised by the respondents (such as Apple v Motorola (US) and Microsoft v Motorola (US)) are not relevant or are clearly distinguishable.
Comments from the Bench
Lord Reed: In an exchange with counsel for the respondents, he questioned whether one of the respondents, Unwired Planet, had sought an injunction in its initial claim or whether this occurred by way of a pleading amendment. This point appeared to relate to the issue of forum conveniens, and whether that respondent’s claim has been consistently characterised in the same way throughout.
Lord Hodge: During Huawei’s closing submissions, he drew attention to the suggestion that the initial patent holder often received a percentage of any royalties obtained by the NPE to which its patents are subsequently sold. At a later point, he also commented that while patent courts can and do look at decisions in other courts in respect of related patents, courts in different jurisdictions may in fact come to different conclusions in respect of patent relatives of the same families.
Lady Black: In relation to the ‘roaming’ example put forward by the respondents whereby a device may be infringing in some jurisdictions where a licence is obtained on a jurisdiction-by-jurisdiction basis, she queried whether a SEP holder might theoretically seek to target the device owners (consumers) themselves. Counsel for the Respondents replied that patent actions are normally brought against entities higher up in the supply chain, and that detecting infringement by and commencing enforcement action against individuals is ‘totally impractical’, which is not to say that their conduct is necessarily lawful.
Lord Briggs: In the course of Huawei’s closing submissions, he commented that patent families relate to the same invention. Counsel for Huawei then clarified that while patent relatives may be in respect of the same invention, this does not necessarily mean they are in all respects the same, nor that their validity status will nevertheless be the same in each jurisdiction. Shortly thereafter, Lord Briggs observed that in the UK Supreme Court’s decision in Warner-Lambert v Actavis, different validity outcomes were observed in different European jurisdictions on the basis of the same European patent.
It is difficult to predict the likely decision of the UK Supreme Court in these appeals. Both the appellants and the respondents raised arguments that have at their heart the tension between the territoriality of patent rights and national courts as against the international nature of standards, licensing arrangements and supply chains. If affirmed, the decisions are likely to cement the UK’s status as a hub for SEP/FRAND litigation, where the royalty rates awarded have historically been much higher than those in other jurisdictions. If the English Court decides to continue granting FRAND injunctions unless implementers take a global licence, we may see some implementers make the choice to take the injunction and withdraw from the UK market, on the basis that incurring the cost of doing so may nevertheless be preferable to paying royalties pursuant to a global licence granted by the English Court (at higher rates than other jurisdictions). We recently saw exactly this happen — the Taiwanese networking device manufacturer Zyxel decided to waive its right to a RAND licence and take the injunction instead. Conversely, if the decisions on appeal are overturned, there is likely to be a shift away from SEP/FRAND litigation in the UK towards other markets, with likely a renewed focus on disputes focusing on key markets or regions but with no single forum prepared to determine global FRAND without the consent of both parties.
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