The UK Supreme Court (UKSC) recently handed down its judgment in Unwired Planet v Huawei and Conversant Wireless v Huawei & ZTE. This is the end of the road for two long-running disputes in the English courts, settling questions of fundamental importance for the telecoms industry. The disputes both involved a conflict between the territorial nature of patents and the global nature of the telecoms standardisation system.
Background
The technical standards that underpin global telecommunication networks, such as 3G and 4G, are set by standards setting organisations. Members of these organisations (such as Cisco, Qualcomm, Nokia, Ericsson, Samsung, Huawei, or ZTE) participate in the standardisation process by submitting improvements to a public forum, and use the patent systems to receive a fair reward for their contributions. In practice, this involves filing patent application(s) prior to submitting proposals for improvements to a standard and then, if these proposals are approved, granting licences to the resulting patent(s) to telecoms vendors or ‘implementers’ who wish to sell equipment that complies with the standard. Because it is not possible to do so without infringing these patents, the patents are known as standard essential patents (SEPs).
Members of standards setting organisations are required to grant SEP licences on fair, reasonable and non-discriminatory (FRAND) terms. Patents have therefore become tokens representing respective contributions to standards to permit a fair flow of royalties.
In practice, the assessment of what is ‘fair’, ‘reasonable’, and ‘non-discriminatory’ is difficult, and this is where the courts can step in. In Unwired, Unwired Planet sought to enforce SEPs they had acquired from Ericsson against Huawei; similarly, in Conversant, Conversant sought to enforce SEPs they had acquired from Nokia against Huawei and ZTE.
Key issues
In Unwired, Huawei had argued the English courts were only permitted to set the terms of a licence for UK SEPs that have been found to be valid and infringed. The UKSC judgment confirms that English courts have the power to impose and set the terms for a global FRAND licence. If this licence is not accepted by an implementer, the courts can grant an injunction restraining the infringement of the UK SEPs.
In Conversant, Huawei and ZTE had argued the English courts were not a suitable forum for deciding on their dispute with Conversant, preferring instead the Chinese courts. The UKSC has now confirmed the English courts were in fact a suitable forum, agreeing with an earlier finding that “the Chinese courts do not, at present, have jurisdiction to determine the terms of a global FRAND licence, at least in the absence of agreement by all parties that they should do so”.
In Unwired, Huawei had argued Unwired Planet should have offered Huawei a licence that was as favourable as that which it had previously offered to Samsung. The UKSC confirmed the FRAND obligation merely requires there be “a single royalty price list available to all”, but does not prevent price discrimination such as providing a “first mover advantage” to the first implementer that takes a licence.
Impact
-
This judgment cements the English courts’ position as a key forum for patent litigation in the telecoms sector. SEP owners can avoid the need to negotiate licences and enforce their rights country-by-country, at great cost, and can instead call upon the English courts to set terms for a global FRAND licence. A win for SEP owners, therefore.
-
The concern for implementers, however, will be that English courts can set terms for licences that cover not only UK patents, but also foreign patents – even though English courts cannot rule on the validity or infringement of these foreign patents. The UKSC suggested that, to remedy this concern, implementers could “reserve the right to challenge those patents or a sample of those patents in the relevant foreign court and to require that the licence provide a mechanism to alter the royalty rates as a result”.
-
SEP owners and implementers, as well as telecoms vendors who often sit on both sides of the fence, will at least welcome the certainty this judgment now provides in this complex area of law. It remains to be seen, however, how courts in other jurisdictions react to England effectively pitching itself as a global royalty-setting forum.
-
With the advent of connected vehicles, eHealth and smart grids, ICT standards are becoming increasingly relevant beyond ICT industries. As a result, the impact of this judgment could be felt well beyond telecoms, in any industry that uses standardised technology.